CONFIDENTIAL — ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT PRIVILEGED This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressees identified below and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
CALDERWOOD & HARKNESS LLP 600 Lexington Avenue, 30th Floor New York, New York 10022 Telephone: (212) 555-7800 Facsimile: (212) 555-7801
DUE DILIGENCE SUMMARY MEMORANDUM
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I. Executive Summary
This memorandum summarizes the findings of the legal due diligence review conducted by Calderwood & Harkness LLP on behalf of Crestline Packaging Solutions LLC ("CPS" or "Buyer"), an Ohio limited liability company, in connection with the proposed acquisition of substantially all of the assets of Allegheny Valley Packaging, Inc. ("AVP" or "Seller"), a Pennsylvania corporation (S-corporation for federal income tax purposes), headquartered at 250 Industrial Boulevard, Butler, Pennsylvania 16001. The proposed transaction is structured as an asset purchase for a total consideration of One Hundred Eighty Million Dollars ($180,000,000), to be governed by an Asset Purchase Agreement ("APA") under New York law. CPS is a portfolio company of Ridgeway Capital Partners Fund III, LP ("Ridgeway"), a private equity fund managed by Ridgeway Capital GP III LLC.
Our due diligence review commenced on April 14, 2025. This memorandum reflects documents and information reviewed through approximately May 28, 2025. We have been provided access to a virtual data room maintained by Seller's financial advisor, Veltrano Hargrave & Co. (managing director: Warren T. Blackwell), and have supplemented our review with direct document requests to Seller's counsel, Broadmoor Strauss & Kline LLP (lead partner: Nathan R. Feldstein; associate: Carolyn J. Ng). Seller's audited financial statements for the fiscal years ended December 31, 2022, 2023, and 2024 were prepared by Pendleton & Sawyer CPAs LLP. Buyer's financial diligence advisor is Hargrove Thornton LLP (engagement partner: Steven M. Raines). Buyer's environmental consultant is Greenvale Environmental Sciences LLC (project lead: Dr. Alicia Fernandez).
Overall Assessment. AVP is a well-established regional corrugated and specialty packaging manufacturer with trailing twelve-month ("TTM") revenue of approximately $95,000,000 and TTM adjusted EBITDA of approximately $18,500,000. At the proposed purchase price of $180,000,000, the implied enterprise value to adjusted EBITDA multiple is approximately 9.7x. AVP operates two manufacturing facilities — a primary plant in Butler, Pennsylvania and a secondary plant in Meadville, Pennsylvania — and employs approximately 340 individuals across both locations. The business has been family-owned and operated since its founding by Gerald W. Horvath and has developed a reputation for quality corrugated and specialty packaging products, including chemical-resistant and food-grade packaging solutions.
Key Risk Areas. While our review has not uncovered any issues that we believe should preclude the transaction from proceeding, we have identified the following material risk areas that require protective provisions in the APA and ancillary transaction documents:
1. Environmental Contamination at the Butler Facility. A Phase II Environmental Site Assessment identified trichloroethylene ("TCE") concentrations in shallow groundwater exceeding the Pennsylvania Act 2 Medium-Specific Concentration standard. Estimated remediation costs range from $1,200,000 to $2,800,000. A Seller environmental special indemnity of up to $8,000,000 is recommended.
2. Collective Bargaining Agreement and Successor Employer Obligations. Approximately 185 hourly production employees at the Butler facility are covered by a collective bargaining agreement with the International Paperworkers Union Local 814, which does not expire until March 31, 2027. CPS, as successor employer, will be bound by the terms of this agreement for the remaining approximately 21 months of its term.
3. Sales/Use Tax Exposure. Potential sales/use tax exposure of approximately $420,000 has been identified in three jurisdictions (Pennsylvania, Ohio, and West Virginia) for the periods 2021 through 2024, relating to potential under-collection or under-remittance on certain product categories.
4. Customer Concentration. AVP's top ten customers account for approximately 62% of TTM revenue, presenting material concentration risk that should be addressed through APA representations, R&W insurance coverage, and potentially a customer retention mechanism.
5. Third-Party Consent Requirements. Approximately 12 contracts require counterparty consent to assignment, including AVP's principal containerboard supply agreement with Consolidated Linerboard Corp. and certain customer agreements. Failure to obtain these consents could materially affect post-closing operations.
In addition to the foregoing, we have identified several ancillary matters requiring attention in the APA and at closing, including pension underfunding of approximately $3,100,000 (to be an Excluded Liability), environmental permit transfers at both facilities, realty transfer tax obligations, and Pennsylvania Bulk Sale Notice requirements.
The following sections of this memorandum detail our findings in each diligence category. A summary of material risks and recommended APA protections is set forth in Section XIV, and a list of outstanding diligence items requiring follow-up is set forth in Section XV.
II. Organizational and Corporate Matters
A. Entity Formation and Good Standing
AVP is a corporation organized under the laws of the Commonwealth of Pennsylvania. According to records of the Pennsylvania Department of State, AVP was incorporated on March 12, 1987, and has been assigned Pennsylvania Department of State Entity ID 6519847. AVP's federal employer identification number is 25-1784632.
We have confirmed through a recent good standing certificate, dated May 15, 2025, that AVP is in good standing with the Pennsylvania Department of State. The certificate confirms that AVP has filed all required annual reports and that its corporate status is active.
AVP has elected S-corporation status for federal income tax purposes under Subchapter S of the Internal Revenue Code. We have reviewed AVP's IRS Form 2553 (Election by a Small Business Corporation) on file in the data room, which reflects an effective date of January 1, 1988. The S-corporation election remains in effect, and gain on the proposed asset sale will pass through to AVP's shareholders for federal income tax purposes. The tax implications of this structure are discussed in greater detail in Section X of this memorandum.
AVP's registered agent for service of process in Pennsylvania is Keystone Corporate Services LLC, located at 1500 Market Street, Suite 3500, Philadelphia, Pennsylvania 19102. We have confirmed that the registered agent designation remains current.
We did not identify any foreign qualifications or registrations for AVP in any state other than Pennsylvania. Based on our review and representations from Seller's counsel, AVP conducts its manufacturing operations and business exclusively within the Commonwealth of Pennsylvania. AVP's customer base, however, extends to multiple states in the Mid-Atlantic and Midwestern regions, which is relevant to the sales/use tax exposure discussed in Section X.B.
B. Capitalization and Ownership
AVP is a closely held, family-owned corporation. Based on our review of AVP's Articles of Incorporation, as amended, AVP is authorized to issue 10,000 shares of common stock, no par value. As of the date of this memorandum, 1,000 shares of common stock are issued and outstanding, and all such shares are fully paid and non-assessable. The shares are held by the following three individuals:
There are no outstanding stock options, warrants, convertible notes, convertible preferred stock, phantom equity, stock appreciation rights, or any other instruments or agreements that could result in the issuance of additional shares of AVP common stock or give any person the right to acquire equity interests in AVP. There are no outstanding commitments or obligations to issue, sell, or transfer any shares.
We note that no shareholder agreement has been provided in the data room or in response to our supplemental document requests. We recommend confirming with Seller's counsel whether any buy-sell agreement, right-of-first-refusal agreement, voting agreement, or other arrangement among the shareholders exists. While such an agreement would not be expected to survive an asset sale, any restrictions on the shareholders' ability to approve the transaction should be identified and addressed prior to signing.
C. Corporate Governance
AVP's Board of Directors consists of three members: Gerald W. Horvath, Patricia A. Horvath, and Michael G. Horvath. The Board has not established any committees. Given the closely held nature of the business and the overlap between the Board and the shareholder group, this governance structure is consistent with our expectations for a company of this type and size.
The current officers of AVP are as follows:
• President: Gerald W. Horvath
• Vice President, Operations: Michael G. Horvath
• Controller: Diane L. Pulaski
We have reviewed available Board minutes and corporate resolutions dating back to January 2020. No material irregularities were noted in our review. The minutes reflect that AVP's Board has generally met on an annual basis, with additional special meetings as required. Routine corporate actions (approval of annual budgets, authorization of bank borrowings, and similar matters) are documented.
As noted above, Gerald W. Horvath is 68 years of age and intends to retire following the closing of the transaction. Mr. Horvath has served as the President and primary decision-maker of AVP since its founding in 1987. His departure will represent a significant change in leadership for the business. Michael G. Horvath, age 41, who currently serves as Vice President of Operations and holds a 10% equity interest, is expected to continue in an operational capacity following the closing, subject to the negotiation and execution of a separate consulting agreement. The retention of Michael G. Horvath is discussed further in Section VIII.E of this memorandum.
D. Recommendations
Based on our review of organizational and corporate matters, we recommend the following provisions and actions in connection with the APA and the closing of the transaction:
1. The APA should include fundamental representations from Seller regarding due organization, valid existence, and good standing of AVP under Pennsylvania law; the authority of AVP to execute, deliver, and perform the APA and the ancillary transaction documents; the capitalization of AVP and the absence of outstanding equity interests other than the 1,000 shares of common stock held by the three identified shareholders; and the absence of conflicts between the transaction and AVP's organizational documents, applicable law, or any material agreements.
2. The APA should include, as a condition to Buyer's obligation to close, the delivery of evidence of shareholder approval of the asset sale by all three shareholders (Gerald W. Horvath, Patricia A. Horvath, and Michael G. Horvath), consistent with the requirements of the Pennsylvania Business Corporation Law. Under 15 Pa.C.S. § 1932, a sale of substantially all assets requires the approval of holders of a majority of the votes cast by shareholders entitled to vote, unless the articles of incorporation require a greater vote. Given the family ownership structure and the absence of any identified disagreement among the shareholders, we do not anticipate difficulty in obtaining shareholder approval, but formal documentation should be required as a closing deliverable.
3. The corporate name "Allegheny Valley Packaging, Inc." is an excluded asset under the proposed transaction structure. However, CPS will require a transitional period during which it may use the AVP name for customer communications, labeling, packaging, and similar wind-down purposes. We recommend a six-month transitional license to be included in the APA or a separate side letter, with appropriate indemnification provisions running in favor of Seller with respect to Buyer's use of the name during the license period.
4. We recommend confirming with Seller's counsel whether any buy-sell agreement, right-of-first-refusal agreement, or other shareholder arrangement exists among the three shareholders that could create impediments or require additional consents in connection with the transaction.
III. Material Contracts
A. Overview
We have reviewed the material contracts of AVP that are proposed to be assumed by CPS as part of the Acquired Assets under the APA. In total, we have identified approximately 47 material contracts for potential assumption, including customer supply agreements, vendor and raw material supply agreements, equipment leases, and the collective bargaining agreement with the International Paperworkers Union Local 814 (which is discussed separately in Section VIII of this memorandum). The review described in this Section III covers customer contracts, supplier and vendor contracts, and equipment leases. A complete summary of all material contracts, including the parties, material terms, expiration dates, assignment and change-of-control provisions, and key commercial terms, is set forth in Appendix B to this memorandum.
Of the approximately 47 material contracts identified, approximately 12 contracts contain anti-assignment provisions, change-of-control provisions, or consent-to-assignment requirements that will require the consent of the applicable counterparty in connection with the assignment of such contracts to CPS. The status of consent solicitation and our recommendations regarding the treatment of these consents in the APA are discussed in Section III.E below.
B. Customer Contracts
AVP maintains contractual relationships with a broad base of customers in the corrugated and specialty packaging industry. Customer agreements generally take the form of supply agreements under which AVP commits to supply specified packaging products at agreed-upon pricing, subject to volume requirements, quality specifications, and delivery schedules.
Customer Concentration. A review of AVP's revenue data, as confirmed by Hargrove Thornton LLP, indicates that AVP's top ten customers account for approximately 62% of TTM revenue. This level of customer concentration is notable and presents a material risk in the context of the acquisition. The loss of one or more significant customer relationships following the closing could materially affect the revenue and profitability of the acquired business. We understand from discussions with Seller's counsel and management that AVP has maintained long-standing relationships with many of its key customers, in some cases spanning more than fifteen years. Nonetheless, the concentration risk warrants protective measures in the APA.
Contract Terms. The key customer agreements we reviewed generally provide for contract terms of 12 to 24 months, with automatic renewal provisions for successive one-year periods unless either party provides written notice of non-renewal within a specified notice period (typically 90 to 180 days prior to the end of the then-current term). Several customer agreements include most-favored-nation ("MFN") pricing clauses, under which AVP has agreed that the pricing offered to the customer will be no less favorable than the pricing offered to any other similarly situated customer for comparable products and volumes. Additionally, certain customer agreements contain volume discount commitments that provide for reduced per-unit pricing upon the achievement of specified annual volume thresholds.
Assignment and Consent Provisions. Several of the customer agreements contain provisions restricting assignment without the prior written consent of the customer. We have identified the specific agreements requiring consent and have included them in the consents tracker attached as Appendix H. For customer agreements representing more than 5% of TTM revenue, we recommend that the receipt of counterparty consent be included as a condition to Buyer's obligation to close, as discussed further in Section III.E.
Recommendations. We recommend that the APA include the following provisions addressing customer contracts:
• Representations from Seller regarding the existence, validity, and enforceability of all material customer contracts; the absence of defaults by either party; the absence of any notice of termination, non-renewal, or material dispute; and the absence of any material adverse change in the relationship with any key customer.
• A closing condition requiring receipt of counterparty consents for customer agreements representing more than 5% of TTM revenue, to the extent such agreements contain assignment or change-of-control restrictions.
• An interim operating covenant requiring Seller to maintain customer relationships in the ordinary course of business between signing and closing, including a prohibition on modifying, amending, or terminating any material customer agreement without the prior written consent of Buyer.
• Consideration of a customer retention holdback or earnout mechanism tied to the retention of specified key customer relationships for a period following closing. This approach would provide additional economic protection against customer attrition and is consistent with structures employed in comparable packaging industry transactions. We recommend discussing this mechanism with CPS management and the Ridgeway deal team.
C. Supplier / Vendor Contracts
AVP's manufacturing operations depend on a supply of raw materials, including containerboard (linerboard and corrugating medium), inks, adhesives, coatings, and other packaging consumables. We have reviewed the material supplier and vendor contracts in the data room and highlight the following:
Consolidated Linerboard Corp. Supply Agreement. AVP's principal supply agreement for containerboard is with Consolidated Linerboard Corp. ("CLC"), a major producer of linerboard and corrugating medium. Containerboard is the single largest raw material input for AVP's corrugated packaging operations, and the CLC agreement is therefore a critical contract for the ongoing business. Key terms of the CLC agreement include:
• Term: Three-year term, expiring December 31, 2026, with an automatic renewal for successive one-year periods unless terminated by either party upon 180 days' prior written notice.
• Pricing: Formula-based pricing tied to published containerboard indexes (specifically, the Pulp & Paper Week index for 42-lb. linerboard and 26-lb. corrugating medium), with quarterly price adjustments.
• Volume Commitment: Minimum annual volume commitment of approximately 35,000 tons.
• Change-of-Control Consent: The CLC agreement contains a change-of-control consent requirement. Specifically, the agreement provides that neither party may assign the agreement, in whole or in part, or permit a change of control of the assigning party, without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned, or delayed. This consent requirement is included in the approximately 12 contracts requiring counterparty consent.
• Termination Rights: CLC has the right to terminate the agreement upon 30 days' written notice in the event of an uncured material breach by AVP, including failure to meet minimum volume commitments or failure to make timely payments.
Given the critical nature of the CLC supply relationship, we recommend that obtaining CLC's written consent to the assignment of the CLC agreement be treated as a closing condition, or at minimum that the APA include a covenant requiring Seller to use commercially reasonable efforts to obtain such consent. We further recommend that CPS identify alternative containerboard suppliers as a contingency measure in the event that CLC consent cannot be obtained on a timely basis.
Other Vendor Agreements. We have reviewed AVP's other material vendor and supplier agreements for inks, adhesives, coatings, and packaging consumables. These agreements are generally short-term (one-year or less) supply arrangements entered into on standard commercial terms. We did not identify any unusual provisions, material defaults, or significant concerns in our review of these agreements. Certain of these agreements may contain assignment restrictions; to the extent applicable, they are captured in the consents tracker in Appendix H.
D. Equipment Leases
AVP leases certain manufacturing equipment under capital and operating leases, including printing presses, die-cutters, corrugators, and related equipment at both the Butler and Meadville facilities. We have reviewed the material equipment lease agreements in the data room and note the following:
• The equipment leases are with various lessors, including national equipment finance companies and original equipment manufacturers.
• Lease terms range from three to seven years, with certain leases including purchase options at the end of the lease term.
• Several of the equipment leases contain assignment or change-of-control consent requirements. These leases are included in the approximately 12 contracts requiring counterparty consent and are reflected in the consents tracker in Appendix H.
• No material defaults have been identified under any of the equipment leases.
We recommend that CPS identify all equipment leases that are to be assumed as part of the Acquired Assets and that all leases requiring consent to assignment be included in the consent solicitation process. For any equipment leases that cannot be assigned, CPS should evaluate whether to negotiate new lease arrangements directly with the lessors or to acquire the underlying equipment from Seller (if Seller has the right and ability to convey the equipment).
E. Third-Party Consent Status
As noted above, approximately 12 of the approximately 47 material contracts identified for assumption contain anti-assignment or change-of-control provisions that require the consent of the applicable counterparty to the assignment of the contract from AVP to CPS. These contracts include the CLC supply agreement, certain customer agreements, and several equipment leases.
As of the date of this memorandum, no consents have been obtained. Seller's counsel has indicated that consent solicitation will commence following the execution of the APA, which is currently estimated for on or about June 15, 2025. We recommend that the APA include the following provisions addressing third-party consents:
1. Closing Condition for Material Consents. The receipt of counterparty consent should be a condition to Buyer's obligation to close with respect to: (a) the CLC supply agreement; and (b) any customer agreement with a counterparty that accounts for more than 5% of AVP's TTM revenue and that contains an assignment or change-of-control consent requirement. Failure to obtain these material consents should give Buyer the right (but not the obligation) to terminate the APA prior to closing.
2. Commercially Reasonable Efforts Covenant. For all other contracts requiring counterparty consent (i.e., those not rising to the level of a closing condition), the APA should include a covenant requiring Seller to use commercially reasonable efforts to obtain such consents prior to closing. To the extent any such consents are not obtained by closing, the APA should provide for a post-closing cooperation mechanism under which Seller and Buyer will continue to use commercially reasonable efforts to obtain the outstanding consents, with Buyer receiving the economic benefit of the affected contracts through a subcontracting, agency, or similar arrangement pending receipt of consent.
3. Consents Tracker. We have prepared a Regulatory and Third-Party Consents Tracker (attached as Appendix H) identifying each contract requiring consent, the relevant counterparty, the specific consent provision, the status of consent solicitation, and the classification of each consent as either a closing condition or an "efforts" item. This tracker should be updated regularly between signing and closing.
F. Recommendations
In summary, we recommend the following APA provisions addressing material contracts:
• Comprehensive representations from Seller regarding the existence, validity, enforceability, and current status of all material contracts; the absence of defaults by AVP or, to Seller's knowledge, by any counterparty; and the absence of any notice of termination, non-renewal, or material dispute.
• Disclosure schedules listing all Assumed Contracts, identifying those requiring counterparty consent, and flagging any contracts with MFN clauses, volume commitments, or other unusual provisions.
• The closing conditions and commercially reasonable efforts covenants described in Section III.E above.
• An interim operating covenant prohibiting Seller from entering into, modifying, amending, or terminating any material contract between signing and closing without Buyer's prior written consent.
• Customer concentration risk should be addressed through a combination of APA representations, R&W insurance coverage (as discussed in Section XIII), and a potential customer retention holdback or earnout mechanism.
IV. Real Property
A. Owned Properties
AVP owns two manufacturing facilities in western Pennsylvania, both of which are included in the Acquired Assets and will be conveyed to CPS at closing. A detailed summary of the real property, including title commitment status, survey status, and environmental permit information, is set forth in Appendix C.
1. Butler Plant
Address: 250 Industrial Boulevard, Butler, Pennsylvania 16001
The Butler Plant is AVP's primary manufacturing facility and corporate headquarters. The facility consists of approximately 285,000 square feet of manufacturing, warehouse, and office space situated on approximately 22.5 acres of land in Butler County, Pennsylvania. Approximately 290 of AVP's approximately 340 total employees work at the Butler facility, including the hourly production employees covered by the collective bargaining agreement with the International Paperworkers Union Local 814.
Conveyance of the Butler Plant from AVP to CPS will be effected by a Pennsylvania Special Warranty Deed, which warrants title against defects arising by, through, or under the grantor but not against defects arising from prior owners or other sources. A title commitment has been ordered from Great Lakes Title & Escrow Inc., and owner's title insurance is to be issued by Sentinel Title Insurance Corporation. The title commitment is currently under review.
The Butler facility operates under a Pennsylvania Department of Environmental Protection ("PA DEP") Title V operating permit, Permit No. TV-10-00287, which is an air quality permit required for AVP's manufacturing operations at the facility. This permit will require transfer or re-issuance to CPS following the closing. The timing and process for permit transfer are discussed in Section VI.D and Section XI.B of this memorandum.
A Phase I Environmental Site Assessment and a Phase II Environmental Site Assessment have been conducted at the Butler Plant by Greenvale Environmental Sciences LLC. The results of these assessments, including the identification of a Recognized Environmental Condition relating to historical solvent use and disposal, are discussed in detail in Section VI of this memorandum.
2. Meadville Plant
Address: 1480 Conneaut Lake Road, Meadville, Pennsylvania 16335
The Meadville Plant is AVP's secondary manufacturing facility. The facility consists of approximately 110,000 square feet of manufacturing and warehouse space situated on approximately 8.2 acres of land in Crawford County, Pennsylvania. Approximately 50 of AVP's employees work at the Meadville facility. The Meadville facility is a non-union location.
Conveyance of the Meadville Plant from AVP to CPS will be effected by a Pennsylvania Special Warranty Deed. As with the Butler Plant, a title commitment has been ordered from Great Lakes Title & Escrow Inc., and owner's title insurance is to be issued by Sentinel Title Insurance Corporation.
The Meadville facility operates under a PA DEP General Permit GP-3, which will require transfer or re-issuance to CPS following the closing.
A Phase I Environmental Site Assessment was conducted at the Meadville Plant by Greenvale Environmental Sciences LLC. No Recognized Environmental Conditions were identified, and no further investigation was recommended. The Meadville facility presents no material environmental concerns based on the information reviewed to date.
B. Leased Properties
No leased real property was identified in our review. AVP does not lease any office, warehouse, or manufacturing space. Both the Butler and Meadville facilities are wholly owned by AVP and are included in the Acquired Assets.
C. Title and Survey
Preliminary title commitments for both the Butler and Meadville properties have been ordered from Great Lakes Title & Escrow Inc. and are currently under review. Our preliminary review of the title commitments has not identified any material title defects or encumbrances that would impede the conveyance or the operation of the facilities. Standard permitted encumbrances have been noted, including utility easements, public road right-of-way easements, and zoning restrictions applicable to industrial-zoned properties.
ALTA/NSPS land title surveys have been ordered for both properties from a licensed surveyor. The surveys are pending as of the date of this memorandum. We expect to receive the completed surveys in June 2025 and will review them for encroachments, boundary discrepancies, and other survey matters.
We will provide a supplemental report upon completion of our review of the final title commitments and surveys. Any exceptions or defects identified will be addressed in the APA through the title cure process and the specification of Permitted Encumbrances on the applicable disclosure schedule.
D. PA Realty Transfer Tax
The conveyance of real property in Pennsylvania is subject to a 2% combined state and local realty transfer tax. The tax is computed based on the value of the real property conveyed, as determined by the purchase price allocation attributable to real property.
Based on our preliminary discussions with Hargrove Thornton LLP and Leonard Cross regarding the expected purchase price allocation under IRC § 1060, we estimate that approximately $18,000,000 of the $180,000,000 purchase price will be allocated to real property (encompassing both the Butler and Meadville facilities). This allocation is subject to the final purchase price allocation to be agreed by the parties within 90 days post-closing, as discussed in Section X.D.
At an estimated real property allocation of $18,000,000, the estimated Pennsylvania realty transfer tax is approximately $360,000. Under the terms being negotiated in the APA, the realty transfer tax will be split equally between Buyer and Seller, resulting in an estimated cost of approximately $180,000 to each party.
E. Recommendations
We recommend the following provisions and actions with respect to real property:
1. Owner's title insurance policies from Sentinel Title Insurance Corporation should be obtained for both the Butler and Meadville properties, in amounts equal to the allocated values of the respective properties. The title insurance policies should include standard endorsements for zoning, survey, environmental lien, and other matters customary for commercial and industrial properties.
2. The APA should include comprehensive real property representations from Seller, covering: (a) good and marketable title to each property, free and clear of all liens and encumbrances other than Permitted Encumbrances; (b) the condition of the properties, including the structural integrity and condition of improvements; (c) compliance with all applicable zoning, building, and land use laws and regulations; (d) the absence of pending or threatened condemnation or eminent domain proceedings; and (e) environmental matters (cross-referenced to the environmental representations discussed in Section VI).
3. Environmental permit transfer and re-issuance timelines should be confirmed with PA DEP. As discussed in Section VI.D and Section XI.B, the Title V operating permit for the Butler facility and the General Permit GP-3 for the Meadville facility will each require transfer or re-issuance to CPS. Pre-closing applications should be initiated to minimize any gap in permit coverage. If permit transfers cannot be completed prior to closing, interim operating arrangements should be established.
4. The Special Warranty Deeds should be prepared in standard Pennsylvania form and reviewed by Great Lakes Title & Escrow Inc. prior to execution.
V. Intellectual Property
A. Overview
AVP's intellectual property portfolio is modest in scope but includes certain assets of significant value to the ongoing business. The intellectual property included in the Acquired Assets consists of the following categories:
• Trademarks and trade names used in connection with AVP's packaging products and services, excluding the corporate name "Allegheny Valley Packaging, Inc.," which is an excluded asset subject to a six-month transitional license arrangement;
• Proprietary formulations for specialty chemical-resistant coatings and food-grade packaging applications;
• Customer lists, customer specifications, and related commercial data;
• Certain trade secrets and know-how related to AVP's manufacturing processes, equipment configurations, and quality control methodologies; and
• Domain names and website content associated with the business.
Notably, we did not identify any issued patents or pending patent applications in our review. AVP's competitive advantage in the specialty packaging area appears to derive primarily from its proprietary formulations and accumulated manufacturing know-how rather than from patented technology.
B. Trademark Registrations
AVP maintains a limited trademark portfolio. Our search of the United States Patent and Trademark Office records and the Pennsylvania Department of State's trademark records did not reveal any federal or state trademark registrations held by AVP. AVP appears to rely on common law trademark rights in certain product names and design marks used in connection with its packaging products. These common law marks provide some degree of protection within AVP's geographic market and trade channels but do not afford the broader protections available under federal registration.
We recommend that CPS file federal trademark applications with the USPTO for key marks to be retained and used following the closing. Federal registration would provide nationwide priority (subject to the rights of prior users), a presumption of validity and ownership, access to federal courts for infringement claims, and the ability to record the marks with U.S. Customs and Border Protection.
C. Trade Secrets and Proprietary Formulations
AVP's specialty chemical-resistant coatings and food-grade packaging formulations represent significant proprietary value. These formulations have been developed over more than two decades by AVP's technical personnel and are central to the differentiation of AVP's specialty packaging products in the marketplace. According to information provided by Seller, the formulations are maintained as trade secrets and have not been publicly disclosed.
However, our review revealed that AVP does not maintain a formal trade secret protection program. Specifically, we did not identify any of the following:
• Restricted access protocols or "need-to-know" limitations governing access to formulation data;
• Confidentiality or non-disclosure agreements with employees who have access to the formulations;
• Confidentiality agreements with third-party vendors or contractors who may have exposure to proprietary manufacturing processes;
• Physical or electronic security measures specifically designed to protect trade secret information; or
• Written policies designating certain information as confidential or trade secret.
The absence of a formal trade secret protection program creates a risk that the trade secret status of the formulations could be challenged in the event of a misappropriation claim or other dispute. Under the Pennsylvania Uniform Trade Secrets Act, 12 Pa.C.S. § 5301 et seq., a trade secret must be the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The lack of formal protections could be cited by a defendant in any future trade secret misappropriation action as evidence that AVP (and, by extension, CPS) did not take reasonable steps to protect the information.
We recommend that the APA's intellectual property representations address the ownership, scope, and current state of protection of the formulations and other trade secrets. Post-closing, CPS should implement a formal trade secret protection program that includes, at a minimum, confidentiality agreements with employees and contractors, restricted access controls, and documented policies governing the handling of proprietary information.
D. Transitional Name License
The corporate name "Allegheny Valley Packaging, Inc." is an excluded asset under the proposed transaction structure. Following the closing, AVP (or its successor) will retain ownership of the corporate name. However, CPS will require a transitional period during which it may continue to use the AVP name in connection with customer communications, invoicing, product labeling, marketing materials, and similar purposes in order to facilitate an orderly transition.
We recommend a six-month transitional license, to be granted by Seller to Buyer at closing, permitting the use of the "Allegheny Valley Packaging" name and associated logos for wind-down purposes only. The terms of the transitional license should include:
• A defined license period of six months following the closing date;
• A royalty-free, non-exclusive, non-transferable license;
• Restrictions limiting the use of the name to transitional purposes (customer notifications, existing inventory labeling, and similar wind-down activities);
• Quality control provisions to protect Seller's goodwill in the name during the license period;
• An indemnification obligation from Buyer to Seller for any claims arising from Buyer's use of the name during the license period; and
• Automatic termination at the end of the six-month period, with provisions for the destruction or return of materials bearing the licensed name.
The transitional license may be included as a provision in the APA or set forth in a separate side letter agreement executed at closing.
E. Recommendations
1. An intellectual Property Assignment Agreement should be prepared and executed at closing, capturing all intellectual property included in the Acquired Assets, including trademarks and trade names (other than the excluded corporate name), proprietary formulations, customer lists, trade secrets, know-how, domain names, and related assets. The IP Assignment Agreement should include appropriate representations and warranties regarding ownership, freedom from encumbrances, and the absence of infringement claims.
2. The non-competition and non-solicitation agreements to be executed at closing with Gerald W. Horvath and Michael G. Horvath should include IP-related restrictive covenants, including provisions prohibiting the use or disclosure of trade secrets and proprietary information and requiring the assignment of any IP developed during the post-closing period that relates to the acquired business.
3. The consulting agreement with Michael G. Horvath should include robust confidentiality provisions and an IP assignment clause covering any inventions, formulations, or other intellectual property developed by Mr. Horvath during the term of the consulting engagement.
4. Post-closing, CPS should implement a formal trade secret protection program and file federal trademark applications for key marks, as discussed above.
VI. Environmental Matters
A. Phase I ESA — Butler Plant
A Phase I Environmental Site Assessment of the Butler Plant was conducted by Greenvale Environmental Sciences LLC under the supervision of Dr. Alicia Fernandez in accordance with ASTM Standard E1527-21. The Phase I ESA report was delivered on May 5, 2025.
The Phase I ESA identified one Recognized Environmental Condition ("REC") at the Butler property. The REC relates to a historical solvent use and disposal area located at the northeast corner of the Butler property. Based on the review of historical records, aerial photographs, regulatory databases, and interviews with current and former AVP personnel, the Phase I ESA determined that chlorinated solvents were historically used at the facility for degreasing and cleaning purposes, and that waste solvents may have been disposed of in an unlined surface impoundment or disposal area at the northeast corner of the property during the 1970s and 1980s, prior to the implementation of current environmental regulations governing hazardous waste disposal.
The Phase I ESA recommended that a Phase II investigation be conducted to evaluate the nature and extent of any contamination associated with the identified REC.
No other Recognized Environmental Conditions, Controlled Recognized Environmental Conditions, or Historical Recognized Environmental Conditions were identified at the Butler property. The Phase I ESA also noted certain de minimis conditions (e.g., minor staining on concrete floors in the manufacturing area) that do not rise to the level of RECs and do not require further investigation.
B. Phase II ESA — Butler Plant
In response to the recommendation in the Phase I ESA, Greenvale Environmental Sciences LLC commenced a Phase II Environmental Site Assessment of the Butler Plant on May 12, 2025. The scope of the Phase II ESA included the installation of soil borings and temporary groundwater monitoring wells at and around the identified REC area at the northeast corner of the property, followed by laboratory analysis of soil and groundwater samples for volatile organic compounds ("VOCs"), including chlorinated solvents.
Preliminary results of the Phase II ESA, communicated to Calderwood & Harkness by Dr. Fernandez on May 22, 2025, indicate the following:
• Soil Samples: Soil samples collected from the REC area showed detectable concentrations of trichloroethylene ("TCE") in subsurface soils, but at concentrations below the Pennsylvania Act 2 Soil-to-Groundwater Medium-Specific Concentration ("MSC") screening levels. No soil remediation appears to be required based on preliminary results.
• Groundwater Samples: Groundwater samples collected from shallow monitoring wells in the REC area showed TCE concentrations of 12 parts per billion ("ppb"). The applicable Pennsylvania Act 2 Medium-Specific Concentration standard for TCE in groundwater used in a non-residential setting is 5 ppb. The measured TCE concentration of 12 ppb exceeds the applicable MSC standard by 7 ppb, or approximately 140% of the standard.
• Estimated Remediation Costs: Greenvale Environmental Sciences LLC has provided a preliminary estimate of remediation costs ranging from $1,200,000 to $2,800,000, depending on the remediation methodology selected. At the lower end, monitored natural attenuation ("MNA") — a passive remediation approach that relies on natural processes to reduce contaminant concentrations over time, supplemented by periodic monitoring — could be employed at an estimated cost of approximately $1,200,000 over a projected five- to eight-year monitoring period. At the higher end, active groundwater treatment (e.g., in-situ chemical oxidation, pump-and-treat, or enhanced bioremediation) could reduce contaminant concentrations more rapidly at an estimated cost of approximately $2,200,000 to $2,800,000, depending on the specific technology selected and site conditions encountered during implementation.
The final Phase II ESA report is expected to be delivered in June 2025. The final report may recommend additional sampling or delineation of the contaminant plume, which could affect the remediation cost estimates. We recommend monitoring the completion of the Phase II ESA and obtaining the final report and refined cost estimates prior to the execution of the APA (currently estimated for on or about June 15, 2025).
C. Phase I ESA — Meadville Plant
A Phase I Environmental Site Assessment of the Meadville Plant was conducted by Greenvale Environmental Sciences LLC under the supervision of Dr. Alicia Fernandez in accordance with ASTM Standard E1527-21. The Phase I ESA report was delivered on May 5, 2025.
No Recognized Environmental Conditions, Controlled Recognized Environmental Conditions, or Historical Recognized Environmental Conditions were identified at the Meadville property. The Phase I ESA concluded that no further environmental investigation is warranted at the Meadville facility. Based on the results of the Phase I ESA, the Meadville property does not present material environmental risk.
D. Environmental Permits
The Butler facility operates under a PA DEP Title V operating permit, Permit No. TV-10-00287, which is an air quality permit required for the facility's manufacturing operations, including the operation of printing presses, corrugators, and coating application equipment. The Meadville facility operates under a PA DEP General Permit GP-3, which authorizes certain air emissions associated with manufacturing operations at smaller facilities.
Both permits will require transfer or re-issuance to CPS following the closing. PA DEP's process for permit transfer typically requires the submission of an application and supporting documentation demonstrating the new owner's ability to comply with permit conditions. Processing times for permit transfers can vary but generally range from 30 to 90 days. We recommend that applications for permit transfer be initiated in advance of closing to minimize any gap in permit coverage. In the interim, Seller's existing permits may continue to authorize operations at the facilities, but this should be confirmed with PA DEP.
E. Recommendations
Based on our review of environmental matters, we recommend the following provisions and actions:
1. Environmental Representations. The APA should include comprehensive environmental representations from Seller, covering: (a) compliance with all applicable Environmental Laws; (b) possession of all required Environmental Permits; (c) the absence of pending or threatened environmental claims, actions, or proceedings; (d) the absence of Releases of Hazardous Substances at, on, under, or from the properties, except as disclosed; (e) the absence of underground storage tanks; and (f) the delivery of all environmental reports, studies, and correspondence in Seller's possession or control. Environmental representations should survive the closing for a period of 36 months.
2. Seller's Environmental Special Indemnity. The APA should include a special environmental indemnity from Seller, covering pre-closing environmental conditions at both the Butler and Meadville facilities, with a maximum liability cap of $8,000,000 and a survival period of 36 months following the closing. This special indemnity is separate from, and in addition to, the general indemnification provisions of the APA and is designed to address the identified TCE contamination at the Butler facility as well as any other pre-closing environmental conditions that may be discovered during the indemnification period.
3. Interaction with R&W Insurance. We have been in communication with Greystone Marsh Advisory LLC (broker: Philip J. Tanaka) regarding the treatment of the Butler environmental REC under the proposed R&W insurance policy from Northbridge Specialty Insurance Company (Policy No. NSW-2025-07812). It is expected that the Butler environmental REC will be treated as a "known matter" exclusion under the R&W policy, meaning that losses arising from the identified TCE contamination will not be covered by R&W insurance. Seller's environmental special indemnity serves as the primary coverage mechanism for this identified condition. Any environmental conditions that are not identified as of closing and are not otherwise excluded from the R&W policy would be eligible for coverage under the policy, subject to the policy's terms, conditions, and retention.
4. Phase II Monitoring. The final Phase II ESA report is expected in June 2025. Additional sampling may be recommended by Greenvale Environmental Sciences LLC to further delineate the contaminant plume and refine the remediation cost estimates. We recommend that the parties await the final Phase II results before finalizing the APA, and that the environmental special indemnity cap and other environmental provisions be calibrated based on the final remediation cost estimates.
5. Environmental Permit Transfers. Applications for transfer of PA DEP Permit No. TV-10-00287 (Butler) and General Permit GP-3 (Meadville) should be prepared and submitted in advance of closing. The APA should include a Seller cooperation covenant requiring Seller to assist in the permit transfer process, and the parties should consider whether the completion of permit transfers should be a closing condition or whether an interim operating arrangement (under which CPS operates under Seller's existing permits pending transfer) is feasible and legally permissible.
A summary of the environmental reports is set forth in Appendix D.
VII. Litigation and Disputes
A. Pending Litigation
Our review of AVP's litigation history and current litigation docket, including searches of federal and state court records in Pennsylvania, has not identified any material pending litigation against AVP. Specifically, we did not find any pending claims involving breach of contract, product liability, employment discrimination, intellectual property infringement, environmental enforcement actions, or other categories of material litigation.
The only pending claims identified are approximately three open workers' compensation claims relating to routine slip-and-fall injuries at the Butler facility. These claims are within the ordinary course of AVP's business operations and are covered by AVP's existing workers' compensation insurance program. Based on the information reviewed, the amounts at issue in these claims are not material to the transaction.
We note that our litigation search covered federal district courts and the Court of Common Pleas in Butler County and Crawford County, Pennsylvania, as well as online docket searches of appellate courts in Pennsylvania. The results of the litigation search are summarized in Appendix G.
B. Threatened Claims
We did not identify any material threatened claims against AVP. We reviewed correspondence files provided in the data room and inquired of Seller's counsel regarding any demand letters, notices of claim, or other communications suggesting the possibility of future litigation. No material items were identified.
AVP does receive, in the ordinary course of its business, customer complaints and warranty claims relating to product quality, delivery, and similar operational matters. These are routine in nature and have historically been resolved through direct negotiation, product replacement, or credit issuances, without the filing of formal litigation. We did not identify any customer complaint or warranty matter that is likely to give rise to material litigation.
C. Recommendations
1. The APA should include representations from Seller regarding the absence of material pending or threatened litigation, arbitration, or governmental proceedings involving AVP or any of the Acquired Assets. These representations should cover claims, actions, suits, proceedings, and investigations at law or in equity, before any court, tribunal, arbitrator, or governmental authority.
2. Product liability claims relating to products shipped by AVP prior to the closing should be classified as Excluded Liabilities and should not transfer to CPS. We recommend that the APA include a clear allocation of product liability risk, with all product liability claims arising from products manufactured, sold, or shipped by AVP prior to the closing being retained by Seller. CPS should confirm that AVP maintains or will obtain adequate tail insurance coverage for pre-closing product liability claims.
3. Workers' compensation claims relating to injuries occurring prior to the closing are pre-closing liabilities and should not transfer to CPS. We recommend confirming that AVP's workers' compensation insurance program is occurrence-based (rather than claims-made) so that coverage will continue to respond to pre-closing injuries regardless of when the claim is filed.
VIII. Employment and Benefits
A. Workforce Overview
AVP employs approximately 340 individuals across its two facilities, allocated as follows:
CPS plans to extend offers of employment to substantially all of AVP's employees in connection with the closing. This approach is consistent with the operational continuity objectives of the acquisition and also serves to mitigate potential exposure under the Worker Adjustment and Retraining Notification ("WARN") Act, as discussed in Section VIII.D below.
B. Collective Bargaining Agreement
Approximately 185 hourly production employees at the Butler facility are represented by the International Paperworkers Union ("IPU") Local 814 and are covered by a collective bargaining agreement (the "CBA") between AVP and IPU Local 814. The current CBA has an effective date of April 1, 2024 and expires on March 31, 2027, leaving approximately 21 months remaining as of the estimated closing date of July 31, 2025.
The CBA is proposed to be assumed by CPS as an Assumed Contract under the APA. As the purchaser of substantially all of AVP's assets and the employer of the bargaining unit employees, CPS will be deemed a "successor employer" under applicable labor law, which imposes certain obligations with respect to the recognition of the union and the continuation of the existing CBA terms. Key provisions of the CBA include:
• Wages: The CBA provides for a base wage scale ranging from approximately $18.50 to $28.75 per hour, depending on job classification and seniority. Annual wage increases of approximately 2.5% to 3.0% are scheduled for each year of the CBA term.