PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 600 Lexington Avenue, 30th Floor New York, NY 10022
Matter No.: 1006-00006
To: Deal Team — Harrison Wexford (Partner), Beatrice Holloway (Partner), Derek Okonkwo (Associate), Leonard Cross (Partner, Tax)
From: Megan Chu (Associate)
Date: May 2, 2025
Re: Deal Summary Memorandum — Crestline Packaging Solutions LLC — Acquisition of Substantially All Assets of Allegheny Valley Packaging, Inc.
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I. Executive Summary
This memorandum summarizes the material terms, structure, parties, financing, and key diligence considerations in connection with the proposed acquisition by Crestline Packaging Solutions LLC ("Crestline" or "CPS"), an Ohio limited liability company and portfolio company of Ridgeway Capital Partners Fund III, LP ("Ridgeway" or the "Sponsor"), of substantially all of the assets of Allegheny Valley Packaging, Inc. ("AVP" or the "Seller"), a Pennsylvania corporation (S-corporation for federal income tax purposes), for an aggregate purchase price of One Hundred Eighty Million Dollars ($180,000,000) (the "Purchase Price"). The transaction is structured as an asset purchase and will be governed by an Asset Purchase Agreement (the "APA") to be governed by New York law.
AVP is a family-owned regional corrugated and specialty packaging manufacturer headquartered in Butler, Pennsylvania, with a secondary manufacturing facility in Meadville, Pennsylvania. AVP has trailing twelve-month ("TTM") revenue of approximately $95,000,000 and TTM adjusted EBITDA of approximately $18,500,000. At the stated Purchase Price of $180,000,000, the transaction implies an enterprise value to adjusted EBITDA multiple of approximately 9.7x ($180,000,000 ÷ $18,500,000 ≈ 9.73x).
The acquisition constitutes a bolt-on addition to Crestline's existing manufacturing footprint, which currently comprises six plants located across Ohio, Indiana, and Kentucky, employing approximately 1,400 employees and generating TTM revenue of approximately $620,000,000. Crestline was acquired by Ridgeway Capital Partners Fund III, LP in 2021 for approximately $475,000,000 and has since completed two prior bolt-on acquisitions, making the AVP acquisition its third bolt-on transaction under Ridgeway ownership.
Calderwood & Harkness LLP represents Crestline as buyer's counsel. The engagement letter was signed on April 1, 2025, and the matter was formally opened on April 8, 2025. A letter of intent ("LOI") was executed on April 10, 2025, which includes a 60-day exclusivity period expiring on June 9, 2025. The estimated APA execution date is June 15, 2025, with an estimated Closing Date of July 31, 2025. The outside date (or "drop-dead date") under the APA is September 30, 2025.
Based on the applicable threshold analysis following asset carve-out review, a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), is not required. A separate HSR Act Analysis Memorandum is being prepared to memorialize this conclusion.
On the sell side, Veltrano Hargrave & Co. (Warren T. Blackwell, Managing Director) acted as AVP's investment banker and ran a limited sale process, through which Crestline was contacted as a strategic buyer.
The Purchase Price will be funded through a combination of (a) a $130,000,000 incremental term loan under Crestline's existing credit agreement (Amendment No. 3), with Pinnacle National Bank, N.A. serving as Administrative Agent and Lead Arranger, and (b) a $50,000,000 equity contribution from Ridgeway Capital Partners Fund III, LP, pursuant to an equity commitment letter dated April 22, 2025.
Key transaction features and risk considerations are discussed in detail throughout this memorandum and include, among other matters: (i) an environmental Recognized Environmental Condition ("REC") at the Butler facility involving trichloroethylene ("TCE") contamination, with preliminary remediation cost estimates of $1,200,000 to $2,800,000, covered by an $8,000,000 environmental special indemnity from Seller; (ii) a collective bargaining agreement with International Paperworkers Union Local 814 covering approximately 185 hourly employees, which Crestline will assume as a successor employer; (iii) customer concentration, with the top 10 customers representing approximately 62% of TTM revenue; (iv) sales and use tax exposure of approximately $420,000 across three jurisdictions (PA, OH, WV); and (v) underfunded pension obligations of approximately $3,100,000, which will be treated as Excluded Liabilities.
This memorandum is intended to serve as a comprehensive reference for the deal team and should be read in conjunction with the various sub-memoranda and analyses referenced herein.
II. Parties and Key Personnel
A. Buyer — Crestline Packaging Solutions LLC
Full Legal Name: Crestline Packaging Solutions LLC
Entity Type: Ohio limited liability company
Headquarters: 4100 Commerce Parkway, Suite 800, Akron, OH 44308
Registered Agent: Capitol Statutory Services Inc., 65 East Ashbury Asset Advisors, Columbus, OH 43215
Ohio Secretary of State Filing No.: 4287653
Federal Employer Identification Number (EIN): 84-3291047
Key Officers and Personnel:
• Chief Executive Officer: Thomas R. Garner
• Chief Financial Officer: Priya Mehta
• General Counsel: Sandra K. Liu
Business Description: Crestline is a mid-market manufacturer of corrugated packaging, industrial containers, and specialty chemical-resistant packaging materials. The company currently operates six manufacturing plants located in Ohio, Indiana, and Kentucky, and employs approximately 1,400 individuals across its platform. CPS has generated TTM revenue of approximately $620,000,000. Crestline was acquired by Ridgeway Capital Partners Fund III, LP in 2021 for approximately $475,000,000 and has subsequently completed two bolt-on acquisitions prior to the contemplated AVP transaction. The AVP acquisition would represent CPS's third bolt-on and would expand its geographic footprint into western Pennsylvania while adding complementary product capabilities in folding cartons and specialty coatings.
B. Sponsor — Ridgeway Capital Partners Fund III, LP
Full Legal Name: Ridgeway Capital Partners Fund III, LP
Entity Type: Delaware limited partnership
General Partner: Ridgeway Capital GP III LLC, a Delaware limited liability company
Principal Office: 277 Park Avenue, 38th Floor, New York, NY 10172
Federal Employer Identification Number (EIN): 83-2107594
Managing Partners: Julian C. Adler and Francesca DiNardo
Background: Ridgeway Capital Partners is a private equity firm focused on middle-market industrial and specialty manufacturing businesses. Fund III held its final close in 2020 at aggregate capital commitments of $2.8 billion. Ridgeway's investment thesis centers on acquiring market-leading platforms in niche industrial verticals and pursuing value creation through operational improvement and strategic bolt-on acquisitions. Crestline represents one of Fund III's core platform investments.
Role in the Transaction: Ridgeway is the indirect parent and equity sponsor of Crestline. Ridgeway is not a party to the APA. However, Ridgeway will provide the following in connection with the transaction:
• Equity Commitment Letter: Dated April 22, 2025, committing $50,000,000 to CPS for purposes of funding a portion of the Purchase Price. Subject to customary conditions including execution of the definitive APA and satisfaction of closing conditions therein.
• Limited Guarantee: Ridgeway Capital Partners Fund III, LP (acting by its general partner, Ridgeway Capital GP III LLC) will deliver a limited guarantee in favor of AVP guaranteeing certain payment obligations of CPS under the APA, including the reverse termination fee. The scope and terms of the limited guarantee are under negotiation and will be finalized in connection with the APA.
C. Seller — Allegheny Valley Packaging, Inc.
Full Legal Name: Allegheny Valley Packaging, Inc.
Entity Type: Pennsylvania corporation (S-corporation for federal income tax purposes)
Headquarters: 250 Industrial Boulevard, Butler, PA 16001
Registered Agent: Keystone Corporate Services LLC, 1500 Market Street, Suite 3500, Philadelphia, PA 19102
Pennsylvania Department of State Entity ID: 6519847
Federal Employer Identification Number (EIN): 25-1784632
Key Officers, Directors, and Shareholders:
• President / Founder: Gerald W. Horvath (age 68; 72% shareholder). Mr. Horvath founded AVP in 1987 and has served as its President since inception. Mr. Horvath intends to retire following the closing of the transaction. He will be subject to a Non-Competition and Non-Solicitation Agreement.
• Vice President, Operations: Michael G. Horvath (age 41; son of Gerald W. Horvath; 10% shareholder). Michael Horvath is expected to continue as a key employee of Crestline following the closing and will enter into a Consulting Agreement to support post-closing transition, as well as a separate Non-Competition and Non-Solicitation Agreement.
• Director / Shareholder: Patricia A. Horvath (spouse of Gerald W. Horvath; 18% shareholder). Mrs. Horvath holds an 18% equity stake in AVP and serves as a member of the Board of Directors but does not hold an active operational role.
• Controller: Diane L. Pulaski. Ms. Pulaski is AVP's principal accounting officer and has served in this capacity for approximately 12 years. She has been the primary contact for financial diligence requests and coordinated with AVP's auditors, Pendleton & Sawyer CPAs LLP.
Business Description: AVP is a family-owned manufacturer of corrugated packaging, folding cartons, and specialty coatings for food-grade and chemical-grade packaging applications. The company operates two manufacturing facilities — its primary plant in Butler, Pennsylvania, and a secondary facility in Meadville, Pennsylvania — and employs approximately 340 individuals. Key products include corrugated containers, folding cartons, specialty chemical-resistant coatings, and food-grade packaging materials. AVP has TTM revenue of approximately $95,000,000 and TTM adjusted EBITDA of approximately $18,500,000. The company's top 10 customers account for approximately 62% of TTM revenue. AVP's principal raw material input is containerboard, which is principally sourced from Consolidated Linerboard Corp. pursuant to a long-term supply agreement.
D. Advisors and Key Third Parties
The following table summarizes the advisors and key third parties involved in the transaction:
III. Transaction Structure
The transaction is structured as an asset purchase pursuant to which Crestline will acquire substantially all of the assets of AVP, and assume certain specified liabilities, pursuant to the APA. The APA will be governed by the laws of the State of New York. Crestline is the Buyer and AVP is the Seller under the APA. As noted above, this transaction represents the third bolt-on acquisition by Crestline since its acquisition by Ridgeway in 2021, following two prior bolt-on transactions that have expanded Crestline's manufacturing capacity and product offerings.
The decision to structure the transaction as an asset purchase rather than a stock acquisition was driven by several considerations, including: (a) the ability to select and exclude certain liabilities (including pre-closing indebtedness, underfunded pension obligations, and pre-closing product liability claims); (b) the potential for a stepped-up tax basis in the acquired assets; (c) AVP's status as an S-corporation, which means gain on an asset sale is recognized at the shareholder level and passed through, eliminating the double-taxation concern that would otherwise weigh in favor of a stock deal for a C-corporation seller; and (d) the Buyer's ability to undertake targeted environmental and operational diligence on the specific assets being acquired. Additional analysis regarding the tax implications of the asset purchase structure is set forth in the Tax Structure Memorandum prepared by Leonard Cross.
A. Acquired Assets
The Acquired Assets under the APA include substantially all assets of AVP used in or related to the conduct of AVP's business, including without limitation:
Real Property. The two manufacturing facilities owned by AVP, consisting of:
• Butler Plant (Primary Facility): 250 Industrial Boulevard, Butler, PA 16001. The Butler Plant comprises approximately 285,000 square feet of manufacturing, warehouse, and office space situated on approximately 22.5 acres. This is AVP's headquarters and primary production facility.
• Meadville Plant (Secondary Facility): 1480 Conneaut Lake Road, Meadville, PA 16335. The Meadville Plant comprises approximately 110,000 square feet of manufacturing and warehouse space situated on approximately 8.2 acres. This facility is used primarily for supplemental production capacity and certain specialty packaging operations.
Both properties are owned in fee by AVP, and accordingly no landlord consents will be required in connection with the transfer of the real property at closing. Title commitments and surveys are being obtained through Great Lakes Title & Escrow Inc., and owner's title insurance policies will be issued by Sentinel Title Insurance Corporation. The real property will be conveyed by special warranty deed in customary Pennsylvania form.
Tangible Personal Property. All machinery, equipment, inventory (including raw materials, work-in-process, and finished goods), office furnishings, vehicles, and other tangible personal property located at or used in connection with the operations at both the Butler Plant and the Meadville Plant.
intellectual Property. All trademarks, trade names (excluding the "Allegheny Valley Packaging, Inc." corporate name, which is subject to a 6-month transitional license), service marks, patents, patent applications, copyrights, trade secrets, know-how, customer lists, proprietary formulations for specialty chemical-resistant coatings and food-grade packaging materials, technical drawings, specifications, and all other intellectual property owned by AVP and used in the conduct of the business. The intellectual property will be conveyed pursuant to a separate intellectual Property Assignment Agreement at closing.
Assumed Contracts. Approximately 47 material contracts will be assumed by Crestline at closing, including customer supply agreements, vendor and raw material supply agreements (most notably the containerboard supply agreement with Consolidated Linerboard Corp.), equipment leases, service agreements, and the collective bargaining agreement with International Paperworkers Union Local 814 (effective April 1, 2024, expiring March 31, 2027). The assignment and assumption of these contracts will be effected through the Assignment and Assumption Agreement to be executed at closing. As discussed in Section XIV below, approximately 12 of the approximately 47 material contracts require counterparty consent to assignment.
Permits and Licenses. All governmental permits, licenses, approvals, and authorizations held by AVP and used in connection with the business, to the extent transferable, including environmental permits (discussed in Section XI below).
Books and Records. All books and records of AVP related to the Acquired Assets and the business, other than Excluded Records (as defined below).
Goodwill. All goodwill associated with AVP's business.
B. Excluded Assets
The following categories of assets are excluded from the acquisition and will be retained by AVP:
• Cash and Cash Equivalents. All cash, cash equivalents, and bank account balances held by AVP as of the Closing Date.
• Tax Refunds and Credits. All rights to receive refunds or credits of taxes attributable to pre-closing tax periods.
• Minute Books and Corporate Records. The corporate minute books, organizational documents, stock ledgers, and other corporate records of AVP (the "Excluded Records"). Crestline will have the right to retain copies of such records to the extent reasonably related to the Acquired Assets or the assumed business.
• Insurance Policies. All insurance policies maintained by AVP, including general liability, property, workers' compensation, and directors' and officers' policies. Crestline will obtain its own insurance coverage effective as of the Closing Date.
• Corporate Name. The corporate name "Allegheny Valley Packaging, Inc." will be retained by AVP; however, AVP will grant Crestline a limited, royalty-free license to use the name for transitional purposes for a period of six (6) months following the Closing Date, as set forth in the intellectual Property Assignment Agreement.
C. Assumed Liabilities
Crestline will assume the following liabilities of AVP at closing (the "Assumed Liabilities"):
• Trade Payables and Accrued Expenses. All trade payables and accrued expenses arising in the ordinary course of AVP's business, to the extent reflected in the calculation of Net Working Capital as of the Closing Date.
• Post-Closing Obligations Under Assumed Contracts. All obligations arising under the Assumed Contracts that arise or relate to periods from and after the Closing Date.
• Post-Closing Warranty Obligations. Warranty obligations relating to products shipped by AVP from and after the Closing Date.
• Current-Period Property Taxes. Real and personal property taxes for the current tax period, prorated between Buyer and Seller as of the Closing Date based on the most recently available assessment and millage rates.
D. Excluded Liabilities
The following liabilities will be retained by AVP and are excluded from assumption by Crestline (the "Excluded Liabilities"):
• Pre-Closing Indebtedness. All outstanding indebtedness of AVP, including approximately $14,200,000 outstanding under AVP's existing $20,000,000 revolving credit facility with Merchants & Traders Bank. This indebtedness will be paid off at closing from the Purchase Price proceeds. See Section XVII below for additional detail.
• Pre-Closing Tax Liabilities. All tax liabilities of AVP attributable to pre-closing periods, including any liabilities arising from the sales/use tax exposure identified during diligence (see Section XIII below).
• Pre-Closing Product Liability Claims. All product liability claims relating to products manufactured and shipped by AVP prior to the Closing Date.
• Underfunded Pension Obligations. All liabilities associated with any underfunded defined benefit pension plan maintained by AVP, estimated at approximately $3,100,000 as of the most recent actuarial valuation. These obligations remain with AVP and will not be assumed by Crestline.
• Transaction Expenses of Seller. All fees, costs, and expenses incurred by AVP in connection with the negotiation, execution, and consummation of the transactions contemplated by the APA, including fees payable to Veltrano Hargrave & Co., Broadmoor Strauss & Kline LLP, and Pendleton & Sawyer CPAs LLP.
IV. Purchase Price and Consideration
The aggregate Purchase Price for the Acquired Assets is One Hundred Eighty Million Dollars ($180,000,000), payable in cash at closing, subject to the adjustments and escrow arrangements described below.
Cash at Closing. The amount payable at closing will be $180,000,000, less the Escrow Amount of $9,000,000, and subject to customary closing adjustments for (a) estimated Net Working Capital relative to Target Net Working Capital, (b) Closing Date Indebtedness (to the extent any Excluded Indebtedness remains outstanding), (c) Transaction Expenses of Seller (to the extent unpaid as of closing), and (d) Cash (which is an Excluded Asset). The estimated cash payable at closing, prior to the Net Working Capital true-up, will be $171,000,000 ($180,000,000 − $9,000,000 = $171,000,000), subject to further reduction for Seller's outstanding indebtedness, unpaid Transaction Expenses, and other adjustments as calculated pursuant to the closing statement.
Escrow Amount. An amount equal to $9,000,000, representing five percent (5%) of the Purchase Price ($180,000,000 × 0.05 = $9,000,000), will be deposited with Atlantic Fiduciary Trust Company at closing to serve as a source of recovery for post-closing indemnification claims by Crestline under the APA. The terms and conditions governing the escrow arrangement are described in Section VIII below.
Escrow Release. The Escrow Amount (less any amounts subject to pending and unresolved indemnification claims) will be released to Seller eighteen (18) months following the Closing Date. The escrow release date is coterminous with the general survival period for representations and warranties under the APA. Any amounts subject to pending claims at the time of the scheduled release will be retained in escrow until such claims are finally resolved.
The Purchase Price is not subject to any earnout or contingent consideration mechanism. The parties have agreed that the purchase price allocation under IRC § 1060 will be finalized within 90 days following closing, as further discussed in Section XIII below.
V. Net Working Capital Adjustment
The APA will include a customary post-closing Net Working Capital ("NWC") adjustment mechanism to ensure that the business is delivered with an appropriate level of working capital at closing. The key terms of the NWC adjustment are as follows:
Target Net Working Capital. The Target NWC has been agreed by the parties at $12,400,000, based on a trailing twelve-month average of AVP's net working capital. The Target NWC was agreed on May 28, 2025, following negotiations between the parties and analysis coordinated with Hargrove Thornton LLP (Steven M. Raines, Engagement Partner), Crestline's financial diligence advisor.
Collar / De Minimis Adjustment Threshold. The APA will include a collar of plus or minus $250,000 (±$250,000). No purchase price adjustment will be made if the difference between actual closing NWC and the Target NWC falls within this collar. If the variance exceeds the collar in either direction, the full amount of the variance (from the first dollar, not merely the excess over the collar) will be subject to adjustment.
NWC Measurement. Net Working Capital will be calculated as of 11:59 PM Eastern Time on the day immediately preceding the Closing Date, using agreed-upon accounting principles consistent with generally accepted accounting principles ("GAAP") as historically applied by AVP. The parties are finalizing a detailed NWC calculation methodology and sample worksheet, which will be attached as a schedule to the APA. The methodology is being coordinated with Hargrove Thornton LLP to ensure consistency with the financial diligence work product and to identify and resolve any known GAAP departures or accounting policy elections that could affect the NWC calculation.
Estimation and True-Up. Seller will deliver an estimated closing statement (including estimated NWC) at least three (3) business days prior to the Closing Date for purposes of calculating the cash payable at closing. Within 90 days following the Closing Date, Buyer will prepare and deliver a final closing statement setting forth the actual NWC. Seller will have 30 days to review and object to the final closing statement. Any disputes that are not resolved within a 30-day negotiation period will be submitted to an independent accounting firm for final determination (the "Accounting Arbitrator"), whose determination will be binding on both parties.
Direction of Adjustment. If actual closing NWC exceeds the Target NWC by more than $250,000, Buyer will pay the excess to Seller. If actual closing NWC is less than the Target NWC by more than $250,000, Seller will pay the shortfall to Buyer. Payments will be made by wire transfer within five (5) business days of the final determination.
VI. Financing
A. Sources of Funds — Summary
The Purchase Price will be funded from the following sources:
Reconciliation: The total Purchase Price of $180,000,000 is funded by $50,000,000 of equity from Ridgeway and $130,000,000 of incremental debt ($180,000,000 − $50,000,000 = $130,000,000). Transaction costs, including the R&W insurance premium, legal fees, and other advisory fees, are expected to be funded from Crestline's existing cash on hand and available revolver capacity and are not reflected in the sources table above.
B. Incremental Term Loan
Facility Description. The acquisition debt financing consists of a $130,000,000 incremental term loan to be incurred under Crestline's existing credit agreement dated November 15, 2021 (the "Existing Credit Agreement"), pursuant to Amendment No. 3 to the Existing Credit Agreement. The incremental term loan is permitted under the existing incremental facility provisions of the Existing Credit Agreement, subject to compliance with applicable incurrence tests and conditions precedent.
Administrative Agent / Lead Arranger. Pinnacle National Bank, N.A. will serve as Administrative Agent and Lead Arranger for the incremental term loan. Katherine M. Sweeney serves as the Relationship Manager at Pinnacle.
Syndicate Lenders. The syndicate will include Commonwealth Merchant Bank and Heartland Commercial Finance LLC, both of which are existing lenders under the Existing Credit Agreement.
Interest Rate. The incremental term loan will bear interest at a rate per annum equal to the Secured Overnight Financing Rate ("SOFR") plus 375 basis points, with a SOFR floor of 50 basis points.
Commitment Letter. The commitment letter for the incremental term loan was issued on April 22, 2025, bearing reference number PCL-2025-04-1187 (the "Commitment Letter"). The Commitment Letter sets forth the terms and conditions upon which Pinnacle and the syndicate lenders have committed to provide the incremental term loan, subject to customary conditions, including execution of the definitive APA, delivery of required lender closing deliverables (including a legal opinion of borrower's counsel and a perfection certificate), and the absence of a material adverse effect.
Commitment Expiration. The commitments under the Commitment Letter expire 120 days from the date of issuance — i.e., on August 20, 2025. The deal team should monitor this expiration date closely, particularly in light of the Outside Date of September 30, 2025. If the closing extends beyond August 20, 2025, an extension of the commitment letter will be required, and the terms of any such extension may involve additional fees or modified conditions.
Ticking Fee. A ticking fee of 25 basis points (0.25%) per annum on undrawn commitments will commence 60 days after the date of the Commitment Letter — i.e., beginning on June 21, 2025. The ticking fee will accrue daily and is payable on the earlier of the closing date or the termination of the commitments. Assuming a closing date of July 31, 2025, the estimated ticking fee would be approximately $36,100 (40 days × ($130,000,000 × 0.0025 / 360) ≈ $36,111). If closing is delayed to the Outside Date, the ticking fee could increase to approximately $92,400.
C. Equity Commitment
Equity Commitment Letter. Ridgeway Capital Partners Fund III, LP has issued an equity commitment letter dated April 22, 2025 (the "Equity Commitment Letter"), committing $50,000,000 to CPS for purposes of funding a portion of the Purchase Price. The Equity Commitment Letter is subject to customary conditions, including the execution of the definitive APA, the satisfaction (or waiver) of the closing conditions contained therein, and the substantially simultaneous funding of the incremental term loan. The Equity Commitment Letter will be a closing deliverable under the APA, and Seller's counsel at Broadmoor Strauss & Kline LLP has requested the right to review and comment on the Equity Commitment Letter prior to execution of the APA.
D. Limited Guarantee
Ridgeway Capital Partners Fund III, LP (acting by and through its general partner, Ridgeway Capital GP III LLC) will deliver a limited guarantee (the "Limited Guarantee") in favor of AVP at or prior to the execution of the APA. The Limited Guarantee will guarantee certain payment obligations of Crestline under the APA, including the reverse termination fee payable by Crestline in the event the transaction fails to close due to a financing failure or Buyer's willful breach. The scope, cap amount, and specific guaranteed obligations under the Limited Guarantee are under active negotiation with Seller's counsel and will be finalized in connection with the APA execution. The Limited Guarantee will be an ancillary agreement delivered at signing.
VII. Indemnification Framework
The APA will contain a customary post-closing indemnification framework pursuant to which each party will indemnify the other for breaches of representations, warranties, and covenants, as well as for certain specifically identified matters. The key parameters of the indemnification framework, as currently negotiated, are summarized below.
A. Cap and Basket
Indemnification Cap. Seller's aggregate indemnification liability for breaches of general representations and warranties (excluding Fundamental Representations and certain specifically indemnified matters) will be capped at $45,000,000, which represents 25% of the Purchase Price. This cap is above the market median for middle-market transactions of this size, reflecting the buyer's negotiating position given the identified environmental and tax risks.
Basket. The Basket is structured as a tipping basket (as opposed to a true deductible). No indemnification will be payable until the aggregate amount of qualifying losses exceeds $1,350,000, at which point Buyer will be entitled to recover from the first dollar of loss. This structure provides Seller with protection against nuisance claims while ensuring that Buyer has recourse for material losses.
Mini-Basket. Individual claims with losses below $50,000 will not be counted toward the Basket and will not be indemnifiable. This provision is intended to screen out immaterial claims and reduce administrative burden.
Fundamental Representations. Breaches of Fundamental Representations (title, authority, due organization, capitalization, brokers, and taxes) are not subject to the general Cap or Basket limitations, and the Seller's liability for such breaches will be limited only by the aggregate Purchase Price.
B. Survival Periods
The survival periods have been negotiated to balance Buyer's need for adequate time to discover and assert claims against Seller's desire for finality. The 18-month general survival period is coterminous with the escrow release date, ensuring that the escrow remains available as a source of recovery throughout the survival period. The extended 60-month survival period for Fundamental Representations reflects the heightened importance of these representations and is consistent with market practice. The 36-month survival period for environmental representations was negotiated in light of the identified REC at the Butler Plant and the anticipated timeline for Phase II ESA completion and any remediation activities.
C. Environmental Special Indemnity
In addition to and separate from the general indemnification framework described above, the APA will include a specific environmental indemnity (the "Environmental Special Indemnity") pursuant to which Seller will retain liability for pre-closing environmental conditions at both the Butler and Meadville facilities, subject to the following terms:
• Cap on Environmental Special Indemnity: $8,000,000.
• Survival Period: 36 months from the Closing Date.
• Scope: Covers losses arising from or related to any contamination, hazardous substance release, or other environmental condition at the Butler Plant or the Meadville Plant that existed on or prior to the Closing Date, including without limitation the TCE contamination identified at the Butler Plant (discussed in Section XI below).
• Relationship to General Indemnity: The Environmental Special Indemnity is in addition to (and not limited by) the general indemnification Cap and Basket. Environmental claims may be asserted under the Environmental Special Indemnity without regard to the $1,350,000 Basket or the $45,000,000 Cap, subject to the Environmental Special Indemnity's own $8,000,000 cap.
• Interaction with R&W Insurance: The R&W insurance policy may provide overlapping coverage for certain environmental matters. The interaction between the Environmental Special Indemnity and the R&W policy coverage is being analyzed separately and will be addressed in the R&W Insurance Summary and Coverage Analysis memorandum.
The negotiation of the Environmental Special Indemnity was a significant deal point. Seller initially proposed a lower cap of $5,000,000 and a 24-month survival period, but Buyer successfully negotiated the current terms in light of the preliminary Phase II findings and the upper range of the estimated remediation cost ($2,800,000). The $8,000,000 cap provides meaningful coverage above the estimated worst-case remediation cost and addresses the possibility that additional contamination may be identified during or after the Phase II assessment.
VIII. Escrow Arrangement
The escrow arrangement serves as the primary mechanism for securing post-closing indemnification claims by Buyer under the APA. The key terms are as follows:
Escrow Amount: $9,000,000, representing five percent (5%) of the aggregate Purchase Price ($180,000,000 × 0.05 = $9,000,000). The Escrow Amount will be withheld from the cash payable to Seller at closing and deposited directly into the escrow account.
Escrow Agent: Atlantic Fiduciary Trust Company, acting through its corporate trust division. Robert D. Whitaker, Vice President, will serve as the primary contact at the Escrow Agent.
Escrow Agent Address: 60 Wall Street, 22nd Floor, New York, NY 10005.
Escrow Agreement: The Escrow Amount will be held and distributed in accordance with an Escrow Agreement to be entered into at closing by and among Buyer, Seller, and the Escrow Agent. The Escrow Agreement will be in customary form and will address, among other matters, investment of escrowed funds, distribution procedures, joint instruction requirements, dispute resolution, and the Escrow Agent's fees, indemnification, and standard of care.
Release of Escrow Funds. The Escrow Amount (less any amounts reserved for pending and unresolved indemnification claims) will be released to Seller on the date that is eighteen (18) months following the Closing Date (the "Escrow Release Date"). The Escrow Release Date is coterminous with the expiration of the general survival period for representations and warranties under the APA. If any indemnification claims are pending but unresolved as of the Escrow Release Date, the Escrow Agent will retain in the escrow account an amount equal to the aggregate claimed amounts of such pending claims (or such lesser amount as the parties may jointly instruct), and will release the balance to Seller. Retained amounts will continue to be held until the pending claims are finally resolved, at which point the Escrow Agent will distribute amounts in accordance with the Escrow Agreement.
Investment of Escrow Funds. The Escrow Agreement will provide for investment of the escrowed funds in short-term, investment-grade securities or money market funds as mutually agreed by Buyer and Seller (or, in the absence of agreement, in a specified default investment vehicle). Interest or other earnings on the escrowed funds will be allocated to Seller for tax purposes and will be distributed in accordance with the release provisions of the Escrow Agreement.
IX. Representations and Warranties Insurance
In connection with the acquisition, Crestline has procured a buy-side representations and warranties insurance ("R&W Insurance") 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 Insurance policy are as follows:
Carrier: Northbridge Specialty Insurance Company.
Policy Number: NSW-2025-07812.
Coverage Limit: $18,000,000, representing ten percent (10%) of the Purchase Price ($180,000,000 × 0.10 = $18,000,000). The coverage limit is in addition to, and not a substitute for, the Seller's direct indemnification obligations under the APA.
Retention (Self-Insured Retention): $1,800,000, representing one percent (1%) of the Purchase Price ($180,000,000 × 0.01 = $1,800,000). Buyer bears losses up to the Retention before the R&W policy responds. The Retention is intended to be aligned with the Basket under the APA indemnification framework ($1,350,000), such that losses between $1,350,000 and $1,800,000 are subject to Seller's indemnification obligations but are below the R&W policy Retention.
Retention Drop-Down: The Retention will drop down by 50% to $900,000 after twelve (12) months following the Closing Date, providing enhanced coverage during the latter portion of the survival period.
Estimated Premium: The estimated total premium for the R&W Insurance policy is $540,000, calculated at a rate of 3.0% on the coverage limit ($18,000,000 × 0.03 = $540,000), plus an underwriting fee of $50,000, plus applicable taxes and surcharges. The premium is a one-time payment due at or prior to closing.
Premium Allocation: Buyer (Crestline) bears 100% of the R&W Insurance premium cost.
Broker: Greystone Marsh Advisory LLC (Philip J. Tanaka, Broker) is serving as the R&W Insurance broker and has been managing the placement process, including the submission of underwriting materials, coordination of underwriting calls, and negotiation of policy terms and exclusions.
Interaction with APA Indemnification. The R&W Insurance policy is intended to supplement (and in certain circumstances backstop) the Seller's direct indemnification obligations under the APA. The APA indemnification cap of $45,000,000 and the R&W coverage limit of $18,000,000 provide Buyer with aggregate potential recovery sources of up to $63,000,000 for breaches of general representations and warranties (subject to applicable Baskets, Retentions, exclusions, and other limitations). However, the precise interaction between the APA indemnification framework, the R&W policy, and the Environmental Special Indemnity involves several nuances and potential coverage gaps that are being analyzed in a separate R&W Insurance Summary and Coverage Analysis memorandum currently in preparation.
Underwriting Process. The underwriting process is ongoing. Northbridge's underwriting team has been provided with access to the virtual data room and has participated in underwriting calls with the deal team and financial diligence advisor. Key underwriting focus areas have included the environmental conditions at the Butler Plant, the customer concentration profile, the union labor force and CBA terms, and the sales/use tax exposure. We anticipate that certain environmental matters may be specifically excluded from R&W coverage or subject to enhanced exclusions, given the known REC, which reinforces the importance of the Environmental Special Indemnity negotiated directly in the APA.
X. Target Business Overview
A. Facilities
AVP operates two manufacturing facilities, both of which are owned in fee by AVP and will be conveyed to Crestline at closing by special warranty deed:
The Butler Plant serves as AVP's headquarters and primary production facility. The facility houses the corrugating lines, die-cutting equipment, flexographic printing presses, and the specialty coatings application line. The Meadville Plant is a secondary facility used primarily for supplemental corrugated production capacity, warehousing, and certain specialty packaging operations.
Both properties are owned by AVP in fee simple, and accordingly no landlord consents are required in connection with the transaction. Title commitments and ALTA surveys have been ordered through Great Lakes Title & Escrow Inc. Owner's title insurance policies will be issued by Sentinel Title Insurance Corporation. The deal team is coordinating with title counsel to review the title commitments for exceptions and to ensure that standard survey, gap, and comprehensive endorsements are obtained.
B. Financial Highlights
AVP's financial performance has been stable, with adjusted EBITDA margins of approximately 19.5% ($18,500,000 / $95,000,000). Financial diligence is being conducted by Hargrove Thornton LLP (Steven M. Raines, Engagement Partner), and preliminary findings are consistent with management's reported figures. Key quality-of-earnings adjustments identified to date include normalization of above-market officer compensation (Gerald W. Horvath) and one-time legal expenses associated with a 2023 product liability claim that was settled without material loss.
C. Customer Concentration
AVP's top 10 customers account for approximately 62% of TTM revenue. While this level of customer concentration is noteworthy, it is assessed as manageable in the context of a bolt-on acquisition, given that Crestline's broader platform provides diversification at the consolidated level and the combined entity's top 10 customers are expected to represent a significantly lower percentage of consolidated revenue. Nonetheless, the customer concentration risk has been flagged in the diligence process, and the deal team is reviewing the terms and duration of key customer supply agreements to assess contract renewal risk and the absence of "change of control" or termination-for-convenience provisions that could be triggered by the acquisition.
D. Key Supplier
AVP's principal raw material input is containerboard, which is primarily sourced from Consolidated Linerboard Corp. pursuant to a long-term supply agreement. This supply agreement is among the approximately 47 material contracts being assumed at closing. The deal team is reviewing the terms of the containerboard supply agreement, including pricing mechanisms (fixed vs. indexed), minimum purchase commitments, exclusivity provisions, and assignment/change-of-control provisions. Crestline's existing containerboard supply relationships may provide opportunities for volume-based pricing improvements following integration.
XI. Environmental Matters
Environmental diligence is a critical workstream for this transaction, particularly in light of the identified contamination at the Butler Plant. The environmental diligence is being conducted by Greenvale Environmental Sciences LLC, with Dr. Alicia Fernandez serving as Project Lead. The status of the environmental assessments is summarized below.
Phase I Environmental Site Assessments.
Phase I Environmental Site Assessments ("ESAs") for both the Butler Plant and the Meadville Plant were delivered on May 5, 2025 by Greenvale Environmental Sciences LLC in accordance with ASTM E1527-21.
• Butler Plant: The Phase I ESA identified one Recognized Environmental Condition ("REC") — specifically, a historical solvent use and disposal area located at the northeast corner of the Butler property. According to the Phase I report, the area was used for the storage and disposal of solvents and cleaning agents during the 1970s and 1980s, prior to AVP's acquisition of the property in 1992. A Phase II ESA was recommended and has been commenced.
• Meadville Plant: The Phase I ESA did not identify any Recognized Environmental Conditions, Controlled Recognized Environmental Conditions, or Historical Recognized Environmental Conditions. No further environmental investigation was recommended for the Meadville facility.
Phase II Environmental Site Assessment (Butler Plant).
The Phase II ESA at the Butler Plant was commenced on May 12, 2025. Greenvale's scope of work includes the installation of soil borings and temporary monitoring wells in the vicinity of the identified REC, with collection and laboratory analysis of soil and groundwater samples for volatile organic compounds ("VOCs") and other potential contaminants of concern.
Preliminary results from the Phase II assessment indicate the presence of trichloroethylene ("TCE") in shallow groundwater at concentrations of approximately 12 parts per billion ("ppb"). This exceeds the Pennsylvania Act 2 Medium-Specific Concentration ("MSC") standard for TCE in groundwater of 5 ppb by a factor of approximately 2.4x. The lateral and vertical extent of the TCE plume has not yet been fully delineated, and additional sampling is planned.
Based on the preliminary results, Greenvale has provided an initial remediation cost estimate ranging from $1,200,000 to $2,800,000, depending on the extent of the contamination plume, the selected remediation technology (e.g., in-situ chemical oxidation, monitored natural attenuation, or pump-and-treat), and the timeline for achieving Act 2 standards. A final remediation cost estimate will be provided upon completion of the Phase II assessment and delineation of the plume boundaries.
Environmental Permits.
The following environmental permits are held by AVP and will require transfer or re-issuance in connection with the transaction:
• Butler Plant: Pennsylvania Department of Environmental Protection ("PA DEP") Title V Operating Permit, Permit No. TV-10-00287. The Title V permit covers air emissions from the Butler manufacturing operations. Transfer of the Title V permit to Crestline will require application to PA DEP. The team is coordinating with PA DEP to confirm the timeline and requirements for the permit transfer.
• Meadville Plant: PA DEP General Permit GP-3 (portable nonmetallic mineral processing plants, if applicable, or other general permit category). Transfer or re-issuance requirements are being confirmed.
Mitigation — Environmental Special Indemnity.
As discussed in Section VII.C above, the environmental risk associated with pre-closing contamination at the Butler and Meadville facilities is mitigated by the Environmental Special Indemnity, pursuant to which Seller will retain liability for up to $8,000,000 in losses arising from pre-closing environmental conditions, surviving for 36 months from the Closing Date. The $8,000,000 cap provides substantial headroom above the upper range of the current remediation cost estimate ($2,800,000) and provides protection against the possibility that additional contamination or higher-than-expected remediation costs may be identified.
A comprehensive analysis of the environmental diligence findings and risk assessment is set forth in the Environmental Risk Assessment Memorandum, which is being prepared in coordination with Greenvale Environmental Sciences LLC and will be circulated to the deal team upon completion of the Phase II assessment.
XII. Employees and Benefits
Employee Transition. Crestline will extend offers of employment to substantially all of AVP's approximately 340 employees in connection with the closing. The terms of employment (including compensation, benefits, and job responsibilities) will be determined by Crestline, subject to the requirements of the collective bargaining agreement applicable to hourly employees at the Butler Plant. It is anticipated that substantially all AVP employees will accept offers and transition to Crestline's employment.
Collective Bargaining Agreement. AVP is party to a collective bargaining agreement ("CBA") with International Paperworkers Union Local 814, which covers approximately 185 hourly production, maintenance, and warehouse employees at the Butler facility. The CBA was effective as of April 1, 2024, and expires on March 31, 2027. The CBA covers, among other matters, wages, hours, overtime, shift differentials, seniority, grievance and arbitration procedures, health insurance contributions, and pension contributions.
Crestline will assume the CBA as a successor employer under the asset purchase. The CBA contains successorship language that requires the Buyer to be bound by the terms of the agreement for its remaining term. Union notification and successorship requirements apply, and the deal team is coordinating the timing and content of the notification to the union. The labor and employment workstream is being tracked in the Employee & Benefits Transition Memorandum currently in preparation. Buyer's counsel will review the CBA for any consent-to-assignment or other change-of-control provisions that may require advance action.
401(k) Plan. Crestline will not assume AVP's existing 401(k) plan — the Allegheny Valley Packaging 401(k) Profit Sharing Plan, which is maintained through Patriot Plan Administrators LLC. AVP will retain responsibility for all obligations under its 401(k) plan, including any fiduciary obligations and plan termination or rollover requirements. Crestline will offer transitioned employees the opportunity to participate in Crestline's existing 401(k) plan following an eligibility waiting period to be determined.
Pension Obligations. AVP maintains or has maintained a defined benefit pension plan that is estimated to have underfunded obligations of approximately $3,100,000 as of the most recent actuarial valuation. The pension obligations are classified as Excluded Liabilities under the APA and will be retained by AVP. Crestline will not assume any liability in connection with the pension plan. The deal team should confirm that the APA contains broad exclusion language covering all pension and defined benefit plan liabilities, whether arising under ERISA, the Internal Revenue Code, the Pension Benefit Guaranty Corporation rules, or otherwise.
WARN Act. Because the transaction is structured as an asset purchase and Crestline intends to extend offers to substantially all AVP employees, a mass layoff or plant closing triggering the Worker Adjustment and Retraining Notification ("WARN") Act is not anticipated. However, a full WARN Act analysis is required, including consideration of state and local mini-WARN requirements in Pennsylvania, and will be addressed in the Employee & Benefits Transition Memorandum. The APA will contain customary WARN Act representations and indemnification provisions.
Transition Services Agreement. AVP will provide certain transitional services to Crestline following the Closing Date pursuant to a Transition Services Agreement ("TSA"). The TSA will cover the following service categories: (a) payroll processing services for transitioned employees during the payroll integration period; (b) information technology migration support, including access to AVP's legacy ERP system, email systems, and data infrastructure; and (c) certain administrative and back-office services as mutually agreed. The TSA will have a maximum term of 120 days following the Closing Date, and services will be provided at AVP's cost plus a five percent (5%) administrative markup. The TSA will be negotiated and executed as an ancillary agreement at closing.
XIII. Tax Considerations
The following summarizes the principal tax considerations applicable to the transaction. A more comprehensive analysis is set forth in the Tax Structure Memorandum prepared by Leonard Cross (Partner, Tax).
Purchase Price Allocation. The aggregate Purchase Price will be allocated among the Acquired Assets in accordance with Section 1060 of the Internal Revenue Code and Treasury Regulation § 1.1060-1. The allocation will be reported on IRS Form 8594 (Asset Acquisition Statement) by both Buyer and Seller. The parties have agreed that the Purchase Price allocation will be finalized within 90 days following the Closing Date. Both parties will be bound to report consistently with the agreed allocation for all tax purposes. The allocation methodology and specific asset class allocations are under discussion between Leonard Cross and Seller's tax advisors and will be attached as a schedule to the APA.
Pennsylvania Bulk Sale Notice. Under 72 P.S. § 1403, a transferee of the assets of a going concern in Pennsylvania is required to provide written notice to the Pennsylvania Department of Revenue at least 60 days prior to the closing of the transaction. The Bulk Sale Notice provides the Department of Revenue with notice of the asset transfer and triggers the Department's right to make a claim against the transferred assets for any unpaid taxes of the Seller. Additionally, a PA Bulk Sale Tax Clearance Certificate must be obtained from the PA Department of Revenue prior to closing. The Bulk Sale Notice should be filed no later than approximately June 1, 2025, assuming an estimated Closing Date of July 31, 2025, and the deal team should begin coordinating the filing promptly.
Pennsylvania Realty Transfer Tax. The conveyance of the Butler Plant and the Meadville Plant will be subject to the Pennsylvania Realty Transfer Tax at a combined state and local rate of 2%. Based on a preliminary estimated allocation of approximately $18,000,000 to real property (subject to finalization of the Purchase Price allocation), the estimated Realty Transfer Tax is approximately $360,000 (2% × $18,000,000 = $360,000). The Realty Transfer Tax will be split equally between Buyer and Seller, with each party bearing $180,000 of the estimated tax. The final Realty Transfer Tax amount will be determined based on the actual allocation of Purchase Price to real property as reflected in the Purchase Price allocation schedule.
Pennsylvania Sales Tax. The transfer of tangible personal property (machinery, equipment, inventory, and other personal property) may be subject to Pennsylvania sales and use tax to the extent applicable exemptions are not available. The deal team is analyzing the availability of exemptions, including the manufacturing and processing exemption under 72 P.S. § 7204, and will coordinate with Seller's counsel regarding the preparation and filing of applicable exemption certificates.