1006-00006 · Client 1006 · Diligence/Environmental

environmental-risk-assessment-memorandum.docx DOCUMENT M&A / Corporate

17 / 39 ← → ✕

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Harrison Wexford, Partner, Calderwood & Harkness LLP Sandra K. Liu, General Counsel, Crestline Packaging Solutions LLC

FROM: Megan Chu, Associate, Calderwood & Harkness LLP Derek Okonkwo, Associate, Calderwood & Harkness LLP

DATE: May 28, 2025

RE: Environmental Risk Assessment — Acquisition of Substantially All Assets of Allegheny Valley Packaging, Inc. by Crestline Packaging Solutions LLC

MATTER NO.: 1006-00006

Right-click to update Table of Contents

I. EXECUTIVE SUMMARY

This memorandum summarizes the environmental risks identified in connection with the proposed acquisition by Crestline Packaging Solutions LLC ("CPS" or "Buyer") of substantially all of the assets of Allegheny Valley Packaging, Inc. ("AVP" or "Seller") for a purchase price of $180,000,000 (the "Transaction"). AVP is a Pennsylvania S-corporation headquartered in Butler, Pennsylvania. The Transaction is structured as an asset purchase and is governed by that certain Asset Purchase Agreement (the "APA"), currently in advanced draft form and expected to be executed in June 2025, with an estimated Closing Date of July 31, 2025.

Environmental due diligence has been conducted by Greenvale Environmental Sciences LLC ("Greenvale"), under the direction of project lead Dr. Alicia Fernandez, whom CPS retained as its independent environmental consultant for purposes of the Transaction. Greenvale performed Phase I Environmental Site Assessments ("Phase I ESAs") at both of the properties to be acquired, and a Phase II Environmental Site Assessment ("Phase II ESA") at one of those properties where further investigation was warranted.

Two properties are under review in connection with the Transaction:

(1) Butler Plant — 250 Industrial Boulevard, Butler, PA 16001. This is a 285,000-square-foot manufacturing facility situated on approximately 22.5 acres. The property is owned by AVP and will be conveyed to CPS via Pennsylvania special warranty deed at closing. It serves as AVP's primary manufacturing facility.

(2) Meadville Plant — 1480 Conneaut Lake Road, Meadville, PA 16335. This is a 110,000-square-foot manufacturing facility situated on approximately 8.2 acres. The property is also owned by AVP and will be conveyed to CPS via Pennsylvania special warranty deed at closing. It serves as AVP's secondary manufacturing facility.

Key Findings. Greenvale identified one Recognized Environmental Condition ("REC") at the Butler property, involving historical solvent use and a disposal area located at the northeast corner of the site. A Phase II Environmental Site Assessment was subsequently conducted and confirmed the presence of trichloroethylene ("TCE") contamination in shallow groundwater at a concentration of 12 parts per billion ("ppb"), which exceeds the Pennsylvania Act 2 Medium-Specific Concentration ("MSC") standard of 5 ppb by a factor of 2.4. No RECs were identified at the Meadville property, and no Phase II ESA was recommended or conducted at that facility.

Remediation Cost Estimates. Based on the preliminary Phase II data and Greenvale's professional judgment, the estimated cost to remediate the TCE contamination at the Butler property ranges from $1,200,000 to $2,800,000. This range reflects uncertainty regarding the final extent of the groundwater plume, the selected remedial approach, the duration of active remediation and long-term monitoring, and the level of Pennsylvania Department of Environmental Protection ("PA DEP") involvement.

Contractual Protections. The APA, as currently drafted, includes several negotiated protections to allocate environmental risk. Chief among these is an $8,000,000 environmental special indemnity from Seller for pre-closing environmental conditions, which survives for 36 months from the Closing Date. The APA also provides for a 36-month survival period for environmental representations and warranties, which is substantially longer than the 18-month survival period applicable to general representations and warranties. The $9,000,000 escrow deposit (representing 5% of the Purchase Price), held by Atlantic Fiduciary Trust Company, provides a readily available source for indemnification claims, although the escrow period of 18 months is shorter than the 36-month environmental indemnity survival period.

R&W Insurance. Representations and warranties insurance coverage has been obtained from Northbridge Specialty Insurance Company (Policy No. NSW-2025-07812), with a coverage limit of $18,000,000. This policy provides an additional backstop for unknown environmental conditions, though the known Butler REC will almost certainly be excluded from coverage as a "known matter." The environmental exclusions in the policy must be carefully analyzed, and standalone Pollution Legal Liability ("PLL") insurance should be evaluated as a supplemental risk mitigation measure.

Permit Transfers. Environmental permit transfer and re-issuance requirements exist at both facilities, including the PA DEP Title V Operating Permit at the Butler Plant and the PA DEP General Permit GP-3 at the Meadville Plant. These transfers are administrative in nature and are not expected to present material obstacles to closing or post-closing operations.

Overall Assessment. We assess the overall environmental risk level associated with the Transaction as moderate and manageable with the recommended contractual protections, insurance coverage, and post-closing remediation actions described herein. We recommend certain additional protections, including an extended environmental escrow and evaluation of a standalone PLL policy, as described in detail in Section IX of this memorandum.

II. SCOPE OF ENVIRONMENTAL DILIGENCE

A. Diligence Materials Reviewed

In preparing this memorandum, we reviewed the following materials and information sources in connection with our assessment of the environmental risks associated with the Transaction:

1. Phase I Environmental Site Assessment — Butler Property, prepared by Greenvale Environmental Sciences LLC in accordance with ASTM E1527-21, delivered May 5, 2025.

2. Phase I Environmental Site Assessment — Meadville Property, prepared by Greenvale Environmental Sciences LLC in accordance with ASTM E1527-21, delivered May 5, 2025.

3. Phase II Environmental Site Assessment — Butler Property, commenced May 12, 2025 by Greenvale Environmental Sciences LLC in accordance with ASTM E1903-19. Preliminary analytical results have been received and reviewed; the final Phase II report remains pending as of the date of this memorandum.

4. AVP Environmental Permit Files and Regulatory Correspondence, including correspondence with the Pennsylvania Department of Environmental Protection ("PA DEP") regarding air emissions, stormwater management, and hazardous waste generator status at both the Butler and Meadville facilities.

5. PA DEP Title V Operating Permit No. TV-10-00287 — the operating air emissions permit for the Butler facility, including all amendments, modifications, and compliance certifications on file.

6. PA DEP General Permit GP-3 — the general air emissions permit applicable to the Meadville facility.

7. AVP Internal Environmental Compliance Records and Historical Waste Manifests, as made available in the virtual data room established by Seller in connection with the Transaction (Data Room Index: Environmental, Folders E-001 through E-047).

8. Seller's Disclosure Schedules (environmental representations), as set forth in the most recent draft of the APA circulated on May 20, 2025.

9. Discussions with Diane L. Pulaski, Controller of AVP, conducted via telephone on May 9, 2025 and May 16, 2025, regarding financial aspects of environmental compliance expenditures and historical capital improvements at both facilities.

10. Discussions with Michael G. Horvath, Vice President of Operations of AVP, conducted in person during the site visit on May 10, 2025 and via telephone on May 18, 2025, regarding site history, historical chemical usage, waste management practices, and operational processes at both the Butler and Meadville facilities.

We note that our review is limited to the materials listed above and the information provided by Seller, Greenvale, and the other sources identified herein. We have not independently verified the completeness or accuracy of the information provided by Seller or its personnel. The conclusions in this memorandum are based upon currently available information and may require revision upon receipt of the final Phase II ESA report and any additional information that becomes available prior to closing.

B. Properties Assessed

1. Butler Plant.

The Butler Plant is AVP's principal manufacturing facility and represents the largest and most operationally significant asset to be acquired in the Transaction. The facility encompasses multiple production lines for corrugated container manufacturing, folding carton production, and specialty packaging applications, including chemical-resistant coatings and food-grade packaging materials. The facility has been in continuous operation since the mid-1960s and has undergone several expansions and modernizations over its operational history. The property includes the main manufacturing building, a separate warehouse structure, administrative offices, a maintenance shop, and various ancillary structures. The site is bordered to the north and east by undeveloped wooded land, to the south by Industrial Boulevard and commercial properties, and to the west by additional industrial parcels.

2. Meadville Plant.

The Meadville Plant serves as AVP's secondary manufacturing facility and supports overflow production and certain specialized packaging lines. The facility was purpose-built in the late 1990s as a modern packaging manufacturing plant and has a relatively straightforward operational and environmental history. The site is bordered by commercial and light industrial properties and is served by municipal utilities, including public water and sewer.

C. Environmental Consultant

CPS retained Greenvale Environmental Sciences LLC ("Greenvale") as its independent environmental consultant in connection with the Transaction. Greenvale is a nationally recognized environmental consulting firm with extensive experience in transactional environmental due diligence and environmental site assessments for mergers and acquisitions.

Greenvale's engagement was structured to satisfy the "all appropriate inquiries" requirements under CERCLA Section 101(35)(B) and EPA's All Appropriate Inquiries Rule (40 C.F.R. Part 312), thereby supporting CPS's potential defenses as an innocent landowner or bona fide prospective purchaser under CERCLA, should such defenses become relevant post-closing.

III. PHASE I ESA FINDINGS

A. Butler Property — Phase I ESA

The Phase I ESA for the Butler property was completed and delivered by Greenvale on May 5, 2025. The assessment was conducted in accordance with ASTM E1527-21 and included a review of historical records, regulatory databases, aerial photographs, topographic maps, city directories, Trelwick fire insurance maps, interviews with site personnel and local officials, and a site reconnaissance visit conducted on April 28, 2025. The following summarizes the key findings.

1. Recognized Environmental Condition (REC). Greenvale identified one Recognized Environmental Condition at the Butler property. As defined by ASTM E1527-21, a REC is the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (i) due to a release to the environment; (ii) under conditions indicative of a release to the environment; or (iii) under conditions that pose a material threat of a future release to the environment.

The identified REC involves a historical solvent use and disposal area located at the northeast corner of the 22.5-acre Butler property. The basis for this finding is as follows:

Historical Solvent Use. Based on a review of historical records, employee interviews, and operational documentation, Greenvale determined that chlorinated solvents, including trichloroethylene ("TCE"), were used in degreasing operations at the Butler facility during the period from approximately the early 1970s through the early 1990s. TCE was commonly used in the packaging and printing industry during this era as a solvent for cleaning printing equipment, degreasing metal components, and removing ink and coating residues. According to Michael G. Horvath, VP Operations, the facility transitioned away from chlorinated solvent use in the early to mid-1990s as part of a broader industry shift toward water-based and less toxic alternative cleaning agents. Current operations at the Butler facility predominantly utilize water-based inks and coatings, with limited use of solvent-based specialty coatings in a controlled area equipped with proper secondary containment.

Evidence of Disposal Area. Through a review of aerial photographs spanning the period from 1965 through the present, Greenvale identified what appeared to be an informal disposal or staging area at the northeast corner of the Butler property. Aerial photographs from approximately 1978 through 1985 show evidence of drums, waste materials, and disturbed ground in this area. Interviews with Michael G. Horvath, who has been employed at the facility since 1988, confirmed that older employees had described this area as a location where waste solvents and other materials were historically stored and, in some cases, disposed of on-site. Mr. Horvath indicated that the area was reportedly graded and covered with gravel approximately 25 to 30 years ago (circa the mid-1990s), coinciding with the facility's transition away from chlorinated solvent use. However, no formal remediation, closure documentation, or environmental assessment of this area was conducted at that time, and no records of any soil or groundwater sampling in this area prior to Greenvale's Phase II investigation have been identified.

Phase II Recommendation. Based on the identified REC, Greenvale recommended that a Phase II Environmental Site Assessment be conducted to characterize the nature and extent of potential soil and groundwater contamination at and around the former disposal area at the northeast corner of the property. This recommendation was accepted by CPS, and the Phase II ESA was commenced on May 12, 2025, as discussed in Section IV below.

2. Other Findings — Butler. Beyond the single REC described above, Greenvale's Phase I ESA for the Butler property yielded the following additional findings:

No Additional RECs, CRECs, or HRECs. No additional Recognized Environmental Conditions, Controlled Recognized Environmental Conditions ("CRECs"), or Historical Recognized Environmental Conditions ("HRECs") were identified at the Butler property. A CREC, as defined by ASTM E1527-21, is a recognized environmental condition resulting from a past release that has been addressed to the satisfaction of the applicable regulatory authority, with residual contamination allowed to remain in place subject to implementation of required controls. An HREC is a past release that has been addressed to the satisfaction of the applicable regulatory authority without any controls or activity and use limitations remaining in place. No such conditions were identified.

Environmental Database Review. Greenvale conducted a comprehensive environmental database search through Penrose Solutions ("EDR"), which covered federal and state regulatory databases including, among others, the EPA CERCLIS/SEMS database, the National Priorities List ("NPL"), the RCRA Corrective Action database, the PA Hazardous Sites Cleanup Act list, the PA Underground Storage Tank database, and various other state and federal listings. The Butler property was not identified on any active cleanup lists, enforcement action lists, or regulatory databases indicative of known contamination or environmental liability. Adjacent and nearby properties were similarly reviewed, and no conditions were identified on neighboring properties that would be expected to impact the Butler site.

Underground Storage Tanks. No underground storage tanks ("USTs") are currently located on the Butler property. Historical records indicate that USTs used for heating oil storage were present on the property and were removed in the early 2000s. Greenvale reviewed the closure documentation on file, including tank removal reports and confirmatory soil sampling results, and found that the tank removals were conducted in accordance with applicable PA DEP UST regulations and that no residual contamination was identified at the time of removal. Greenvale concluded that the historical USTs do not represent a REC, CREC, or HREC.

Current Chemical Use and Storage. Current operations at the Butler facility use predominantly water-based inks and coatings. A limited quantity of solvent-based specialty coatings is used in a controlled area within the main manufacturing building. This area is equipped with proper secondary containment (including concrete curbing, impervious flooring, and spill containment pallets) and is subject to routine inspection as part of AVP's environmental compliance program. Hazardous materials storage on-site is consistent with the facility's operations and appears to be managed in accordance with applicable federal and state regulations, including RCRA and the Pennsylvania Solid Waste Management Act. The facility maintains a hazardous waste generator status (EPA ID No. PAD003456789) as a small quantity generator under RCRA.

Stormwater Management. The Butler facility operates under a PA DEP NPDES General Permit for stormwater discharges associated with industrial activities. Greenvale reviewed the facility's Stormwater Pollution Prevention Plan ("SWPPP") and recent monitoring reports and found them to be generally consistent with permit requirements. No significant stormwater compliance issues were identified.

Asbestos and Lead-Based Paint. Given the original construction date of the Butler facility (circa 1965), asbestos-containing materials ("ACMs") and lead-based paint ("LBP") may be present in older portions of the building. An asbestos survey conducted by AVP in 2015 identified limited ACMs (primarily pipe insulation and floor tiles) in certain areas of the original building. These materials are reported to be in good condition and are managed under an asbestos operations and maintenance ("O&M") program. Greenvale noted the presence of these materials but did not identify them as RECs, as they are managed in place in accordance with applicable regulations. CPS should be aware of these conditions and maintain the existing O&M program post-closing. Lead-based paint was not specifically assessed in the Phase I ESA but may be present on older painted surfaces within the facility.

B. Meadville Property — Phase I ESA

The Phase I ESA for the Meadville property was completed and delivered by Greenvale on May 5, 2025. The assessment was conducted in accordance with ASTM E1527-21 and followed the same methodology as the Butler Phase I ESA, including historical records review, regulatory database search, aerial photograph and map review, interviews with site personnel, and a site reconnaissance visit conducted on April 29, 2025.

1. No RECs Identified. Greenvale concluded that no Recognized Environmental Conditions, Controlled Recognized Environmental Conditions, or Historical Recognized Environmental Conditions were identified at the Meadville property. The basis for this conclusion is summarized as follows:

Site History. The Meadville property has a relatively straightforward operational and environmental history. The facility was constructed in the late 1990s (circa 1998) as a purpose-built packaging manufacturing plant. Prior to construction of the current facility, the property was used for agricultural purposes (row crops and pasture). No industrial operations were conducted on the property prior to AVP's development of the site. The facility has been operated continuously by AVP since its construction and has not undergone significant changes in use or operations.

No Historical Solvent Use. There is no evidence that chlorinated solvents or other significant hazardous chemicals were used at the Meadville facility beyond materials consistent with current packaging manufacturing operations (i.e., water-based inks, coatings, adhesives, and minor quantities of cleaning solvents). The facility was designed and constructed during a period when the industry had largely transitioned away from chlorinated solvent use.

No Underground Storage Tanks. No underground storage tanks have been identified at the Meadville property, either currently or historically. The facility is heated by natural gas, and no on-site fuel storage is or has been present.

Chemical Storage. Chemical storage at the Meadville facility is limited to materials used in current manufacturing operations and is managed in accordance with applicable regulations. Secondary containment and proper storage practices were observed during the site reconnaissance.

Environmental Database Review. The EDR environmental database search for the Meadville property was clean. The property was not identified on any federal or state regulatory databases indicative of contamination, enforcement actions, or environmental liability. No off-site conditions on neighboring or nearby properties were identified that would be expected to impact the Meadville site.

Phase II Recommendation. Based on the absence of any RECs, CRECs, or HRECs, Greenvale did not recommend a Phase II Environmental Site Assessment for the Meadville property. We concur with this assessment.

IV. PHASE II ESA FINDINGS — BUTLER PROPERTY

A. Scope of Phase II Investigation

Following Greenvale's identification of the REC at the northeast corner of the Butler property in the Phase I ESA, CPS authorized Greenvale to proceed with a Phase II Environmental Site Assessment at the Butler property. The Phase II ESA was commenced on May 12, 2025 and is being conducted in accordance with ASTM E1903-19 (Standard Practice for Environmental Site Assessments: Phase II Environmental Site Assessment Process).

The scope of the Phase II investigation is focused on the northeast corner disposal area identified in the Phase I ESA and includes the following activities:

(a) Advancement of soil borings at multiple locations across the northeast quadrant of the property and in downgradient areas, to depths of approximately 20 to 30 feet below ground surface, to characterize subsurface soil conditions and delineate the potential extent of contamination.

(b) Installation of temporary and permanent groundwater monitoring wells to assess groundwater quality and to characterize the nature and extent of any dissolved-phase contamination in the shallow aquifer beneath and downgradient of the former disposal area.

(d) Collection and laboratory analysis of groundwater samples from all monitoring wells.

(e) Analysis of soil and groundwater samples for volatile organic compounds ("VOCs"), with a particular focus on chlorinated solvents, including trichloroethylene ("TCE"), tetrachloroethylene (perchloroethylene or "PCE"), cis-1,2-dichloroethylene ("cis-1,2-DCE"), trans-1,2-dichloroethylene, and vinyl chloride. These compounds represent the parent chlorinated solvents historically used at the facility and their common degradation products.

(f) Evaluation of local hydrogeological conditions, including groundwater flow direction, gradient, and velocity, to assess the potential for contaminant migration.

Preliminary analytical results from the initial rounds of soil and groundwater sampling have been received by Greenvale and shared with the deal team. The final Phase II ESA report, including complete analytical data, plume delineation, risk assessment, and remediation cost estimates, remains pending as of the date of this memorandum. Greenvale anticipates delivery of the final report within approximately four to six weeks of the May 12, 2025 commencement date, i.e., by approximately late June 2025, which would be prior to the estimated Closing Date of July 31, 2025.

B. Preliminary Results

The preliminary results of the Phase II ESA are summarized below. These results are based on initial laboratory analyses and are subject to confirmation and refinement in the final Phase II report.

Soil. Preliminary soil sample results indicate limited residual solvent contamination in shallow soils (0 to 10 feet below ground surface) in the immediate vicinity of the former disposal area at the northeast corner of the property. The concentrations of TCE and related compounds detected in soil appear to be below the Pennsylvania Act 2 residential and non-residential MSC soil standards. This finding is consistent with the hypothesis that the primary contamination pathway is through dissolution and migration of solvents into groundwater, rather than widespread soil contamination. Final laboratory results for deeper soil intervals (10 to 30 feet below ground surface) are pending and will be reported in the final Phase II ESA report.

Groundwater — TCE. Trichloroethylene ("TCE") was detected in shallow groundwater at a concentration of 12 parts per billion ("ppb") in the monitoring well located closest to the former disposal area (designated MW-1 in Greenvale's field investigation). This finding is significant for the following reasons:

• The applicable regulatory standard for TCE in groundwater is the Pennsylvania Act 2 Medium-Specific Concentration ("MSC") standard of 5 ppb. This standard is consistent with the federal Maximum Contaminant Level ("MCL") for TCE under the Safe Drinking Water Act (42 U.S.C. § 300g-1) and EPA National Primary Drinking Water Regulations (40 C.F.R. § 141.61).

• The detected concentration of 12 ppb is 2.4 times the applicable standard, confirming the presence of TCE contamination in groundwater at levels that exceed regulatory thresholds and would require remedial action to achieve compliance with PA Act 2 standards.

• TCE is classified by EPA as a known human carcinogen and is associated with a range of adverse health effects, including liver damage, kidney damage, and neurological effects. Its presence in groundwater at concentrations exceeding regulatory standards is a recognized environmental and public health concern, although the actual risk to human health depends on exposure pathways, as discussed below.

Groundwater — Other VOCs. Preliminary results indicate trace levels of cis-1,2-dichloroethylene ("cis-1,2-DCE") — a common degradation product of TCE resulting from reductive dechlorination processes in the subsurface — in one monitoring well (MW-2). The concentration of cis-1,2-DCE was below the applicable PA Act 2 MSC standard. The presence of cis-1,2-DCE as a degradation product suggests that some degree of natural biodegradation of TCE is occurring in the subsurface, which is a potentially favorable indicator for remediation. No vinyl chloride — the final and most toxic degradation product in the reductive dechlorination sequence — was detected above laboratory reporting limits in any of the monitoring wells sampled to date. This is a positive finding, as vinyl chloride is more toxic than TCE and has a lower regulatory standard (2 ppb under PA Act 2).

Extent of Plume. Preliminary data from the monitoring well network suggest that the TCE groundwater plume is localized to the northeast portion of the Butler property. Specifically, downgradient monitoring wells installed at and near the property boundary (MW-3 through MW-5) showed either non-detect concentrations or concentrations below the PA Act 2 MSC standard for TCE. This preliminary finding suggests that the contaminant plume has not migrated off-site beyond the property boundary, which would significantly reduce the risk of third-party claims, regulatory enforcement actions, and the overall complexity and cost of remediation. However, final plume delineation results are pending, and Greenvale has indicated that additional monitoring wells and sampling may be necessary to fully characterize the downgradient extent of the plume.

Drinking Water. The Butler facility and the surrounding area are served by a public water supply (Butler Township municipal water system). The municipal water supply draws from a surface water source (Connoquenessing Creek watershed) and is treated at a municipal water treatment plant. Greenvale's investigation included a review of public water supply records and private well databases, and no private drinking water wells were identified within 1,000 feet of the Butler property. This finding is significant because it substantially reduces the immediate risk pathway for human exposure to the TCE contamination through ingestion of contaminated drinking water. The absence of private wells in the vicinity of the site also reduces the likelihood of third-party claims related to drinking water contamination.

C. Estimated Remediation Costs

Based on the preliminary Phase II data and Greenvale's professional judgment and experience with comparable TCE remediation projects in Pennsylvania, the estimated cost to remediate the TCE contamination at the Butler property is $1,200,000 to $2,800,000. This estimate encompasses investigation, remediation, regulatory compliance, and long-term monitoring costs and reflects the following key assumptions and uncertainties:

Factors Contributing to the Range of Estimates. The wide range reflects several areas of uncertainty that will be narrowed as the Phase II investigation is completed and a remedial approach is selected:

(a) Final Extent of Groundwater Plume. While preliminary data suggest the plume is localized to the northeast portion of the property, final delineation is pending. A more extensive plume than currently indicated would increase both the scope and cost of remediation.

(b) Selected Remedial Approach. Multiple remedial technologies are potentially applicable to the site, each with different cost profiles. Options include:

(i) In-situ chemical oxidation ("ISCO") — injection of chemical oxidants (e.g., permanganate, persulfate) into the subsurface to destroy TCE in place. This approach can be relatively cost-effective for localized plumes but may require multiple injection events.

(ii) Enhanced bioremediation — injection of substrates to stimulate native microbial communities that degrade TCE through reductive dechlorination. The preliminary detection of cis-1,2-DCE suggests favorable conditions for this approach.

(iii) Monitored natural attenuation ("MNA") — reliance on natural processes to reduce TCE concentrations over time, with regular groundwater monitoring to track progress. This is the least expensive active approach but requires the longest timeframe and may not be acceptable to PA DEP as a standalone remedy given the current exceedance of the MSC standard.

(iv) A combination of active treatment and MNA — initial active treatment (ISCO or bioremediation) to reduce concentrations, followed by MNA and long-term monitoring to achieve and document compliance with regulatory standards. This combined approach is commonly used and may represent the most practical and cost-effective strategy.

(c) Duration of Active Remediation and Long-Term Monitoring. Depending on the selected approach, active remediation could span 1 to 5 years, with long-term monitoring potentially extending for an additional 3 to 10 years.

(d) PA DEP Involvement. The level of PA DEP oversight and the specific requirements imposed by the agency will affect costs. If the site is enrolled in the PA Land Recycling and Environmental Remediation Standards Act (Act 2) voluntary cleanup program, the remediation framework and standards will be well defined, but PA DEP review and approval processes add time and cost.

Low-End Estimate ($1,200,000). The low end of the estimated range assumes a relatively contained plume that is amenable to in-situ treatment (one to two rounds of chemical oxidation or bioremediation injections), followed by limited long-term groundwater monitoring (quarterly for two years, then semi-annually for three years). This scenario assumes that the final Phase II results confirm the preliminary indication that the plume is localized and has not migrated off-site, and that PA DEP approves the selected remedial approach without significant modifications or additional requirements.

High-End Estimate ($2,800,000). The high end of the estimated range accounts for the possibility of a more extensive plume than currently indicated, requiring multi-phase treatment (multiple rounds of injections, possibly combining ISCO and bioremediation), potential implementation of institutional controls (e.g., deed restrictions, environmental covenants), vapor intrusion assessment and potential mitigation measures, and extended groundwater monitoring over a longer timeframe (up to 10 years). This scenario also accounts for higher PA DEP oversight costs and the possibility of encountering unexpected subsurface conditions that complicate remediation.

Timing of Final Estimate. Greenvale expects to finalize the Phase II report and refine the remediation cost estimate within approximately four to six weeks of the May 12, 2025 commencement of the Phase II investigation, i.e., by approximately late June 2025. This would be prior to the estimated Closing Date of July 31, 2025, allowing the deal team to reassess risk and contractual protections based on final data.

D. Regulatory Implications

The presence of TCE in groundwater at concentrations exceeding the PA Act 2 MSC standard triggers several regulatory considerations:

PA Act 2 Voluntary Cleanup Program. If active remediation is required, the Butler property would most likely be enrolled in the Pennsylvania Land Recycling and Environmental Remediation Standards Act ("Act 2") voluntary cleanup program. Act 2, codified at 35 P.S. §§ 6026.101–6026.908, provides a well-established framework for voluntary remediation of contaminated sites in Pennsylvania. The program allows the responsible party to select from among three cleanup standards: (i) background standards, (ii) statewide health-based standards (MSCs), or (iii) site-specific standards. Upon successful completion of remediation and receipt of a release of liability from PA DEP, the remediating party and subsequent property owners receive statutory liability protections under Act 2, which provide significant risk mitigation.

Current Regulatory Status. There is no evidence that the Butler property has been identified by PA DEP or the U.S. Environmental Protection Agency ("EPA") as a known contamination site. The property does not appear on the PA Hazardous Sites Cleanup Act list, the EPA CERCLIS/SEMS database, the National Priorities List, or any other federal or state regulatory listing indicative of known contamination. This is a favorable finding, as it suggests that regulatory authorities are not currently aware of the contamination and are not actively pursuing enforcement or cleanup at the site.

Responsible Party Liability. As the current owner and operator of the Butler facility, AVP is considered a "responsible person" under Pennsylvania environmental law for pre-closing contamination. Under CERCLA (42 U.S.C. § 9607), current owners and operators of a facility, as well as former owners and operators at the time of disposal, are potentially liable for response costs associated with releases of hazardous substances. Post-closing, CPS, as the new property owner, could potentially face CERCLA liability as a current owner, as well as successor or landowner liability under CERCLA and state analogs such as the Pennsylvania Hazardous Sites Cleanup Act ("HSCA"), 35 P.S. §§ 6020.101–6020.1305. These potential liabilities underscore the critical importance of the contractual indemnification protections discussed in Section VI of this memorandum, as well as CPS's compliance with the "all appropriate inquiries" requirements to preserve potential innocent landowner and bona fide prospective purchaser defenses under CERCLA.

Notification Requirements. Depending on the final Phase II results and whether a release of a reportable quantity of a hazardous substance is confirmed, PA DEP notification may be required under applicable state regulations. Greenvale and counsel should evaluate the notification requirements upon receipt of the final Phase II report and advise accordingly.

V. ENVIRONMENTAL PERMITS — TRANSFER AND RE-ISSUANCE

A. Butler Facility — PA DEP Title V Operating Permit (TV-10-00287)

The Butler facility holds a PA DEP Title V Operating Permit, Permit No. TV-10-00287, issued under the federal Clean Air Act (42 U.S.C. §§ 7401–7671q) and Pennsylvania's Air Pollution Control Act (35 P.S. §§ 4001–4015). Title V permits are required for "major sources" of air pollution that emit or have the potential to emit specified quantities of regulated pollutants. The Butler facility's Title V permit covers air emissions associated with its manufacturing operations, including printing, coating, drying, and related processes that generate volatile organic compound ("VOC") emissions and other regulated air pollutants.

Under PA DEP regulations at 25 Pa. Code Chapter 127 (relating to construction, modification, reactivation, and operation of sources), a change in ownership of a permitted facility requires either: (i) transfer of the existing permit to the new owner by notifying PA DEP and complying with the administrative transfer procedures set forth in the regulations, or (ii) application for a new permit. The administrative transfer process is the preferred and more practical approach in the context of an asset acquisition, as it allows the new owner to continue operations under the existing permit terms and conditions without the delay and expense of obtaining a new permit.

The administrative transfer of a Title V permit typically requires the following:

(a) Written notification to PA DEP within 30 days of the ownership change;

(b) A certification by the new owner (CPS) that it will comply with all terms and conditions of the existing permit;

(d) Payment of any applicable transfer fees.

CPS should file the permit transfer application at or promptly following the Closing Date. During the interim period between closing and completion of the transfer, CPS should operate the facility in full compliance with all terms and conditions of the existing permit.

We further recommend that CPS obtain a compliance history review of the Title V permit prior to closing to confirm that there are no outstanding violations, pending enforcement actions, notices of violation, consent orders, or administrative orders associated with the permit. Based on our review of the data room materials and discussions with AVP personnel, no such violations or enforcement actions were identified, but independent confirmation from PA DEP should be obtained to eliminate any residual uncertainty. This can be accomplished through a Right-to-Know Law request to PA DEP or through direct inquiry with the PA DEP Bureau of Air Quality.

B. Meadville Facility — PA DEP General Permit GP-3

The Meadville facility operates under PA DEP General Permit GP-3, which is a general air permit applicable to operations with limited air emissions that do not require an individual plan approval or Title V operating permit. General permits provide a streamlined permitting framework for smaller sources that meet specified emission thresholds and operational criteria.

Similar to the Title V permit at the Butler facility, the General Permit GP-3 at the Meadville facility requires notification of a change in operator or owner. The transfer process for general permits is straightforward and administrative in nature, involving written notification to PA DEP and updated registration information. CPS should ensure timely filing of the required notification following closing.

C. Other Environmental Permits and Registrations

In addition to the air emissions permits discussed above, both the Butler and Meadville facilities hold or are subject to various other environmental permits and registrations that will require transfer, re-registration, or new issuance in connection with the change in ownership:

(a) Stormwater Discharge Permits. Both facilities operate under PA DEP NPDES General Permits for stormwater discharges associated with industrial activities. These permits require transfer or re-registration upon a change in ownership. CPS should file the necessary applications with PA DEP and ensure continuity of stormwater management practices, including maintenance of the facilities' Stormwater Pollution Prevention Plans ("SWPPPs").

(b) Hazardous Waste Generator Registrations. Both facilities maintain EPA ID numbers as hazardous waste generators under RCRA. The Butler facility is currently registered as a small quantity generator. Upon the change in ownership, CPS may need to obtain new EPA ID numbers for each facility or update the existing registrations to reflect the new owner/operator. CPS should coordinate with PA DEP and EPA Region III as appropriate.

(c) Fire Code and Chemical Storage Permits. State and local fire code permits related to chemical storage at both facilities may require transfer or re-issuance. CPS should coordinate with the applicable local fire marshal or code enforcement office.

(d) Other Registrations. CPS should review whether any additional environmental registrations or notifications are required under federal, state, or local law, including Toxic Release Inventory ("TRI") reporting obligations under EPCRA Section 313, Community Right-to-Know reporting requirements, and any applicable local environmental ordinances.

Under the APA as currently drafted, Seller is required to cooperate with Buyer in the transfer of environmental permits, including by providing necessary documentation, executing required applications, and maintaining permits in good standing through the Closing Date. This cooperation covenant is discussed further in Section VI below.

VI. CONTRACTUAL PROTECTIONS IN THE APA

A. Environmental Representations and Warranties

The APA, as currently drafted, includes detailed environmental representations and warranties made by Seller in favor of Buyer. These representations are set forth in Article IV of the APA and include, among others, the following:

(a) A representation that AVP is and has been in compliance in all material respects with all applicable Environmental Laws (as defined in the APA) with respect to the Acquired Assets and the Butler and Meadville properties.

(b) A representation that AVP possesses all Environmental Permits (as defined in the APA) required for the operation of its business as currently conducted, and that all such permits are in full force and effect and are not subject to any pending or threatened revocation, modification, or suspension.

(c) A representation that, except as disclosed in the Seller's Disclosure Schedules, there has been no Release (as defined in the APA) of any Hazardous Materials (as defined in the APA) at, on, under, or from the Butler or Meadville properties in quantities or concentrations that would require investigation, remediation, or other response action under applicable Environmental Laws.

(d) A representation that there are no pending or, to the Knowledge of Seller (as defined in the APA), threatened Environmental Claims (as defined in the APA) against AVP or the Acquired Assets, including any claims, suits, investigations, or proceedings by any Governmental Authority or third party arising under or relating to Environmental Laws.

(e) A representation regarding the absence of off-site disposal liabilities, confirming that AVP has not transported or arranged for the disposal of Hazardous Materials at any off-site location that is listed on the NPL, CERCLIS, or any analogous state list.

(f) A representation that AVP has made available to Buyer complete and accurate copies of all Environmental Reports (as defined in the APA) in its possession or control, including environmental site assessments, audits, and regulatory correspondence.

The environmental representations are qualified by Seller's Disclosure Schedules, which disclose the Butler REC and related Phase I and Phase II findings, as well as the historical solvent use at the Butler facility. We have reviewed the draft Disclosure Schedules and believe that they are generally adequate in scope, although certain refinements may be warranted to ensure completeness and accuracy, as discussed in our recommendations in Section IX.

Survival Period for Environmental Representations. The environmental representations and warranties in the APA are subject to a 36-month survival period from the Closing Date. This survival period is significantly longer than the 18-month survival period applicable to general representations and warranties in the APA, reflecting the parties' recognition that environmental liabilities may take longer to manifest or to be fully assessed than other types of post-closing claims. The 36-month survival period provides CPS with an extended window to bring indemnification claims for breaches of the environmental representations.

Relationship to General Indemnification Cap. The APA provides for a general indemnification cap of 25% of the Purchase Price ($45,000,000) for breaches of representations and warranties. However, environmental representations are not subject to the general indemnification cap to the extent covered by the environmental special indemnity discussed in Section VI.B below. This carve-out ensures that the environmental special indemnity functions as a separate and dedicated pool of coverage for environmental matters, rather than competing with other types of indemnification claims against the general cap.

B. Environmental Special Indemnity

In recognition of the identified TCE contamination at the Butler property and the potential for additional pre-closing environmental conditions at both facilities, the APA provides for a separate environmental special indemnity from Seller in favor of Buyer. The key terms of the environmental special indemnity are as follows:

Structure. Seller retains liability for pre-closing environmental conditions at the Butler and Meadville facilities and indemnifies Buyer against losses arising therefrom, subject to the terms and limitations of the environmental special indemnity provision.

Cap. The environmental special indemnity is subject to a maximum aggregate liability cap of $8,000,000 for all pre-closing environmental conditions at both facilities combined. This cap represents approximately 4.4% of the $180,000,000 Purchase Price.

Survival. The environmental special indemnity survives for 36 months from the Closing Date, coterminous with the survival period for environmental representations and warranties.

Scope. The environmental special indemnity covers the following categories of losses arising from pre-closing environmental conditions at either the Butler or Meadville facility:

(i) Costs of environmental investigation, assessment, and characterization;

(ii) Costs of remediation, cleanup, removal, and response actions;

(iii) Third-party claims for bodily injury, property damage, or natural resource damages;

(iv) Governmental response costs, penalties, and fines (to the extent insurable under applicable law);

(v) Reasonable attorneys' fees and consultant costs incurred in connection with the foregoing; and

(vi) Costs of compliance with any governmental order, consent decree, or administrative directive relating to pre-closing environmental conditions.

Relationship to General Indemnification. The environmental special indemnity is separate from and in addition to the general indemnification framework set forth in the APA. The $8,000,000 environmental special indemnity cap provides dedicated coverage that is substantially in excess of the current estimated remediation cost range of $1,200,000 to $2,800,000 for the Butler TCE issue. This headroom allows for potential cost overruns, newly discovered pre-closing conditions at either facility, or third-party claims that may arise in connection with the contamination.

Basket and De Minimis Threshold. Environmental special indemnity claims are not subject to the general indemnity basket ($1,350,000) or the de minimis threshold ($50,000) that apply to general indemnification claims under the APA. CPS is entitled to first-dollar recovery for all environmental special indemnity claims, subject only to the $8,000,000 aggregate cap. This is a favorable provision for CPS and reflects the parties' recognition that environmental costs — including investigation and monitoring costs — may accrue incrementally and that the imposition of a basket or de minimis threshold could impair CPS's ability to recover legitimate environmental costs.

Escrow. The $9,000,000 escrow deposit (representing 5% of the $180,000,000 Purchase Price) is held by Atlantic Fiduciary Trust Company pursuant to an Escrow Agreement entered into at closing. The escrow provides a readily available source of funds for environmental indemnity claims, among other indemnification claims, during the 18-month escrow period. However, it is important to note that the escrow period (18 months) is shorter than the environmental special indemnity survival period (36 months). This means that environmental indemnity claims arising during the first 18 months post-closing can be satisfied from the escrow fund (to the extent available after satisfaction of other indemnification claims), but claims arising or asserted during months 19 through 36 would need to be pursued directly against Seller and/or Seller's shareholders. As discussed in Section VIII.A below, this timing mismatch creates a residual credit risk that should be addressed through additional structural protections.

C. Closing Conditions

The APA includes the following environmental-related closing conditions that must be satisfied or waived as a condition to Buyer's obligation to consummate the Transaction:

(i) Accuracy of Environmental Representations. Seller's environmental representations and warranties must be accurate in all material respects as of the Closing Date (with appropriate bringdown qualifications), as if made on and as of the Closing Date (except for representations that speak as of a specified date, which must be accurate as of such date).

(ii) Absence of Material Adverse Change. There must be no material adverse change in the environmental condition of the Acquired Assets or the Butler or Meadville properties between the date of the APA and the Closing Date. This condition protects CPS against the discovery of significant new environmental issues or the material worsening of known conditions during the interim period.

(iii) Permit Transfer Documentation. Seller must deliver to Buyer at closing all documentation reasonably necessary to facilitate the transfer of environmental permits, including executed applications, authorizations, and cooperation commitments. Alternatively, Seller must deliver a covenant to cooperate in the post-closing permit transfer process.

VII. R&W INSURANCE CONSIDERATIONS

A. Policy Overview

In connection with the Transaction, CPS has obtained a representations and warranties insurance ("R&W") policy to provide additional protection against losses arising from breaches of Seller's representations and warranties in the APA. The key terms of the R&W policy are summarized below:

The R&W policy is structured as a buy-side policy, meaning that CPS (as the insured) can make claims directly against the insurance carrier for breaches of Seller's representations and warranties, without first having to pursue and exhaust its indemnification remedies against Seller. The retention functions as a deductible — CPS bears the first $1,800,000 of losses (dropping to $900,000 after 12 months) before the R&W policy responds.

B. Environmental Coverage Under R&W Policy

R&W insurance policies typically exclude or significantly limit coverage for known environmental conditions. This is a standard feature of the R&W insurance market and reflects underwriters' unwillingness to insure risks that have been specifically identified through due diligence and are therefore quantifiable (or at least foreseeable) by the insured.

Known Butler REC — Excluded. The TCE contamination at the Butler property, having been identified through the Phase I and Phase II ESA process conducted as part of the Transaction diligence, will almost certainly be treated as a "known matter" and excluded from R&W policy coverage. CPS should not rely on the R&W policy as a source of recovery for costs associated with the Butler REC, including remediation costs, monitoring costs, or third-party claims arising from the known TCE contamination. The $8,000,000 environmental special indemnity from Seller is the primary contractual protection for this known issue.

Unknown Environmental Conditions — Potential Coverage. The R&W policy may provide coverage for unknown environmental conditions — that is, environmental liabilities not identified in diligence that constitute breaches of Seller's environmental representations and warranties. For example, if post-closing investigation reveals previously unknown contamination at the Meadville property (where no RECs were identified in the Phase I ESA), or if a new and distinct contamination condition is discovered at the Butler property that was not identified in the Phase I or Phase II ESAs, the R&W policy could potentially respond to such claims, subject to the policy's environmental exclusion, retention, and other terms and conditions.

Standard Environmental Exclusions. R&W policies typically contain environmental exclusions that limit or eliminate coverage for certain categories of environmental liabilities. The standard environmental exclusions that may be present in the Northbridge policy include:

(i) Matters disclosed in the Phase I or Phase II ESA reports or otherwise known to the insured at the time of policy inception;

(ii) Asbestos-containing materials, lead-based paint, and mold (unless affirmatively covered by endorsement);

(iii) Per- and polyfluoroalkyl substances ("PFAS") contamination — an emerging area of environmental liability where R&W policy coverage varies significantly among carriers and is increasingly subject to specific exclusions or sublimits; and

(iv) Any environmental condition that was disclosed in the Seller's Disclosure Schedules or otherwise known to the Buyer.

The R&W policy should be reviewed in detail to confirm the precise scope of the environmental exclusion, including whether any sublimit or separate environmental coverage module is available for unknown conditions. We recommend that the deal team and the R&W broker (Philip J. Tanaka at Greystone Marsh Advisory LLC) jointly review the policy form and discuss with the underwriter at Northbridge whether any enhancements or endorsements can be obtained to broaden environmental coverage for unknown conditions.

Summary. Given that the known Butler REC is excluded from R&W coverage, the $8,000,000 environmental special indemnity from Seller is the primary contractual protection for the Butler TCE issue. For unknown environmental conditions, the R&W policy provides a secondary layer of protection up to the $18,000,000 policy limit (subject to the retention, environmental exclusion, and other policy terms). The combination of the Seller's environmental special indemnity and the R&W policy provides a layered risk allocation framework, though gaps exist — most notably with respect to known conditions that exceed the $8,000,000 environmental special indemnity cap and unknown conditions that fall within the scope of the R&W policy's environmental exclusion.

C. Potential Environmental Insurance (Pollution Legal Liability)

In light of the identified TCE contamination at the Butler property and the limitations of the R&W policy's environmental coverage, the deal team should consider whether CPS should obtain a standalone Pollution Legal Liability ("PLL") insurance policy as an additional layer of environmental risk protection. A PLL policy could provide coverage for:

(i) Cost overruns above the $8,000,000 environmental special indemnity cap, in the event that remediation costs or third-party liabilities associated with the Butler TCE contamination or other pre-closing environmental conditions exceed the indemnity cap;

(ii) Newly discovered environmental conditions at either the Butler or Meadville property that are not covered by the R&W policy due to the environmental exclusion;

(iii) Third-party bodily injury or property damage claims arising from known or unknown contamination at the acquired properties;

(iv) Regulatory defense costs and penalties associated with environmental enforcement actions;

(v) Business interruption losses resulting from environmental conditions that require operational shutdowns or curtailments; and

(vi) Transportation and off-site disposal liabilities, if applicable.

PLL policies are available on a site-specific basis and can be tailored to complement the R&W policy and the Seller's environmental special indemnity. PLL policies can be structured to provide coverage for both known and unknown conditions, although coverage for known conditions (such as the Butler REC) typically requires more detailed underwriting, including review of the Phase I and Phase II ESA reports, and may be subject to higher premiums and specific coverage terms. PLL policies are typically issued for terms of 5 to 10 years, providing longer-term protection than the 36-month environmental special indemnity survival period.

Recommendation. We recommend that the deal team discuss with Greystone Marsh Advisory LLC (Philip J. Tanaka) whether a PLL policy quote should be obtained for the Butler and Meadville properties. This evaluation should be prioritized if the final Phase II report indicates higher remediation costs approaching or exceeding the midpoint of the current estimate range ($2,000,000), or if the Phase II investigation reveals a more extensive plume than currently indicated by preliminary data. The cost of a PLL policy should be weighed against the incremental risk protection it provides, taking into account the $8,000,000 environmental special indemnity, the R&W policy coverage for unknown conditions, and CPS's overall risk tolerance.

VIII. RISK ASSESSMENT SUMMARY

A. Butler Property — Risk Level: Moderate

The environmental risk associated with the Butler property is assessed as moderate. This assessment is based on the following factors:

Confirmed Contamination. The TCE contamination at 12 ppb in shallow groundwater (exceeding the 5 ppb PA Act 2 MSC standard by a factor of 2.4) constitutes a confirmed environmental condition that will require remediation. This is not a speculative or potential risk — it is a known, quantified condition that must be addressed.

Remediation Cost Estimate Relative to Indemnity Cap. The current remediation cost estimate of $1,200,000 to $2,800,000 is well within the $8,000,000 environmental special indemnity cap, providing a substantial cushion of $5,200,000 to $6,800,000 above the estimated range. This cushion provides meaningful headroom for cost overruns, unexpected complications, or additional pre-closing conditions that may be discovered post-closing.

Localized Contamination. The preliminary Phase II data indicate that the TCE groundwater plume is localize

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Harrison Wexford, Partner, Calderwood & Harkness LLP Sandra K. Liu, General Counsel, Crestline Packaging Solutions LLC
FROM: Megan Chu, Associate, Calderwood & Harkness LLP Derek Okonkwo, Associate, Calderwood & Harkness LLP
DATE: May 28, 2025
RE: Environmental Risk Assessment — Acquisition of Substantially All Assets of Allegheny Valley Packaging, Inc. by Crestline Packaging Solutions LLC
MATTER NO.: 1006-00006
Right-click to update Table of Contents
I. EXECUTIVE SUMMARY
This memorandum summarizes the environmental risks identified in connection with the proposed acquisition by Crestline Packaging Solutions LLC ("CPS" or "Buyer") of substantially all of the assets of Allegheny Valley Packaging, Inc. ("AVP" or "Seller") for a purchase price of $180,000,000 (the "Transaction"). AVP is a Pennsylvania S-corporation headquartered in Butler, Pennsylvania. The Transaction is structured as an asset purchase and is governed by that certain Asset Purchase Agreement (the "APA"), currently in advanced draft form and expected to be executed in June 2025, with an estimated Closing Date of July 31, 2025.
Environmental due diligence has been conducted by Greenvale Environmental Sciences LLC ("Greenvale"), under the direction of project lead Dr. Alicia Fernandez, whom CPS retained as its independent environmental consultant for purposes of the Transaction. Greenvale performed Phase I Environmental Site Assessments ("Phase I ESAs") at both of the properties to be acquired, and a Phase II Environmental Site Assessment ("Phase II ESA") at one of those properties where further investigation was warranted.
Two properties are under review in connection with the Transaction:
(1) Butler Plant — 250 Industrial Boulevard, Butler, PA 16001. This is a 285,000-square-foot manufacturing facility situated on approximately 22.5 acres. The property is owned by AVP and will be conveyed to CPS via Pennsylvania special warranty deed at closing. It serves as AVP's primary manufacturing facility.
(2) Meadville Plant — 1480 Conneaut Lake Road, Meadville, PA 16335. This is a 110,000-square-foot manufacturing facility situated on approximately 8.2 acres. The property is also owned by AVP and will be conveyed to CPS via Pennsylvania special warranty deed at closing. It serves as AVP's secondary manufacturing facility.
Key Findings. Greenvale identified one Recognized Environmental Condition ("REC") at the Butler property, involving historical solvent use and a disposal area located at the northeast corner of the site. A Phase II Environmental Site Assessment was subsequently conducted and confirmed the presence of trichloroethylene ("TCE") contamination in shallow groundwater at a concentration of 12 parts per billion ("ppb"), which exceeds the Pennsylvania Act 2 Medium-Specific Concentration ("MSC") standard of 5 ppb by a factor of 2.4. No RECs were identified at the Meadville property, and no Phase II ESA was recommended or conducted at that facility.
Remediation Cost Estimates. Based on the preliminary Phase II data and Greenvale's professional judgment, the estimated cost to remediate the TCE contamination at the Butler property ranges from $1,200,000 to $2,800,000. This range reflects uncertainty regarding the final extent of the groundwater plume, the selected remedial approach, the duration of active remediation and long-term monitoring, and the level of Pennsylvania Department of Environmental Protection ("PA DEP") involvement.
Contractual Protections. The APA, as currently drafted, includes several negotiated protections to allocate environmental risk. Chief among these is an $8,000,000 environmental special indemnity from Seller for pre-closing environmental conditions, which survives for 36 months from the Closing Date. The APA also provides for a 36-month survival period for environmental representations and warranties, which is substantially longer than the 18-month survival period applicable to general representations and warranties. The $9,000,000 escrow deposit (representing 5% of the Purchase Price), held by Atlantic Fiduciary Trust Company, provides a readily available source for indemnification claims, although the escrow period of 18 months is shorter than the 36-month environmental indemnity survival period.
R&W Insurance. Representations and warranties insurance coverage has been obtained from Northbridge Specialty Insurance Company (Policy No. NSW-2025-07812), with a coverage limit of $18,000,000. This policy provides an additional backstop for unknown environmental conditions, though the known Butler REC will almost certainly be excluded from coverage as a "known matter." The environmental exclusions in the policy must be carefully analyzed, and standalone Pollution Legal Liability ("PLL") insurance should be evaluated as a supplemental risk mitigation measure.
Permit Transfers. Environmental permit transfer and re-issuance requirements exist at both facilities, including the PA DEP Title V Operating Permit at the Butler Plant and the PA DEP General Permit GP-3 at the Meadville Plant. These transfers are administrative in nature and are not expected to present material obstacles to closing or post-closing operations.
Overall Assessment. We assess the overall environmental risk level associated with the Transaction as moderate and manageable with the recommended contractual protections, insurance coverage, and post-closing remediation actions described herein. We recommend certain additional protections, including an extended environmental escrow and evaluation of a standalone PLL policy, as described in detail in Section IX of this memorandum.
II. SCOPE OF ENVIRONMENTAL DILIGENCE
A. Diligence Materials Reviewed
In preparing this memorandum, we reviewed the following materials and information sources in connection with our assessment of the environmental risks associated with the Transaction:
1. Phase I Environmental Site Assessment — Butler Property, prepared by Greenvale Environmental Sciences LLC in accordance with ASTM E1527-21, delivered May 5, 2025.
2. Phase I Environmental Site Assessment — Meadville Property, prepared by Greenvale Environmental Sciences LLC in accordance with ASTM E1527-21, delivered May 5, 2025.
3. Phase II Environmental Site Assessment — Butler Property, commenced May 12, 2025 by Greenvale Environmental Sciences LLC in accordance with ASTM E1903-19. Preliminary analytical results have been received and reviewed; the final Phase II report remains pending as of the date of this memorandum.
4. AVP Environmental Permit Files and Regulatory Correspondence, including correspondence with the Pennsylvania Department of Environmental Protection ("PA DEP") regarding air emissions, stormwater management, and hazardous waste generator status at both the Butler and Meadville facilities.
5. PA DEP Title V Operating Permit No. TV-10-00287 — the operating air emissions permit for the Butler facility, including all amendments, modifications, and compliance certifications on file.
6. PA DEP General Permit GP-3 — the general air emissions permit applicable to the Meadville facility.
7. AVP Internal Environmental Compliance Records and Historical Waste Manifests, as made available in the virtual data room established by Seller in connection with the Transaction (Data Room Index: Environmental, Folders E-001 through E-047).
8. Seller's Disclosure Schedules (environmental representations), as set forth in the most recent draft of the APA circulated on May 20, 2025.
9. Discussions with Diane L. Pulaski, Controller of AVP, conducted via telephone on May 9, 2025 and May 16, 2025, regarding financial aspects of environmental compliance expenditures and historical capital improvements at both facilities.
10. Discussions with Michael G. Horvath, Vice President of Operations of AVP, conducted in person during the site visit on May 10, 2025 and via telephone on May 18, 2025, regarding site history, historical chemical usage, waste management practices, and operational processes at both the Butler and Meadville facilities.
We note that our review is limited to the materials listed above and the information provided by Seller, Greenvale, and the other sources identified herein. We have not independently verified the completeness or accuracy of the information provided by Seller or its personnel. The conclusions in this memorandum are based upon currently available information and may require revision upon receipt of the final Phase II ESA report and any additional information that becomes available prior to closing.
B. Properties Assessed
1. Butler Plant.
The Butler Plant is AVP's principal manufacturing facility and represents the largest and most operationally significant asset to be acquired in the Transaction. The facility encompasses multiple production lines for corrugated container manufacturing, folding carton production, and specialty packaging applications, including chemical-resistant coatings and food-grade packaging materials. The facility has been in continuous operation since the mid-1960s and has undergone several expansions and modernizations over its operational history. The property includes the main manufacturing building, a separate warehouse structure, administrative offices, a maintenance shop, and various ancillary structures. The site is bordered to the north and east by undeveloped wooded land, to the south by Industrial Boulevard and commercial properties, and to the west by additional industrial parcels.
2. Meadville Plant.
The Meadville Plant serves as AVP's secondary manufacturing facility and supports overflow production and certain specialized packaging lines. The facility was purpose-built in the late 1990s as a modern packaging manufacturing plant and has a relatively straightforward operational and environmental history. The site is bordered by commercial and light industrial properties and is served by municipal utilities, including public water and sewer.
C. Environmental Consultant
CPS retained Greenvale Environmental Sciences LLC ("Greenvale") as its independent environmental consultant in connection with the Transaction. Greenvale is a nationally recognized environmental consulting firm with extensive experience in transactional environmental due diligence and environmental site assessments for mergers and acquisitions.
Greenvale's engagement was structured to satisfy the "all appropriate inquiries" requirements under CERCLA Section 101(35)(B) and EPA's All Appropriate Inquiries Rule (40 C.F.R. Part 312), thereby supporting CPS's potential defenses as an innocent landowner or bona fide prospective purchaser under CERCLA, should such defenses become relevant post-closing.
III. PHASE I ESA FINDINGS
A. Butler Property — Phase I ESA
The Phase I ESA for the Butler property was completed and delivered by Greenvale on May 5, 2025. The assessment was conducted in accordance with ASTM E1527-21 and included a review of historical records, regulatory databases, aerial photographs, topographic maps, city directories, Trelwick fire insurance maps, interviews with site personnel and local officials, and a site reconnaissance visit conducted on April 28, 2025. The following summarizes the key findings.
1. Recognized Environmental Condition (REC). Greenvale identified one Recognized Environmental Condition at the Butler property. As defined by ASTM E1527-21, a REC is the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (i) due to a release to the environment; (ii) under conditions indicative of a release to the environment; or (iii) under conditions that pose a material threat of a future release to the environment.
The identified REC involves a historical solvent use and disposal area located at the northeast corner of the 22.5-acre Butler property. The basis for this finding is as follows:
Historical Solvent Use. Based on a review of historical records, employee interviews, and operational documentation, Greenvale determined that chlorinated solvents, including trichloroethylene ("TCE"), were used in degreasing operations at the Butler facility during the period from approximately the early 1970s through the early 1990s. TCE was commonly used in the packaging and printing industry during this era as a solvent for cleaning printing equipment, degreasing metal components, and removing ink and coating residues. According to Michael G. Horvath, VP Operations, the facility transitioned away from chlorinated solvent use in the early to mid-1990s as part of a broader industry shift toward water-based and less toxic alternative cleaning agents. Current operations at the Butler facility predominantly utilize water-based inks and coatings, with limited use of solvent-based specialty coatings in a controlled area equipped with proper secondary containment.
Evidence of Disposal Area. Through a review of aerial photographs spanning the period from 1965 through the present, Greenvale identified what appeared to be an informal disposal or staging area at the northeast corner of the Butler property. Aerial photographs from approximately 1978 through 1985 show evidence of drums, waste materials, and disturbed ground in this area. Interviews with Michael G. Horvath, who has been employed at the facility since 1988, confirmed that older employees had described this area as a location where waste solvents and other materials were historically stored and, in some cases, disposed of on-site. Mr. Horvath indicated that the area was reportedly graded and covered with gravel approximately 25 to 30 years ago (circa the mid-1990s), coinciding with the facility's transition away from chlorinated solvent use. However, no formal remediation, closure documentation, or environmental assessment of this area was conducted at that time, and no records of any soil or groundwater sampling in this area prior to Greenvale's Phase II investigation have been identified.
Phase II Recommendation. Based on the identified REC, Greenvale recommended that a Phase II Environmental Site Assessment be conducted to characterize the nature and extent of potential soil and groundwater contamination at and around the former disposal area at the northeast corner of the property. This recommendation was accepted by CPS, and the Phase II ESA was commenced on May 12, 2025, as discussed in Section IV below.
2. Other Findings — Butler. Beyond the single REC described above, Greenvale's Phase I ESA for the Butler property yielded the following additional findings:
No Additional RECs, CRECs, or HRECs. No additional Recognized Environmental Conditions, Controlled Recognized Environmental Conditions ("CRECs"), or Historical Recognized Environmental Conditions ("HRECs") were identified at the Butler property. A CREC, as defined by ASTM E1527-21, is a recognized environmental condition resulting from a past release that has been addressed to the satisfaction of the applicable regulatory authority, with residual contamination allowed to remain in place subject to implementation of required controls. An HREC is a past release that has been addressed to the satisfaction of the applicable regulatory authority without any controls or activity and use limitations remaining in place. No such conditions were identified.
Environmental Database Review. Greenvale conducted a comprehensive environmental database search through Penrose Solutions ("EDR"), which covered federal and state regulatory databases including, among others, the EPA CERCLIS/SEMS database, the National Priorities List ("NPL"), the RCRA Corrective Action database, the PA Hazardous Sites Cleanup Act list, the PA Underground Storage Tank database, and various other state and federal listings. The Butler property was not identified on any active cleanup lists, enforcement action lists, or regulatory databases indicative of known contamination or environmental liability. Adjacent and nearby properties were similarly reviewed, and no conditions were identified on neighboring properties that would be expected to impact the Butler site.
Underground Storage Tanks. No underground storage tanks ("USTs") are currently located on the Butler property. Historical records indicate that USTs used for heating oil storage were present on the property and were removed in the early 2000s. Greenvale reviewed the closure documentation on file, including tank removal reports and confirmatory soil sampling results, and found that the tank removals were conducted in accordance with applicable PA DEP UST regulations and that no residual contamination was identified at the time of removal. Greenvale concluded that the historical USTs do not represent a REC, CREC, or HREC.
Current Chemical Use and Storage. Current operations at the Butler facility use predominantly water-based inks and coatings. A limited quantity of solvent-based specialty coatings is used in a controlled area within the main manufacturing building. This area is equipped with proper secondary containment (including concrete curbing, impervious flooring, and spill containment pallets) and is subject to routine inspection as part of AVP's environmental compliance program. Hazardous materials storage on-site is consistent with the facility's operations and appears to be managed in accordance with applicable federal and state regulations, including RCRA and the Pennsylvania Solid Waste Management Act. The facility maintains a hazardous waste generator status (EPA ID No. PAD003456789) as a small quantity generator under RCRA.
Stormwater Management. The Butler facility operates under a PA DEP NPDES General Permit for stormwater discharges associated with industrial activities. Greenvale reviewed the facility's Stormwater Pollution Prevention Plan ("SWPPP") and recent monitoring reports and found them to be generally consistent with permit requirements. No significant stormwater compliance issues were identified.
Asbestos and Lead-Based Paint. Given the original construction date of the Butler facility (circa 1965), asbestos-containing materials ("ACMs") and lead-based paint ("LBP") may be present in older portions of the building. An asbestos survey conducted by AVP in 2015 identified limited ACMs (primarily pipe insulation and floor tiles) in certain areas of the original building. These materials are reported to be in good condition and are managed under an asbestos operations and maintenance ("O&M") program. Greenvale noted the presence of these materials but did not identify them as RECs, as they are managed in place in accordance with applicable regulations. CPS should be aware of these conditions and maintain the existing O&M program post-closing. Lead-based paint was not specifically assessed in the Phase I ESA but may be present on older painted surfaces within the facility.
B. Meadville Property — Phase I ESA
The Phase I ESA for the Meadville property was completed and delivered by Greenvale on May 5, 2025. The assessment was conducted in accordance with ASTM E1527-21 and followed the same methodology as the Butler Phase I ESA, including historical records review, regulatory database search, aerial photograph and map review, interviews with site personnel, and a site reconnaissance visit conducted on April 29, 2025.
1. No RECs Identified. Greenvale concluded that no Recognized Environmental Conditions, Controlled Recognized Environmental Conditions, or Historical Recognized Environmental Conditions were identified at the Meadville property. The basis for this conclusion is summarized as follows:
Site History. The Meadville property has a relatively straightforward operational and environmental history. The facility was constructed in the late 1990s (circa 1998) as a purpose-built packaging manufacturing plant. Prior to construction of the current facility, the property was used for agricultural purposes (row crops and pasture). No industrial operations were conducted on the property prior to AVP's development of the site. The facility has been operated continuously by AVP since its construction and has not undergone significant changes in use or operations.
No Historical Solvent Use. There is no evidence that chlorinated solvents or other significant hazardous chemicals were used at the Meadville facility beyond materials consistent with current packaging manufacturing operations (i.e., water-based inks, coatings, adhesives, and minor quantities of cleaning solvents). The facility was designed and constructed during a period when the industry had largely transitioned away from chlorinated solvent use.
No Underground Storage Tanks. No underground storage tanks have been identified at the Meadville property, either currently or historically. The facility is heated by natural gas, and no on-site fuel storage is or has been present.
Chemical Storage. Chemical storage at the Meadville facility is limited to materials used in current manufacturing operations and is managed in accordance with applicable regulations. Secondary containment and proper storage practices were observed during the site reconnaissance.
Environmental Database Review. The EDR environmental database search for the Meadville property was clean. The property was not identified on any federal or state regulatory databases indicative of contamination, enforcement actions, or environmental liability. No off-site conditions on neighboring or nearby properties were identified that would be expected to impact the Meadville site.
Phase II Recommendation. Based on the absence of any RECs, CRECs, or HRECs, Greenvale did not recommend a Phase II Environmental Site Assessment for the Meadville property. We concur with this assessment.
IV. PHASE II ESA FINDINGS — BUTLER PROPERTY
A. Scope of Phase II Investigation
Following Greenvale's identification of the REC at the northeast corner of the Butler property in the Phase I ESA, CPS authorized Greenvale to proceed with a Phase II Environmental Site Assessment at the Butler property. The Phase II ESA was commenced on May 12, 2025 and is being conducted in accordance with ASTM E1903-19 (Standard Practice for Environmental Site Assessments: Phase II Environmental Site Assessment Process).
The scope of the Phase II investigation is focused on the northeast corner disposal area identified in the Phase I ESA and includes the following activities:
(a) Advancement of soil borings at multiple locations across the northeast quadrant of the property and in downgradient areas, to depths of approximately 20 to 30 feet below ground surface, to characterize subsurface soil conditions and delineate the potential extent of contamination.
(b) Installation of temporary and permanent groundwater monitoring wells to assess groundwater quality and to characterize the nature and extent of any dissolved-phase contamination in the shallow aquifer beneath and downgradient of the former disposal area.
(c) Collection and laboratory analysis of soil samples from multiple depth intervals at each boring location.
(d) Collection and laboratory analysis of groundwater samples from all monitoring wells.
(e) Analysis of soil and groundwater samples for volatile organic compounds ("VOCs"), with a particular focus on chlorinated solvents, including trichloroethylene ("TCE"), tetrachloroethylene (perchloroethylene or "PCE"), cis-1,2-dichloroethylene ("cis-1,2-DCE"), trans-1,2-dichloroethylene, and vinyl chloride. These compounds represent the parent chlorinated solvents historically used at the facility and their common degradation products.
(f) Evaluation of local hydrogeological conditions, including groundwater flow direction, gradient, and velocity, to assess the potential for contaminant migration.
Preliminary analytical results from the initial rounds of soil and groundwater sampling have been received by Greenvale and shared with the deal team. The final Phase II ESA report, including complete analytical data, plume delineation, risk assessment, and remediation cost estimates, remains pending as of the date of this memorandum. Greenvale anticipates delivery of the final report within approximately four to six weeks of the May 12, 2025 commencement date, i.e., by approximately late June 2025, which would be prior to the estimated Closing Date of July 31, 2025.
B. Preliminary Results
The preliminary results of the Phase II ESA are summarized below. These results are based on initial laboratory analyses and are subject to confirmation and refinement in the final Phase II report.
Soil. Preliminary soil sample results indicate limited residual solvent contamination in shallow soils (0 to 10 feet below ground surface) in the immediate vicinity of the former disposal area at the northeast corner of the property. The concentrations of TCE and related compounds detected in soil appear to be below the Pennsylvania Act 2 residential and non-residential MSC soil standards. This finding is consistent with the hypothesis that the primary contamination pathway is through dissolution and migration of solvents into groundwater, rather than widespread soil contamination. Final laboratory results for deeper soil intervals (10 to 30 feet below ground surface) are pending and will be reported in the final Phase II ESA report.
Groundwater — TCE. Trichloroethylene ("TCE") was detected in shallow groundwater at a concentration of 12 parts per billion ("ppb") in the monitoring well located closest to the former disposal area (designated MW-1 in Greenvale's field investigation). This finding is significant for the following reasons:
• The applicable regulatory standard for TCE in groundwater is the Pennsylvania Act 2 Medium-Specific Concentration ("MSC") standard of 5 ppb. This standard is consistent with the federal Maximum Contaminant Level ("MCL") for TCE under the Safe Drinking Water Act (42 U.S.C. § 300g-1) and EPA National Primary Drinking Water Regulations (40 C.F.R. § 141.61).
• The detected concentration of 12 ppb is 2.4 times the applicable standard, confirming the presence of TCE contamination in groundwater at levels that exceed regulatory thresholds and would require remedial action to achieve compliance with PA Act 2 standards.
• TCE is classified by EPA as a known human carcinogen and is associated with a range of adverse health effects, including liver damage, kidney damage, and neurological effects. Its presence in groundwater at concentrations exceeding regulatory standards is a recognized environmental and public health concern, although the actual risk to human health depends on exposure pathways, as discussed below.
Groundwater — Other VOCs. Preliminary results indicate trace levels of cis-1,2-dichloroethylene ("cis-1,2-DCE") — a common degradation product of TCE resulting from reductive dechlorination processes in the subsurface — in one monitoring well (MW-2). The concentration of cis-1,2-DCE was below the applicable PA Act 2 MSC standard. The presence of cis-1,2-DCE as a degradation product suggests that some degree of natural biodegradation of TCE is occurring in the subsurface, which is a potentially favorable indicator for remediation. No vinyl chloride — the final and most toxic degradation product in the reductive dechlorination sequence — was detected above laboratory reporting limits in any of the monitoring wells sampled to date. This is a positive finding, as vinyl chloride is more toxic than TCE and has a lower regulatory standard (2 ppb under PA Act 2).
Extent of Plume. Preliminary data from the monitoring well network suggest that the TCE groundwater plume is localized to the northeast portion of the Butler property. Specifically, downgradient monitoring wells installed at and near the property boundary (MW-3 through MW-5) showed either non-detect concentrations or concentrations below the PA Act 2 MSC standard for TCE. This preliminary finding suggests that the contaminant plume has not migrated off-site beyond the property boundary, which would significantly reduce the risk of third-party claims, regulatory enforcement actions, and the overall complexity and cost of remediation. However, final plume delineation results are pending, and Greenvale has indicated that additional monitoring wells and sampling may be necessary to fully characterize the downgradient extent of the plume.
Drinking Water. The Butler facility and the surrounding area are served by a public water supply (Butler Township municipal water system). The municipal water supply draws from a surface water source (Connoquenessing Creek watershed) and is treated at a municipal water treatment plant. Greenvale's investigation included a review of public water supply records and private well databases, and no private drinking water wells were identified within 1,000 feet of the Butler property. This finding is significant because it substantially reduces the immediate risk pathway for human exposure to the TCE contamination through ingestion of contaminated drinking water. The absence of private wells in the vicinity of the site also reduces the likelihood of third-party claims related to drinking water contamination.
C. Estimated Remediation Costs
Based on the preliminary Phase II data and Greenvale's professional judgment and experience with comparable TCE remediation projects in Pennsylvania, the estimated cost to remediate the TCE contamination at the Butler property is $1,200,000 to $2,800,000. This estimate encompasses investigation, remediation, regulatory compliance, and long-term monitoring costs and reflects the following key assumptions and uncertainties:
Factors Contributing to the Range of Estimates. The wide range reflects several areas of uncertainty that will be narrowed as the Phase II investigation is completed and a remedial approach is selected:
(a) Final Extent of Groundwater Plume. While preliminary data suggest the plume is localized to the northeast portion of the property, final delineation is pending. A more extensive plume than currently indicated would increase both the scope and cost of remediation.
(b) Selected Remedial Approach. Multiple remedial technologies are potentially applicable to the site, each with different cost profiles. Options include:
(i) In-situ chemical oxidation ("ISCO") — injection of chemical oxidants (e.g., permanganate, persulfate) into the subsurface to destroy TCE in place. This approach can be relatively cost-effective for localized plumes but may require multiple injection events.
(ii) Enhanced bioremediation — injection of substrates to stimulate native microbial communities that degrade TCE through reductive dechlorination. The preliminary detection of cis-1,2-DCE suggests favorable conditions for this approach.
(iii) Monitored natural attenuation ("MNA") — reliance on natural processes to reduce TCE concentrations over time, with regular groundwater monitoring to track progress. This is the least expensive active approach but requires the longest timeframe and may not be acceptable to PA DEP as a standalone remedy given the current exceedance of the MSC standard.
(iv) A combination of active treatment and MNA — initial active treatment (ISCO or bioremediation) to reduce concentrations, followed by MNA and long-term monitoring to achieve and document compliance with regulatory standards. This combined approach is commonly used and may represent the most practical and cost-effective strategy.
(c) Duration of Active Remediation and Long-Term Monitoring. Depending on the selected approach, active remediation could span 1 to 5 years, with long-term monitoring potentially extending for an additional 3 to 10 years.
(d) PA DEP Involvement. The level of PA DEP oversight and the specific requirements imposed by the agency will affect costs. If the site is enrolled in the PA Land Recycling and Environmental Remediation Standards Act (Act 2) voluntary cleanup program, the remediation framework and standards will be well defined, but PA DEP review and approval processes add time and cost.
Low-End Estimate ($1,200,000). The low end of the estimated range assumes a relatively contained plume that is amenable to in-situ treatment (one to two rounds of chemical oxidation or bioremediation injections), followed by limited long-term groundwater monitoring (quarterly for two years, then semi-annually for three years). This scenario assumes that the final Phase II results confirm the preliminary indication that the plume is localized and has not migrated off-site, and that PA DEP approves the selected remedial approach without significant modifications or additional requirements.
High-End Estimate ($2,800,000). The high end of the estimated range accounts for the possibility of a more extensive plume than currently indicated, requiring multi-phase treatment (multiple rounds of injections, possibly combining ISCO and bioremediation), potential implementation of institutional controls (e.g., deed restrictions, environmental covenants), vapor intrusion assessment and potential mitigation measures, and extended groundwater monitoring over a longer timeframe (up to 10 years). This scenario also accounts for higher PA DEP oversight costs and the possibility of encountering unexpected subsurface conditions that complicate remediation.
Timing of Final Estimate. Greenvale expects to finalize the Phase II report and refine the remediation cost estimate within approximately four to six weeks of the May 12, 2025 commencement of the Phase II investigation, i.e., by approximately late June 2025. This would be prior to the estimated Closing Date of July 31, 2025, allowing the deal team to reassess risk and contractual protections based on final data.
D. Regulatory Implications
The presence of TCE in groundwater at concentrations exceeding the PA Act 2 MSC standard triggers several regulatory considerations:
PA Act 2 Voluntary Cleanup Program. If active remediation is required, the Butler property would most likely be enrolled in the Pennsylvania Land Recycling and Environmental Remediation Standards Act ("Act 2") voluntary cleanup program. Act 2, codified at 35 P.S. §§ 6026.101–6026.908, provides a well-established framework for voluntary remediation of contaminated sites in Pennsylvania. The program allows the responsible party to select from among three cleanup standards: (i) background standards, (ii) statewide health-based standards (MSCs), or (iii) site-specific standards. Upon successful completion of remediation and receipt of a release of liability from PA DEP, the remediating party and subsequent property owners receive statutory liability protections under Act 2, which provide significant risk mitigation.
Current Regulatory Status. There is no evidence that the Butler property has been identified by PA DEP or the U.S. Environmental Protection Agency ("EPA") as a known contamination site. The property does not appear on the PA Hazardous Sites Cleanup Act list, the EPA CERCLIS/SEMS database, the National Priorities List, or any other federal or state regulatory listing indicative of known contamination. This is a favorable finding, as it suggests that regulatory authorities are not currently aware of the contamination and are not actively pursuing enforcement or cleanup at the site.
Responsible Party Liability. As the current owner and operator of the Butler facility, AVP is considered a "responsible person" under Pennsylvania environmental law for pre-closing contamination. Under CERCLA (42 U.S.C. § 9607), current owners and operators of a facility, as well as former owners and operators at the time of disposal, are potentially liable for response costs associated with releases of hazardous substances. Post-closing, CPS, as the new property owner, could potentially face CERCLA liability as a current owner, as well as successor or landowner liability under CERCLA and state analogs such as the Pennsylvania Hazardous Sites Cleanup Act ("HSCA"), 35 P.S. §§ 6020.101–6020.1305. These potential liabilities underscore the critical importance of the contractual indemnification protections discussed in Section VI of this memorandum, as well as CPS's compliance with the "all appropriate inquiries" requirements to preserve potential innocent landowner and bona fide prospective purchaser defenses under CERCLA.
Notification Requirements. Depending on the final Phase II results and whether a release of a reportable quantity of a hazardous substance is confirmed, PA DEP notification may be required under applicable state regulations. Greenvale and counsel should evaluate the notification requirements upon receipt of the final Phase II report and advise accordingly.
V. ENVIRONMENTAL PERMITS — TRANSFER AND RE-ISSUANCE
A. Butler Facility — PA DEP Title V Operating Permit (TV-10-00287)
The Butler facility holds a PA DEP Title V Operating Permit, Permit No. TV-10-00287, issued under the federal Clean Air Act (42 U.S.C. §§ 7401–7671q) and Pennsylvania's Air Pollution Control Act (35 P.S. §§ 4001–4015). Title V permits are required for "major sources" of air pollution that emit or have the potential to emit specified quantities of regulated pollutants. The Butler facility's Title V permit covers air emissions associated with its manufacturing operations, including printing, coating, drying, and related processes that generate volatile organic compound ("VOC") emissions and other regulated air pollutants.
Under PA DEP regulations at 25 Pa. Code Chapter 127 (relating to construction, modification, reactivation, and operation of sources), a change in ownership of a permitted facility requires either: (i) transfer of the existing permit to the new owner by notifying PA DEP and complying with the administrative transfer procedures set forth in the regulations, or (ii) application for a new permit. The administrative transfer process is the preferred and more practical approach in the context of an asset acquisition, as it allows the new owner to continue operations under the existing permit terms and conditions without the delay and expense of obtaining a new permit.
The administrative transfer of a Title V permit typically requires the following:
(a) Written notification to PA DEP within 30 days of the ownership change;
(b) A certification by the new owner (CPS) that it will comply with all terms and conditions of the existing permit;
(c) Submission of updated contact information, responsible official designations, and other administrative details; and
(d) Payment of any applicable transfer fees.
CPS should file the permit transfer application at or promptly following the Closing Date. During the interim period between closing and completion of the transfer, CPS should operate the facility in full compliance with all terms and conditions of the existing permit.
We further recommend that CPS obtain a compliance history review of the Title V permit prior to closing to confirm that there are no outstanding violations, pending enforcement actions, notices of violation, consent orders, or administrative orders associated with the permit. Based on our review of the data room materials and discussions with AVP personnel, no such violations or enforcement actions were identified, but independent confirmation from PA DEP should be obtained to eliminate any residual uncertainty. This can be accomplished through a Right-to-Know Law request to PA DEP or through direct inquiry with the PA DEP Bureau of Air Quality.
B. Meadville Facility — PA DEP General Permit GP-3
The Meadville facility operates under PA DEP General Permit GP-3, which is a general air permit applicable to operations with limited air emissions that do not require an individual plan approval or Title V operating permit. General permits provide a streamlined permitting framework for smaller sources that meet specified emission thresholds and operational criteria.
Similar to the Title V permit at the Butler facility, the General Permit GP-3 at the Meadville facility requires notification of a change in operator or owner. The transfer process for general permits is straightforward and administrative in nature, involving written notification to PA DEP and updated registration information. CPS should ensure timely filing of the required notification following closing.
C. Other Environmental Permits and Registrations
In addition to the air emissions permits discussed above, both the Butler and Meadville facilities hold or are subject to various other environmental permits and registrations that will require transfer, re-registration, or new issuance in connection with the change in ownership:
(a) Stormwater Discharge Permits. Both facilities operate under PA DEP NPDES General Permits for stormwater discharges associated with industrial activities. These permits require transfer or re-registration upon a change in ownership. CPS should file the necessary applications with PA DEP and ensure continuity of stormwater management practices, including maintenance of the facilities' Stormwater Pollution Prevention Plans ("SWPPPs").
(b) Hazardous Waste Generator Registrations. Both facilities maintain EPA ID numbers as hazardous waste generators under RCRA. The Butler facility is currently registered as a small quantity generator. Upon the change in ownership, CPS may need to obtain new EPA ID numbers for each facility or update the existing registrations to reflect the new owner/operator. CPS should coordinate with PA DEP and EPA Region III as appropriate.
(c) Fire Code and Chemical Storage Permits. State and local fire code permits related to chemical storage at both facilities may require transfer or re-issuance. CPS should coordinate with the applicable local fire marshal or code enforcement office.
(d) Other Registrations. CPS should review whether any additional environmental registrations or notifications are required under federal, state, or local law, including Toxic Release Inventory ("TRI") reporting obligations under EPCRA Section 313, Community Right-to-Know reporting requirements, and any applicable local environmental ordinances.
Under the APA as currently drafted, Seller is required to cooperate with Buyer in the transfer of environmental permits, including by providing necessary documentation, executing required applications, and maintaining permits in good standing through the Closing Date. This cooperation covenant is discussed further in Section VI below.
VI. CONTRACTUAL PROTECTIONS IN THE APA
A. Environmental Representations and Warranties
The APA, as currently drafted, includes detailed environmental representations and warranties made by Seller in favor of Buyer. These representations are set forth in Article IV of the APA and include, among others, the following:
(a) A representation that AVP is and has been in compliance in all material respects with all applicable Environmental Laws (as defined in the APA) with respect to the Acquired Assets and the Butler and Meadville properties.
(b) A representation that AVP possesses all Environmental Permits (as defined in the APA) required for the operation of its business as currently conducted, and that all such permits are in full force and effect and are not subject to any pending or threatened revocation, modification, or suspension.
(c) A representation that, except as disclosed in the Seller's Disclosure Schedules, there has been no Release (as defined in the APA) of any Hazardous Materials (as defined in the APA) at, on, under, or from the Butler or Meadville properties in quantities or concentrations that would require investigation, remediation, or other response action under applicable Environmental Laws.
(d) A representation that there are no pending or, to the Knowledge of Seller (as defined in the APA), threatened Environmental Claims (as defined in the APA) against AVP or the Acquired Assets, including any claims, suits, investigations, or proceedings by any Governmental Authority or third party arising under or relating to Environmental Laws.
(e) A representation regarding the absence of off-site disposal liabilities, confirming that AVP has not transported or arranged for the disposal of Hazardous Materials at any off-site location that is listed on the NPL, CERCLIS, or any analogous state list.
(f) A representation that AVP has made available to Buyer complete and accurate copies of all Environmental Reports (as defined in the APA) in its possession or control, including environmental site assessments, audits, and regulatory correspondence.
The environmental representations are qualified by Seller's Disclosure Schedules, which disclose the Butler REC and related Phase I and Phase II findings, as well as the historical solvent use at the Butler facility. We have reviewed the draft Disclosure Schedules and believe that they are generally adequate in scope, although certain refinements may be warranted to ensure completeness and accuracy, as discussed in our recommendations in Section IX.
Survival Period for Environmental Representations. The environmental representations and warranties in the APA are subject to a 36-month survival period from the Closing Date. This survival period is significantly longer than the 18-month survival period applicable to general representations and warranties in the APA, reflecting the parties' recognition that environmental liabilities may take longer to manifest or to be fully assessed than other types of post-closing claims. The 36-month survival period provides CPS with an extended window to bring indemnification claims for breaches of the environmental representations.
Relationship to General Indemnification Cap. The APA provides for a general indemnification cap of 25% of the Purchase Price ($45,000,000) for breaches of representations and warranties. However, environmental representations are not subject to the general indemnification cap to the extent covered by the environmental special indemnity discussed in Section VI.B below. This carve-out ensures that the environmental special indemnity functions as a separate and dedicated pool of coverage for environmental matters, rather than competing with other types of indemnification claims against the general cap.
B. Environmental Special Indemnity
In recognition of the identified TCE contamination at the Butler property and the potential for additional pre-closing environmental conditions at both facilities, the APA provides for a separate environmental special indemnity from Seller in favor of Buyer. The key terms of the environmental special indemnity are as follows:
Structure. Seller retains liability for pre-closing environmental conditions at the Butler and Meadville facilities and indemnifies Buyer against losses arising therefrom, subject to the terms and limitations of the environmental special indemnity provision.
Cap. The environmental special indemnity is subject to a maximum aggregate liability cap of $8,000,000 for all pre-closing environmental conditions at both facilities combined. This cap represents approximately 4.4% of the $180,000,000 Purchase Price.
Survival. The environmental special indemnity survives for 36 months from the Closing Date, coterminous with the survival period for environmental representations and warranties.
Scope. The environmental special indemnity covers the following categories of losses arising from pre-closing environmental conditions at either the Butler or Meadville facility:
(i) Costs of environmental investigation, assessment, and characterization;
(ii) Costs of remediation, cleanup, removal, and response actions;
(iii) Third-party claims for bodily injury, property damage, or natural resource damages;
(iv) Governmental response costs, penalties, and fines (to the extent insurable under applicable law);
(v) Reasonable attorneys' fees and consultant costs incurred in connection with the foregoing; and
(vi) Costs of compliance with any governmental order, consent decree, or administrative directive relating to pre-closing environmental conditions.
Relationship to General Indemnification. The environmental special indemnity is separate from and in addition to the general indemnification framework set forth in the APA. The $8,000,000 environmental special indemnity cap provides dedicated coverage that is substantially in excess of the current estimated remediation cost range of $1,200,000 to $2,800,000 for the Butler TCE issue. This headroom allows for potential cost overruns, newly discovered pre-closing conditions at either facility, or third-party claims that may arise in connection with the contamination.
Basket and De Minimis Threshold. Environmental special indemnity claims are not subject to the general indemnity basket ($1,350,000) or the de minimis threshold ($50,000) that apply to general indemnification claims under the APA. CPS is entitled to first-dollar recovery for all environmental special indemnity claims, subject only to the $8,000,000 aggregate cap. This is a favorable provision for CPS and reflects the parties' recognition that environmental costs — including investigation and monitoring costs — may accrue incrementally and that the imposition of a basket or de minimis threshold could impair CPS's ability to recover legitimate environmental costs.
Escrow. The $9,000,000 escrow deposit (representing 5% of the $180,000,000 Purchase Price) is held by Atlantic Fiduciary Trust Company pursuant to an Escrow Agreement entered into at closing. The escrow provides a readily available source of funds for environmental indemnity claims, among other indemnification claims, during the 18-month escrow period. However, it is important to note that the escrow period (18 months) is shorter than the environmental special indemnity survival period (36 months). This means that environmental indemnity claims arising during the first 18 months post-closing can be satisfied from the escrow fund (to the extent available after satisfaction of other indemnification claims), but claims arising or asserted during months 19 through 36 would need to be pursued directly against Seller and/or Seller's shareholders. As discussed in Section VIII.A below, this timing mismatch creates a residual credit risk that should be addressed through additional structural protections.
C. Closing Conditions
The APA includes the following environmental-related closing conditions that must be satisfied or waived as a condition to Buyer's obligation to consummate the Transaction:
(i) Accuracy of Environmental Representations. Seller's environmental representations and warranties must be accurate in all material respects as of the Closing Date (with appropriate bringdown qualifications), as if made on and as of the Closing Date (except for representations that speak as of a specified date, which must be accurate as of such date).
(ii) Absence of Material Adverse Change. There must be no material adverse change in the environmental condition of the Acquired Assets or the Butler or Meadville properties between the date of the APA and the Closing Date. This condition protects CPS against the discovery of significant new environmental issues or the material worsening of known conditions during the interim period.
(iii) Permit Transfer Documentation. Seller must deliver to Buyer at closing all documentation reasonably necessary to facilitate the transfer of environmental permits, including executed applications, authorizations, and cooperation commitments. Alternatively, Seller must deliver a covenant to cooperate in the post-closing permit transfer process.
VII. R&W INSURANCE CONSIDERATIONS
A. Policy Overview
In connection with the Transaction, CPS has obtained a representations and warranties insurance ("R&W") policy to provide additional protection against losses arising from breaches of Seller's representations and warranties in the APA. The key terms of the R&W policy are summarized below:
The R&W policy is structured as a buy-side policy, meaning that CPS (as the insured) can make claims directly against the insurance carrier for breaches of Seller's representations and warranties, without first having to pursue and exhaust its indemnification remedies against Seller. The retention functions as a deductible — CPS bears the first $1,800,000 of losses (dropping to $900,000 after 12 months) before the R&W policy responds.
B. Environmental Coverage Under R&W Policy
R&W insurance policies typically exclude or significantly limit coverage for known environmental conditions. This is a standard feature of the R&W insurance market and reflects underwriters' unwillingness to insure risks that have been specifically identified through due diligence and are therefore quantifiable (or at least foreseeable) by the insured.
Known Butler REC — Excluded. The TCE contamination at the Butler property, having been identified through the Phase I and Phase II ESA process conducted as part of the Transaction diligence, will almost certainly be treated as a "known matter" and excluded from R&W policy coverage. CPS should not rely on the R&W policy as a source of recovery for costs associated with the Butler REC, including remediation costs, monitoring costs, or third-party claims arising from the known TCE contamination. The $8,000,000 environmental special indemnity from Seller is the primary contractual protection for this known issue.
Unknown Environmental Conditions — Potential Coverage. The R&W policy may provide coverage for unknown environmental conditions — that is, environmental liabilities not identified in diligence that constitute breaches of Seller's environmental representations and warranties. For example, if post-closing investigation reveals previously unknown contamination at the Meadville property (where no RECs were identified in the Phase I ESA), or if a new and distinct contamination condition is discovered at the Butler property that was not identified in the Phase I or Phase II ESAs, the R&W policy could potentially respond to such claims, subject to the policy's environmental exclusion, retention, and other terms and conditions.
Standard Environmental Exclusions. R&W policies typically contain environmental exclusions that limit or eliminate coverage for certain categories of environmental liabilities. The standard environmental exclusions that may be present in the Northbridge policy include:
(i) Matters disclosed in the Phase I or Phase II ESA reports or otherwise known to the insured at the time of policy inception;
(ii) Asbestos-containing materials, lead-based paint, and mold (unless affirmatively covered by endorsement);
(iii) Per- and polyfluoroalkyl substances ("PFAS") contamination — an emerging area of environmental liability where R&W policy coverage varies significantly among carriers and is increasingly subject to specific exclusions or sublimits; and
(iv) Any environmental condition that was disclosed in the Seller's Disclosure Schedules or otherwise known to the Buyer.
The R&W policy should be reviewed in detail to confirm the precise scope of the environmental exclusion, including whether any sublimit or separate environmental coverage module is available for unknown conditions. We recommend that the deal team and the R&W broker (Philip J. Tanaka at Greystone Marsh Advisory LLC) jointly review the policy form and discuss with the underwriter at Northbridge whether any enhancements or endorsements can be obtained to broaden environmental coverage for unknown conditions.
Summary. Given that the known Butler REC is excluded from R&W coverage, the $8,000,000 environmental special indemnity from Seller is the primary contractual protection for the Butler TCE issue. For unknown environmental conditions, the R&W policy provides a secondary layer of protection up to the $18,000,000 policy limit (subject to the retention, environmental exclusion, and other policy terms). The combination of the Seller's environmental special indemnity and the R&W policy provides a layered risk allocation framework, though gaps exist — most notably with respect to known conditions that exceed the $8,000,000 environmental special indemnity cap and unknown conditions that fall within the scope of the R&W policy's environmental exclusion.
C. Potential Environmental Insurance (Pollution Legal Liability)
In light of the identified TCE contamination at the Butler property and the limitations of the R&W policy's environmental coverage, the deal team should consider whether CPS should obtain a standalone Pollution Legal Liability ("PLL") insurance policy as an additional layer of environmental risk protection. A PLL policy could provide coverage for:
(i) Cost overruns above the $8,000,000 environmental special indemnity cap, in the event that remediation costs or third-party liabilities associated with the Butler TCE contamination or other pre-closing environmental conditions exceed the indemnity cap;
(ii) Newly discovered environmental conditions at either the Butler or Meadville property that are not covered by the R&W policy due to the environmental exclusion;
(iii) Third-party bodily injury or property damage claims arising from known or unknown contamination at the acquired properties;
(iv) Regulatory defense costs and penalties associated with environmental enforcement actions;
(v) Business interruption losses resulting from environmental conditions that require operational shutdowns or curtailments; and
(vi) Transportation and off-site disposal liabilities, if applicable.
PLL policies are available on a site-specific basis and can be tailored to complement the R&W policy and the Seller's environmental special indemnity. PLL policies can be structured to provide coverage for both known and unknown conditions, although coverage for known conditions (such as the Butler REC) typically requires more detailed underwriting, including review of the Phase I and Phase II ESA reports, and may be subject to higher premiums and specific coverage terms. PLL policies are typically issued for terms of 5 to 10 years, providing longer-term protection than the 36-month environmental special indemnity survival period.
Recommendation. We recommend that the deal team discuss with Greystone Marsh Advisory LLC (Philip J. Tanaka) whether a PLL policy quote should be obtained for the Butler and Meadville properties. This evaluation should be prioritized if the final Phase II report indicates higher remediation costs approaching or exceeding the midpoint of the current estimate range ($2,000,000), or if the Phase II investigation reveals a more extensive plume than currently indicated by preliminary data. The cost of a PLL policy should be weighed against the incremental risk protection it provides, taking into account the $8,000,000 environmental special indemnity, the R&W policy coverage for unknown conditions, and CPS's overall risk tolerance.
VIII. RISK ASSESSMENT SUMMARY
A. Butler Property — Risk Level: Moderate
The environmental risk associated with the Butler property is assessed as moderate. This assessment is based on the following factors:
Confirmed Contamination. The TCE contamination at 12 ppb in shallow groundwater (exceeding the 5 ppb PA Act 2 MSC standard by a factor of 2.4) constitutes a confirmed environmental condition that will require remediation. This is not a speculative or potential risk — it is a known, quantified condition that must be addressed.
Remediation Cost Estimate Relative to Indemnity Cap. The current remediation cost estimate of $1,200,000 to $2,800,000 is well within the $8,000,000 environmental special indemnity cap, providing a substantial cushion of $5,200,000 to $6,800,000 above the estimated range. This cushion provides meaningful headroom for cost overruns, unexpected complications, or additional pre-closing conditions that may be discovered post-closing.
Localized Contamination. The preliminary Phase II data indicate that the TCE groundwater plume is localize

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

MEMORANDUM

MATTER NO.: 1006-00006

I. EXECUTIVE SUMMARY

II. SCOPE OF ENVIRONMENTAL DILIGENCE

III. PHASE I ESA FINDINGS

VI. CONTRACTUAL PROTECTIONS IN THE APA

VII. R&W INSURANCE CONSIDERATIONS

VIII. RISK ASSESSMENT SUMMARY

Record

Parties

Dates

Amounts