PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
TO: James Prentice, Esq. (Calderwood & Harkness LLP) and Patricia Hsu (Chief Financial Officer, Crestline Packaging Solutions LLC)
FROM: Tiffany Rosenthal (Calderwood & Harkness LLP)
DATE: May 19, 2025
RE: Employee Benefits Due Diligence — Lakewood Regional Health Partners, LLC
MATTER NO.: 1006-00008
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT. This memorandum was prepared by Calderwood & Harkness LLP at the direction of counsel and constitutes attorney work product and confidential attorney-client communication. This memorandum is intended solely for the use of the individuals and entity identified above and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
I. Executive Summary
The purpose of this memorandum is to summarize the findings from our review of the employee benefit plans, programs, and arrangements maintained, sponsored, contributed to, or required to be contributed to by Lakewood Regional Health Partners, LLC ("Lakewood" or "LRHP") in connection with the proposed acquisition of substantially all of the assets of Lakewood by Crestline Packaging Solutions LLC ("Crestline" or "CPS") (the "Transaction"). The Transaction is being structured as an asset purchase pursuant to that certain Asset Purchase Agreement (the "APA") currently under negotiation between the parties, which is targeted for execution on or about June 16, 2025, with an estimated Closing Date of August 15, 2025. The aggregate Purchase Price for the Transaction is $140,000,000, subject to customary adjustments for Working Capital, Indebtedness, Transaction Expenses, and other items as set forth in the APA.
This memorandum incorporates and relies upon the actuarial and benefits analysis prepared by Gregory Faulkner, FSA, MAAA, of Stonebridge Actuarial & Benefits Consulting, Inc. ("Stonebridge"), delivered to Calderwood & Harkness LLP on May 12, 2025, a summary of which is attached hereto as Exhibit D. The Stonebridge analysis encompasses claims experience trending, benefit plan cost modeling, actuarial verification of accrued liabilities, and projected integration costs associated with absorbing the Lakewood workforce into Crestline's existing benefit plan infrastructure.
Based on our review, the key findings of this memorandum are as follows:
(i) 401(k) Plan — Not Assumed. The Lakewood Regional Health Partners 401(k) Savings Plan (the "Lakewood 401(k) Plan") will not be assumed by Crestline in the Transaction. Lakewood will adopt resolutions to terminate the Lakewood 401(k) Plan effective no later than the day immediately preceding the Closing Date. Vested account balances of employees who accept offers of employment from Crestline ("Transferred Employees") will be eligible for direct rollover into Crestline's existing 401(k) plan, which is administered by Grandview Retirement Services, Inc. ("Grandview"), based in Cleveland, Ohio. We have identified no material compliance deficiencies that would impede timely plan termination, although certain matters requiring attention are noted in Section IV below.
(ii) Accrued PTO Liability — Assumed at Closing. Lakewood has an aggregate accrued paid time off ("PTO") liability of approximately $1,340,000 as of the estimated Closing Date, which Crestline will assume at Closing. This liability is included in the Working Capital calculation and is subject to reconciliation as part of the Working Capital True-Up process. The Stonebridge analysis has verified this amount against Lakewood's payroll records, and we discuss potential risks of understatement in Section VII below.
(iii) Health and Welfare Plans — Manageable Transition Risk. Lakewood's health and welfare plans will not be assumed by Crestline. Transferred Employees will be enrolled in Crestline's group health and welfare plans effective as of the Closing Date, subject to coordination on mid-year deductible and out-of-pocket maximum credit carryovers. The transition presents manageable risk, subject to proper COBRA compliance, timely carrier coordination, and appropriate employee communication. The Stonebridge cost-impact analysis projects a year-one incremental benefits cost to Crestline of approximately $2,850,000 to $3,200,000 in connection with integrating the Lakewood workforce.
(iv) Workforce Transition Planning. Lakewood employs approximately 410 full-time equivalent employees ("FTEs") across eleven (11) clinic locations in New York (eight locations) and Pennsylvania (three locations). The workforce includes 38 physicians, 24 nurse practitioners and physician assistants, 186 clinical support staff, and 162 administrative and back-office personnel. The multi-state nature of the workforce requires careful transition planning under applicable federal, New York, and Pennsylvania law, including with respect to COBRA, paid family leave, disability benefits, and wage payment requirements.
We have assigned a summary risk rating to each identified benefits-related issue and have cross-referenced our recommendations to the applicable representations, warranties, covenants, and indemnification provisions of the APA. Our recommended action items are set forth in Section XIV, and a comprehensive list of outstanding diligence requests is maintained in Exhibit E. We note that certain documents and data remain outstanding from Sellers and their counsel, Whitfield, Ames & Greer LLP ("WAG"), and that this memorandum should be updated upon receipt of such materials.
Overall, the employee benefits diligence findings are consistent with a transaction of this size and complexity. We have not identified any benefits-related issue that, in our judgment, would constitute a material impediment to closing the Transaction, although several items warrant specific attention in the APA and in pre-Closing and post-Closing planning, as described in detail herein.
II. Scope of Review
In connection with our employee benefits due diligence review, we have examined the following categories of documents and information, substantially all of which were made available through the Lakewood virtual data room (Thackeray Solutions Platform, Room ID: LRHP-2025-CPS), with certain supplemental materials provided directly by Lakewood management and Seller's counsel:
Plan Documents and Governing Instruments. We reviewed the current plan documents, restatements, and amendments for each employee benefit plan, program, and arrangement maintained by Lakewood, including the Lakewood Regional Health Partners 401(k) Savings Plan (as amended and restated effective January 1, 2022), the related trust agreement, the Lakewood Group Health Plan, the Lakewood Section 125 Cafeteria Plan, and all underlying insurance policies and administrative services agreements.
Summary Plan Descriptions and Benefit Summaries. We reviewed summary plan descriptions ("SPDs"), summaries of material modifications ("SMMs"), and summaries of benefits and coverage ("SBCs") for each plan required to furnish such documents under ERISA and the Affordable Care Act.
Forms 5500. We reviewed the Forms 5500 and all schedules and attachments for the three most recent plan years (2022, 2023, and 2024) for the Lakewood 401(k) Plan and any other plans required to file. We note that the 2024 Form 5500 for the 401(k) Plan has been prepared but, as of the date of this memorandum, has not yet been filed with the Department of Labor; the filing deadline is July 31, 2025, and Lakewood's management has confirmed that it intends to file on a timely basis.
IRS Determination and Opinion Letters. We reviewed the most recent IRS favorable opinion letter applicable to the Lakewood 401(k) Plan, which is maintained on a pre-approved volume submitter document. The opinion letter, dated March 31, 2020, covers the plan document as amended for the requirements of the Tax Cuts and Jobs Act of 2017 and other intervening legislation through that date.
Trust Agreements. We reviewed the trust agreement for the Lakewood 401(k) Plan, dated January 1, 2022, naming Westvale Solutions as directed trustee.
Insurance Policies and Carrier Contracts. We reviewed all group insurance policies, administrative services agreements, stop-loss policies, and network access agreements applicable to Lakewood's health and welfare benefit programs, including medical, dental, vision, life, AD&D, short-term disability, and long-term disability coverage. Carrier contracts, policy numbers, effective dates, and renewal dates are summarized in Exhibit A.
Enrollment Records and Employee Census Data. We reviewed employee enrollment records and the comprehensive employee census provided by Lakewood's human resources department, reflecting approximately 410 FTEs as of April 30, 2025, broken down by employee category, clinic location, date of hire, compensation level, benefit elections, and PTO accrual balances. The census data is summarized in Exhibit B.
Payroll Records. We reviewed payroll records for the current plan year and the two immediately preceding plan years for purposes of verifying PTO accrual calculations, employer contribution levels, and wage-related benefit computations.
Consulting Agreements. We reviewed the individual consulting agreements contemplated for Dr. Raymond Alcott and Dr. Nadia Petrosian, each of whom will transition from employed physician status to independent consultant status at Closing, together with the associated non-competition and non-solicitation provisions.
Stonebridge Actuarial Report and Workpapers. We reviewed the Stonebridge Actuarial & Benefits Consulting, Inc. report dated May 12, 2025, prepared by Gregory Faulkner, FSA, MAAA (Lead Consultant), together with supporting workpapers. The Stonebridge engagement encompassed actuarial valuations of accrued PTO liabilities, claims experience analysis and trending for Lakewood's health plans (three-year period), benefit cost projections for integration of the Lakewood workforce into Crestline's plans, and a benefit plan design comparison. We have relied upon the Stonebridge analysis for actuarial valuations, claims experience data, and benefit cost projections set forth in this memorandum, and we have not independently verified the underlying actuarial assumptions.
COBRA Administration Records. We reviewed COBRA administration files, including initial notices, election notices, qualifying event records, and payment records, maintained by Lakewood's third-party COBRA administrator, BenefitBridge Administration Services, LLC ("BenefitBridge"), Syracuse, New York.
Management Interviews. On April 28, 2025, and May 5, 2025, we conducted interviews with Gretchen Unger, Chief Operating Officer of Lakewood, concerning the administration of employee benefit plans, workforce composition, employment practices, pending or threatened claims, and anticipated transition considerations. Ms. Unger was accompanied by Margaret Holloway, Director of Human Resources, during both interview sessions.
Regulatory Correspondence. We reviewed available correspondence files for any communications with the Internal Revenue Service, the Department of Labor, the Pension Benefit Guaranty Corporation, the Centers for Medicare & Medicaid Services, and applicable state regulatory agencies relating to Lakewood's employee benefit plans.
Stop-Loss Policies. We reviewed the specific and aggregate stop-loss policies applicable to Lakewood's self-funded medical plan, issued by Keystone Re Insurance Company, including attachment points, run-out provisions, and claims filing procedures.
Documents Requested but Not Yet Received. As of the date of this memorandum, the following categories of documents have been requested but remain outstanding, and our analysis is therefore incomplete with respect to these items:
(a) Complete COBRA qualified beneficiary census with current election status and premium payment history (requested April 22, 2025; follow-up request sent to Catherine Greer of WAG on May 9, 2025);
(b) Nondiscrimination testing results (ADP/ACP and top-heavy testing) for the Lakewood 401(k) Plan for the 2024 plan year (requested April 22, 2025; Lakewood management indicates testing is being finalized by Fidelity);
(c) Documentation of any corrective actions taken under the IRS Employee Plans Compliance Resolution System ("EPCRS") or the DOL Voluntary Fiduciary Correction Program ("VFCP") (requested April 22, 2025; Ms. Unger has indicated orally that no corrections have been made, but written confirmation has not been received);
(d) Executed copies of any side letter agreements, retention bonus arrangements, or supplemental compensation arrangements with physicians or executive-level employees (requested May 2, 2025); and
(e) Workers' compensation loss runs for the three most recent policy years from Lakewood's carriers in New York and Pennsylvania (requested May 2, 2025).
A complete log of outstanding diligence requests is maintained in Exhibit E. We have coordinated with Catherine Greer of Whitfield, Ames & Greer LLP, Seller's counsel, on the expeditious resolution of these outstanding items and anticipate receiving the remaining materials no later than May 30, 2025. This memorandum should be supplemented upon receipt and review of such materials.
III. Workforce Overview
A. Employee Census
As of the April 30, 2025 census date, Lakewood employs approximately 410 FTEs across eleven (11) clinic locations in New York and Pennsylvania. The workforce is distributed among the following categories:
These employees are distributed across Lakewood's eleven clinic facilities as follows:
A detailed breakdown of headcount by location and employee category is set forth in Exhibit B. The New York locations collectively employ approximately 322 FTEs (78.5% of the total workforce), and the Pennsylvania locations collectively employ approximately 88 FTEs (21.5% of the total workforce).
Independent Contractors, Per Diem Workers, and Staffing Agency Arrangements. The FTE count of 410 reflects only individuals classified by Lakewood as common-law employees for federal employment tax purposes. In addition to its employee workforce, Lakewood engages approximately 12 to 15 independent contractor physicians and allied health professionals on a per diem or part-time basis at various clinic locations, principally to cover temporary staffing gaps and seasonal volume fluctuations. These individuals are engaged under independent contractor agreements and are excluded from the FTE count and from participation in Lakewood's employee benefit plans.
Lakewood also utilizes temporary staffing agencies for administrative and clinical support positions from time to time, primarily through Pinnacle Healthcare Staffing, Inc. (Rochester, NY) and MedTemp Solutions, LLC (Scranton, PA). Staffing agency workers are employees of the applicable agency and do not participate in Lakewood's benefit plans.
Worker Classification Risks. We note that Lakewood's classification of per diem physicians and allied health professionals as independent contractors has not been the subject of any IRS or state audit, to our knowledge based on the information provided. However, the classification of healthcare professionals as independent contractors is an area of heightened regulatory scrutiny, particularly under the revised DOL independent contractor rule effective March 11, 2024 (which reinstated a totality-of-the-circumstances economic reality test). We recommend that Crestline not assume any independent contractor relationships without a fresh classification analysis, and we have flagged this as a separate diligence item outside the scope of this benefits memorandum. To the extent that any reclassification of independent contractors as employees were to occur, it could give rise to retroactive benefit plan participation claims, payroll tax liabilities, and penalties, all of which would be appropriately allocated to Sellers as pre-Closing liabilities under the APA's indemnification framework.
B. Employment Arrangements
Employment-at-Will Status. Under both New York and Pennsylvania law, the default employment relationship is employment-at-will, meaning that either the employer or the employee may terminate the relationship at any time, with or without cause, and with or without notice, absent a contractual agreement to the contrary. Lakewood's employee handbook, last revised in March 2024, expressly states that all employees are employed on an at-will basis and that the handbook does not constitute a contract of employment. We have reviewed the handbook and note that it contains a clear and conspicuous at-will disclaimer.
Individual Employment Agreements. Notwithstanding the general at-will employment framework, Lakewood has entered into individual employment agreements with the following categories of employees:
Physicians. Each of Lakewood's 38 employed physicians is party to an individual physician employment agreement. We have reviewed a representative sample of ten (10) physician employment agreements and note that they generally contain the following terms: (i) one-year rolling terms with automatic renewal; (ii) base salary, productivity incentive compensation, and benefit plan eligibility provisions; (iii) restrictive covenant provisions (discussed below); (iv) professional liability insurance coverage provisions; and (v) termination provisions permitting termination by either party upon 90 days' written notice (or immediately for cause). Variations exist among individual agreements, and we recommend that all 38 physician employment agreements be reviewed in their entirety in connection with the offer-letter process for Transferred Employees.
Executive Officers. Individual employment agreements are also in place for Gretchen Unger (Chief Operating Officer), Thomas Reade (Chief Financial Officer), and Dr. Adrienne Suresh (Chief Medical Officer). These agreements contain terms generally consistent with the physician employment agreements but include additional severance provisions (ranging from six months to twelve months of base salary upon termination without cause) and enhanced non-competition terms. The APA contemplates that Ms. Unger and Mr. Reade will receive offers of employment from Crestline on terms to be negotiated, and that Dr. Suresh will continue in her role as Chief Medical Officer of the acquired operations.
Post-Closing Consulting Agreements. The Transaction contemplates that two of Lakewood's senior physicians, Dr. Raymond Alcott and Dr. Nadia Petrosian, will not receive offers of employment from Crestline but will instead enter into post-Closing consulting agreements with Crestline to ensure continuity of patient care and clinical leadership during the transition period. The key terms of these consulting agreements, as currently contemplated, are as follows:
Each consulting agreement includes a non-competition provision restricting the consultant from providing competing healthcare services within a 75-mile radius of any Lakewood clinic location for a period of three (3) years following the Closing Date (i.e., through August 15, 2028). The non-competition period thus extends one year beyond the expiration of the consulting term. We note that the enforceability of non-competition provisions is subject to varying standards under New York and Pennsylvania law, and we have addressed the enforceability analysis in a separate memorandum (Calderwood & Harkness Work Product, Matter No. 1006-00008, dated May 7, 2025). Of particular note, New York has considered but has not yet enacted a comprehensive ban on non-compete agreements, and the current legal framework in New York requires that non-compete provisions be reasonable in scope, duration, and geographic reach. The 75-mile radius and three-year duration are at the outer boundary of what New York courts have enforced in the healthcare context and may be subject to challenge.
Because Dr. Alcott and Dr. Petrosian will transition from employee status to independent contractor (consultant) status at Closing, they will cease to be eligible for participation in Lakewood's employee benefit plans as of the Closing Date. Their termination of employment will constitute a COBRA qualifying event with respect to their group health coverage. Additionally, they will be entitled to portability and conversion rights under Lakewood's group life insurance and AD&D policies, as discussed in Section V.C below. From an employee benefits perspective, the consulting fees payable to Dr. Alcott and Dr. Petrosian are not subject to ERISA and will not be integrated into Crestline's retirement or welfare plans.
APA Employee-Related Covenants. As currently drafted, the APA contains the following covenants related to the Lakewood workforce and the treatment of Transferred Employees, which are cross-referenced throughout this memorandum:
(a) Crestline shall make offers of employment to substantially all Lakewood employees (other than those specifically identified on Schedule 6.8(a) to the APA) on terms and conditions that are, in the aggregate, no less favorable than those provided by Lakewood immediately prior to the Closing;
(b) Crestline shall recognize each Transferred Employee's service with Lakewood for purposes of eligibility, vesting, and benefit accrual under Crestline's benefit plans, to the extent such service was recognized under the corresponding Lakewood plan;
(c) Crestline shall waive any pre-existing condition limitations, waiting periods, and evidence of insurability requirements under its group health plans with respect to Transferred Employees and their covered dependents;
(d) Crestline shall credit Transferred Employees with deductible and out-of-pocket maximum amounts paid under Lakewood's health plans during the plan year in which the Closing occurs; and
(e) Crestline shall assume the aggregate accrued PTO liability for Transferred Employees as of the Closing Date.
IV. Retirement Plans
A. Lakewood 401(k) Plan
1. Plan Overview.  Lakewood maintains the Lakewood Regional Health Partners 401(k) Savings Plan (the "Lakewood 401(k) Plan" or the "Plan"), a tax-qualified defined contribution plan intended to satisfy the requirements of Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). The key features of the Plan are as follows:
The Plan was originally established by Lakewood effective January 1, 2016, and was most recently restated effective January 1, 2022, to incorporate amendments required by the Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act") and certain interim amendments. An additional amendment was adopted effective January 1, 2025, to incorporate provisions required by the SECURE 2.0 Act of 2022, including the enhanced catch-up contribution limits for participants aged 60 through 63, mandatory Roth treatment for certain catch-up contributions, and the student loan matching provisions (although Lakewood has elected not to implement student loan matching at this time).
2. Transaction Treatment — Plan Not Assumed.  As contemplated by the APA, the Lakewood 401(k) Plan will not be assumed by Crestline in the Transaction. The Plan will be terminated by Lakewood (through the Sellers) prior to or concurrently with the Closing Date. Specifically, the APA requires Sellers to adopt corporate resolutions terminating the Plan effective no later than the day immediately preceding the Closing Date (i.e., August 14, 2025). We recommend that the Plan termination resolutions be adopted as early as practicable and in any event no later than July 15, 2025, to allow sufficient time for administrative processing, participant notification, and coordination with Fidelity.
Partial Termination Analysis. In an asset purchase transaction where the buyer does not assume the seller's retirement plan, a partial termination of the plan may be deemed to occur under Code Section 411(d)(3) if a significant percentage of plan participants are terminated from employment with the plan sponsor. The IRS has historically applied a presumption that a partial termination occurs when the turnover rate attributable to employer-initiated severances exceeds 20% during a plan year. In this case, because Crestline is expected to make offers of employment to substantially all Lakewood employees, and because the Plan is being fully terminated (not partially terminated), the partial termination analysis is largely academic. However, we note the following:
(a) If for any reason the Plan is not fully terminated prior to Closing, but a significant number of employees are severed from employment with Lakewood, a partial termination could be deemed to occur, which would require full vesting of all affected participants' employer matching contributions regardless of their otherwise applicable vesting schedule.
(b) To eliminate any ambiguity, we recommend that the Plan termination resolutions include a provision for full vesting of all participant accounts effective as of the termination date, regardless of the participants' otherwise applicable vesting schedule. This approach is consistent with prevailing practice and eliminates any partial termination risk. The estimated cost of accelerated vesting for participants who have not yet completed three years of service is approximately $145,000, based on Stonebridge's analysis of participant account balances and vesting status as of December 31, 2024.
Rollover into Crestline Plan. Following the termination of the Lakewood 401(k) Plan and the distribution of plan assets, Transferred Employees will be eligible to roll over their vested account balances (including any amounts attributable to accelerated vesting) directly into Crestline's 401(k) plan administered by Grandview Retirement Services, Inc. We have initiated preliminary coordination with Grandview regarding rollover acceptance procedures and note the following:
(a) Grandview has confirmed that Crestline's 401(k) plan will accept eligible rollover distributions from the terminated Lakewood 401(k) Plan, including pre-tax, Roth, and after-tax (if any) amounts, subject to completion of Grandview's standard rollover acceptance documentation.
(b) Participant Loan Rollovers. As of December 31, 2024, there were approximately 22 outstanding participant loans under the Lakewood 401(k) Plan with an aggregate outstanding balance of approximately $310,000. Under applicable guidance, if the Lakewood 401(k) Plan is terminated, outstanding participant loans will be treated as deemed distributions to the extent not repaid or directly rolled over within the permissible timeframe. We recommend that Crestline's plan be amended (if it does not already permit) to accept in-kind rollovers of outstanding participant loan notes to avoid deemed distribution treatment for affected participants. Grandview has indicated that the Crestline plan currently permits acceptance of rollover loan notes, but this should be confirmed in writing prior to Closing. If any participants fail to roll over their outstanding loan balances, the deemed distribution will be taxable to the participant and, for participants under age 59½, may be subject to the 10% early distribution penalty under Code Section 72(t).
3. Compliance Review.  We have conducted a compliance review of the Lakewood 401(k) Plan based on the available documentation and note the following:
Forms 5500. We reviewed the Forms 5500 for the 2021, 2022, and 2023 plan years. All three filings were timely filed and included the required schedules (Schedule C and Schedule H, as applicable). The 2024 Form 5500 is due July 31, 2025, and has been prepared but not yet filed. We identified no reportable issues on the reviewed Forms 5500, including no late participant contributions, no nonexempt prohibited transactions, and no accountant qualifications on the independent qualified public accountant report (Bassett & Worthington CPAs, LLP, Rochester, NY).
ADP/ACP Nondiscrimination Testing. The Plan is subject to annual actual deferral percentage ("ADP") and actual contribution percentage ("ACP") testing. We reviewed the nondiscrimination testing results for the 2022 and 2023 plan years, both of which reflected that the Plan passed ADP and ACP testing without the need for corrective distributions or qualified nonelective contributions ("QNECs"). The 2024 testing results are pending (as noted in Section II, this is an outstanding diligence item), but Ms. Unger has represented that no compliance issues are anticipated.
Top-Heavy Testing. The Plan has not been in top-heavy status for any of the three most recent plan years reviewed. Given the relatively large participant base (approximately 385 active participants) and broad-based participation, top-heavy status is unlikely to be triggered.
EPCRS/VFCP Corrections. Based on our review and on representations made by Ms. Unger during our management interviews, no corrective filings have been made under the IRS Employee Plans Compliance Resolution System ("EPCRS") or the DOL Voluntary Fiduciary Correction Program ("VFCP") with respect to the Plan. We have requested written confirmation of this representation from Sellers and are awaiting receipt.
Fidelity Bond. ERISA Section 412 requires that every fiduciary and every person who handles funds or other property of an employee benefit plan be bonded. We confirmed that Lakewood maintains an ERISA fidelity bond in the amount of $1,850,000, which satisfies the minimum bond requirement of 10% of plan assets handled during the preceding plan year (up to the $500,000 maximum, or $1,000,000 for plans holding employer securities — the latter is not applicable here). The bond is issued by Calderon Assurance. We note, however, that with aggregate plan assets of approximately $18,400,000 as of December 31, 2024, the bond amount of $1,850,000 is in excess of the maximum bond requirement under ERISA, which suggests the bond may also serve a broader corporate fidelity purpose. No deficiency was identified.
Prohibited Transactions. Based on our review of the Forms 5500 and the independent auditor reports, we identified no reported nonexempt prohibited transactions under Code Section 4975 or ERISA Section 406. We have not conducted an independent prohibited transaction review beyond the review of available documentation.
SECURE Act and SECURE 2.0 Act Compliance. The Plan was amended effective January 1, 2022, to incorporate SECURE Act provisions and was further amended effective January 1, 2025, for SECURE 2.0 Act requirements. We reviewed the amendments and confirmed that they address the following key provisions: (i) increase in required minimum distribution age to 73 (SECURE 2.0 Section 107); (ii) enhanced catch-up contribution limits for participants aged 60–63 (SECURE 2.0 Section 109); (iii) mandatory Roth treatment of catch-up contributions for employees with compensation exceeding $145,000 (SECURE 2.0 Section 603, as delayed by IRS Notice 2023-62 and Notice 2024-02 to January 1, 2026); (iv) long-term part-time employee eligibility rules (SECURE Act Section 112, as modified by SECURE 2.0 Section 125); and (v) de minimis financial incentive provisions (SECURE 2.0 Section 113). The Plan document appears to be in good order with respect to current legislative requirements, subject to further amendments that may be required by the extended remedial amendment deadlines.
4. Outstanding Liabilities.  No Unfunded Liabilities. As a defined contribution plan, the Lakewood 401(k) Plan does not have unfunded liabilities in the traditional sense. Each participant's benefit is equal to the balance in the participant's individual account, which is fully funded by definition.
Pending or Threatened Claims. Based on our review of available documentation and on representations made by Lakewood management, we are not aware of any pending or threatened claims, lawsuits, or agency proceedings (including DOL investigations or IRS examinations) relating to the Lakewood 401(k) Plan. We have requested written confirmation of this representation from Sellers.
Multiemployer Plan Contributions. We have confirmed that Lakewood does not contribute to, and has never been required to contribute to, any multiemployer plan (as defined in ERISA Section 3(37)). Accordingly, there is no withdrawal liability exposure under Title IV of ERISA.
Defined Benefit Plan Obligations. We have confirmed that Lakewood does not maintain, and has never maintained, a defined benefit pension plan or cash balance plan. There are no Title IV or PBGC liabilities associated with the Lakewood workforce.
B. Integration into Crestline 401(k) Plan
Crestline maintains the Crestline Packaging Solutions LLC 401(k) Retirement Savings Plan (the "Crestline 401(k) Plan"), a tax-qualified defined contribution plan administered by Grandview Retirement Services, Inc., Cleveland, Ohio. The Crestline 401(k) Plan is a pre-approved volume submitter plan maintained on the Grandview platform. Key features of the Crestline plan relevant to the integration of Transferred Employees include:
The APA requires Crestline to recognize each Transferred Employee's prior service with Lakewood for purposes of eligibility and vesting under the Crestline 401(k) Plan. Accordingly, Transferred Employees who were eligible to participate in the Lakewood 401(k) Plan as of the Closing Date will be immediately eligible to participate in the Crestline 401(k) Plan on the Closing Date, and their years of service with Lakewood will be credited toward vesting under the Crestline 401(k) Plan's graded vesting schedule.
We note the following differences between the plans that may affect employee communications and transition planning:
(a) Match Formula. The Crestline plan provides a more generous effective match rate (up to 4% of compensation, compared to up to 3% under Lakewood's historical practice). This is a favorable difference for Transferred Employees, although we note that Lakewood's match was discretionary and thus not guaranteed in any given year.
(b) Participant Loans. The Crestline plan does not currently permit participant loans. Transferred Employees who roll over outstanding loan balances from the terminated Lakewood plan will be permitted to continue servicing those loan notes under the Crestline plan (assuming the plan is amended to accept rollover loan notes), but they will not be able to take new loans from the Crestline plan. This is a reduction in benefit flexibility that should be communicated to employees.
(c) Vesting Schedule. The Crestline plan uses a 4-year graded vesting schedule (25% per year), compared to Lakewood's 3-year cliff. With service credit recognition, Transferred Employees who had not yet completed 3 years of service under the Lakewood plan may vest more quickly under the Crestline plan's graded schedule, while those who were approaching the 3-year cliff may vest somewhat more slowly. The net effect depends on each employee's individual tenure.
(d) Investment Options. We have not conducted a detailed comparison of investment options between the two plans. Crestline should provide Transferred Employees with information about the Crestline plan's investment lineup in connection with the enrollment process.
We recommend that Crestline's benefits team prepare a comprehensive side-by-side comparison of the two plans' features for inclusion in employee transition communications. The enrollment window for Transferred Employees into the Crestline 401(k) Plan should be coordinated with the 401(k) rollover processing window, which we recommend targeting for completion within 90 days following the Closing Date.
V. Health and Welfare Plans
A. Medical and Prescription Drug Plans
1. Plan Structure.  Lakewood provides medical and prescription drug coverage to eligible employees through the Lakewood Regional Health Partners Group Health Plan (the "Lakewood Health Plan"). The Lakewood Health Plan is a self-funded plan, with Lakewood bearing the financial risk for claims subject to stop-loss insurance protection. The key structural features of the plan are as follows:
The plan offers two coverage tiers: a Standard PPO option and a High Deductible Health Plan ("HDHP") option paired with a health savings account ("HSA") contribution. The plan design parameters for the current plan year are as follows:
Premium contributions are shared between Lakewood and employees as follows:
As of the April 30, 2025 census date, approximately 348 employees (of the 410 FTEs) are enrolled in the Lakewood Health Plan, covering approximately 780 lives including dependents. The remaining 62 employees have waived coverage, presumably because they have coverage through a spouse's plan, through a government program, or through other sources.
Claims Experience. Stonebridge analyzed Lakewood's claims experience data for the three most recent completed plan years (2022, 2023, and 2024). The key findings are summarized as follows:
The data reflects an annual claims trend of approximately 7.2% to 8.5%, which is somewhat above national average trend rates (typically 6.5% to 7.5% for employer-sponsored plans) and is attributable in part to the concentration of healthcare provider employees who tend to utilize healthcare services at higher-than-average rates. Stonebridge has noted that two high-cost claimants in 2024 (both of whom exceeded the specific stop-loss attachment point) accounted for a disproportionate share of the claims increase, and that the underlying trend, excluding these outliers, was approximately 6.8%.
The Stonebridge report also identified the following claim categories as primary cost drivers: musculoskeletal conditions (18% of total paid claims), cardiovascular conditions (12%), behavioral health (10%), and specialty pharmacy (15%). The specialty pharmacy trend is of particular note, as it has increased at approximately 14% per year over the three-year review period, driven primarily by utilization of GLP-1 receptor agonist medications and specialty biologics.
2. Transition Considerations.  The Lakewood Health Plan will not be assumed by Crestline in the Transaction. Crestline will offer enrollment in CPS group health plans to all Transferred Employees effective as of the Closing Date, August 15, 2025. The mid-year transition presents several considerations that must be carefully managed:
Deductible and Out-of-Pocket Maximum Credit Carryover. The APA requires Crestline to credit Transferred Employees and their covered dependents with deductible amounts and out-of-pocket maximum amounts paid under the Lakewood Health Plan during the 2025 plan year (January 1 through August 15, 2025) for purposes of satisfying the corresponding deductible and out-of-pocket maximum requirements under Crestline's group health plans for the remainder of the 2025 plan year. This is a standard provision in acquisition agreements but requires operational coordination between the Lakewood TPA (Excellus), the Crestline health plan carrier(s), and Stonebridge. We recommend that Lakewood be required to provide a participant-level deductible and OOP accumulator file to Crestline no later than five (5) business days following the Closing Date, and that the data format be agreed upon in advance.
Stonebridge estimates that the cost of honoring deductible and OOP maximum credits for the mid-year transition period will be approximately $180,000 to $240,000, based on the assumption that approximately 60% of enrolled employees will have incurred some deductible expense by mid-August 2025.
ACA Compliance. Crestline must ensure that there is no gap in minimum essential coverage ("MEC") for Transferred Employees. Because the Closing Date is August 15, 2025, and Crestline's group health plan enrollment will be effective as of that date, there should be no gap in coverage for any calendar month, provided that enrollment is processed on a timely basis. Lakewood's coverage will terminate at the end of the day on August 14, 2025, and Crestline's coverage will be effective beginning August 15, 2025. For ACA reporting purposes (Forms 1094-C and 1095-C), Lakewood will report coverage for January through July 2025 (and the portion of August through August 14), and Crestline will report coverage beginning August 15 through December 2025. Coordination on ACA reporting will be required.
No-Wait-Period Requirement. The APA requires that Crestline waive any waiting period or eligibility period under its group health plans for Transferred Employees. This is consistent with the HIPAA special enrollment rights that would apply in any event following a loss of other coverage, but the APA provision provides additional contractual protection. We recommend that Crestline's health plan carriers be notified in advance of this requirement and that confirmation of waiver be obtained in writing.
Pre-Existing Condition Limitations. The ACA eliminated pre-existing condition exclusions for all group health plans effective for plan years beginning on or after January 1, 2014. Accordingly, the APA's requirement that Crestline waive pre-existing condition limitations is a "belt and suspenders" provision that should not present any practical issue.
Stonebridge Cost-Impact Analysis. Stonebridge has modeled the projected cost of integrating the approximately 410 Lakewood FTEs (and their approximately 780 covered lives) into Crestline's existing group health plans. Based on the claims experience trending and Crestline's current plan design and premium structure, Stonebridge projects a year-one incremental cost to Crestline of approximately $2,850,000 to $3,200,000 for medical and prescription drug coverage. This estimate assumes that Crestline's plans will cover the Lakewood population at rates consistent with Crestline's existing claims experience, adjusted for the Lakewood population's demographic mix and utilization patterns. The Stonebridge analysis is summarized in Exhibit D.
Stop-Loss Run-Out. Upon termination of the Lakewood Health Plan, the existing stop-loss policy with Keystone Re will enter its 15-month run-out period, during which claims incurred prior to the Closing Date but paid after the Closing Date may be submitted for stop-loss reimbursement. Lakewood (or the Sellers) will remain responsible for administering the run-out process and for any claims that fall below the stop-loss attachment point. We recommend that the APA clearly allocate responsibility for the stop-loss run-out process and any associated administrative costs.
B. Dental and Vision Plans
Lakewood provides dental and vision coverage to eligible employees through the following fully insured plans:
Dental Plan. The Ostrander Life Insurance PPO plan provides coverage for preventive, basic, and major services, with an annual maximum benefit of $2,000 per covered individual. Orthodontic coverage is provided for dependent children under age 19, with a lifetime maximum of $1,500. The employer pays 75% of the premium for employee-only coverage and 60% of the premium for dependent coverage.
Vision Plan. The Quillon Technologies vision plan provides coverage for annual eye exams (copay: $10), lenses, and frames (up to $150 allowance), with contact lens coverage available in lieu of frames. The employer pays 100% of the premium for employee-only coverage and 75% for dependent coverage.
Transition Approach. Consistent with the medical plan transition, the Lakewood dental and vision plans will terminate effective as of the Closing Date, and Transferred Employees will be offered enrollment in Crestline's dental and vision plans on the same date. The enrollment timeline should be coordinated with the medical plan enrollment to minimize administrative burden and employee confusion.
C. Life Insurance and AD&D
Lakewood provides group life insurance and accidental death and dismemberment ("AD&D") coverage through a fully insured policy issued by Halcyon Assurance (Policy No. GL-7841296). The coverage structure is as follows:
The employer pays 100% of the premium for basic life and AD&D coverage. Employees pay 100% of the premium for supplemental and dependent life coverage.
Portability and Conversion Rights. Upon termination of the Lakewood group life insurance policy, employees (including those who become Transferred Employees and those who do not receive offers of employment from Crestline) will have the right to port or convert their life insurance coverage to individual policies, subject to the terms of the Quillon Holdings policy. Under Quillon Holdings's standard portability and conversion provisions:
(a) Portability allows eligible individuals to continue group term life coverage at group rates without evidence of insurability, provided the application is submitted within 31 days of the qualifying event (i.e., the date coverage ceases).
(b) Conversion allows eligible individuals to convert their group term coverage to an individual whole life or universal life policy at the individual's attained age rate, without evidence of insurability, provided the application is submitted within 31 days of the qualifying event.
Lakewood is obligated to provide written notice of portability and conversion rights to all affected employees within the required timeframe. We recommend that this notice be included in the employee transition communications prepared in connection with the Closing and that proof of delivery be maintained. Failure to provide timely notice of conversion rights can expose the employer to liability for the benefit the employee would have received had the conversion been properly offered.
D. Short-Term and Long-Term Disability
Lakewood provides short-term disability ("STD") and long-term disability ("LTD") coverage through fully insured policies as follows:
The employer pays 100% of the premium for both STD and LTD coverage.
Integration with State-Mandated Disability Programs. New York requires employers to provide disability benefits insurance ("DBL") to employees under the New York Workers' Compensation Law § 200 et seq. The New York DBL provides a weekly cash benefit of 50% of average weekly wages, up to $170 per week, for up to 26 weeks. Lakewood's STD plan is integrated with the New York DBL, meaning that the STD benefit is offset by DBL payments so that employees do not receive duplicative benefits. Lakewood's New York DBL coverage is provided through Strathmore Mutual Insurance as a rider to the STD policy. Pennsylvania does not have a state-mandated disability insurance program.
Open Claims. Based on information provided by Lakewood management and Strathmore Mutual Insurance, there are currently six (6) open STD claims and two (2) open LTD claims as of the April 30, 2025 census date. The open STD claims involve three clinical support staff and three administrative staff members across the Rochester Main, Syracuse, and Scranton locations. The two open LTD claims involve a clinical support staff member at the Brighton location (on LTD since November 2023, diagnosed with chronic autoimmune condition) and an administrative staff member at the Rochester Main location (on LTD since February 2024, post-surgical rehabilitation). The aggregate reserve for all open disability claims, as reported by Strathmore Mutual Insurance, is approximately $285,000.
Because the STD and LTD plans are fully insured, the ongoing claim liabilities remain with Strathmore Mutual Insurance. However, to the extent any open claimants become Transferred Employees (i.e., if they are offered and accept employment with Crestline), their coverage under Strathmore Mutual Insurance policies will terminate at Closing, and they will need to be enrolled in Crestline's disability plans. We recommend that the APA address the treatment of employees on disability leave as of the Closing Date, including whether such individuals will receive offers of employment from Crestline and, if so, whether they will be treated as Transferred Employees with immediate coverage under Crestline's disability plans.
Stonebridge has reviewed the open claims experience and has not identified any systemic issues or unusual patterns that would suggest elevated future claims risk for the Lakewood workforce.
E. Flexible Spending Accounts and Health Savings Accounts
Section 125 Cafeteria Plan. Lakewood maintains a Section 125 cafeteria plan (the "Lakewood Cafeteria Plan") that allows employees to pay their share of health, dental, and vision insurance premiums on a pre-tax basis and to participate in a healthcare flexible spending account ("Healthcare FSA") and a dependent care flexible spending account ("Dependent Care FSA"). The plan year is the calendar year. The Lakewood Cafeteria Plan is administered by BenefitBridge Administration Services, LLC (the same firm that administers COBRA).
Healthcare FSA. The Healthcare FSA allows employees to contribute up to $3,300 per year (2025 limit) on a pre-tax basis for eligible medical expenses not covered by insurance. The plan includes a $640 carryover provision (per the SECURE 2.0 Act indexed carryover amount for 2025), allowing participants to carry over unused balances from one plan year to the next, up to the indexed limit. As of May 1, 2025, there are approximately 95 active Healthcare FSA participants with an aggregate outstanding balance (contributions made less reimbursements paid) of approximately $142,000.
Dependent Care FSA. The Dependent Care FSA allows employees to contribute up to $5,000 per year (or $2,500 if married filing separately) on a pre-tax basis for eligible dependent care expenses. The Dependent Care FSA has a use-it-or-lose-it feature and does not include a carryover or grace period provision. As of May 1, 2025, there are approximately 28 active Dependent Care FSA participants with an aggregate outstanding balance of approximately $38,000.
Mid-Year Transition Treatment. The mid-year termination of the Lakewood Cafeteria Plan and FSA arrangements presents the following considerations:
(a) Under the uniform coverage rule applicable to Healthcare FSAs, participants are entitled to reimbursement of eligible expenses incurred during the plan year up to their full annual election amount, regardless of the amount actually contributed as of the date the plan terminates. This means that if an employee has elected $3,300 for the 2025 plan year and has contributed only $1,700 through August 15, 2025, but has incurred $3,300 in eligible expenses, the employee is entitled to the full $3,300 reimbursement. The employer bears the risk of any shortfall between contributions collected and reimbursements paid.
(b) We recommend that Lakewood's Cafeteria Plan be amended or terminated effective as of the Closing Date, with a run-out period of at least 90 days following termination for participants to submit claims for expenses incurred on or before the Closing Date. Alternatively, Crestline's Section 125 plan could be amended to allow Transferred Employees to continue their Healthcare FSA and Dependent Care FSA elections for the remainder of the 2025 plan year, which may be operationally simpler but requires coordination between BenefitBridge and Crestline's benefits administrator.
(c) The APA should clearly allocate responsibility for any Healthcare FSA run-out claims and any excess reimbursements that exceed contributions collected as of the Closing Date.
Health Savings Accounts. Employees enrolled in the HDHP option may contribute to individual HSAs. Lakewood makes employer contributions to employees' HSAs in the amount of $750 per year for employee-only coverage and $1,500 per year for family coverage, deposited in quarterly installments. The HSAs are custodied with Brightwater Capital Management. Because HSAs are individually owned accounts, they are fully portable and will transfer with Transferred Employees regardless of any plan termination. However, if Crestline's HDHP offering is paired with a different HSA custodian, Transferred Employees may wish to consolidate their HSA balances. No employer liability arises from the HSA transition, and we do not anticipate any material issues. Crestline should confirm whether its HDHP offering is HSA-compatible and communicate the HSA transition process to affected employees.
F. Other Welfare Benefits
In addition to the foregoing health and welfare plans, Lakewood provides the following supplemental benefits to eligible employees:
Employee Assistance Program (EAP). Lakewood contracts with Aldermere Strategy Partners to provide EAP services to all employees and their household members. The EAP provides confidential counseling, referral services, legal and financial consultations, and work-life resources. The annual cost is approximately $18,000 (flat per-employee fee). The EAP contract will terminate at Closing; Crestline should determine whether to extend EAP coverage to Transferred Employees through its own EAP provider.
Wellness Program. Lakewood offers a voluntary wellness program that includes annual health risk assessments, biometric screenings, smoking cessation support, and a gym membership subsidy (up to $50/month). The annual cost is approximately $72,000. Participation is voluntary, and there are no incentive-based design features that would implicate the ADA or GINA wellness program regulations. This program will terminate at Closing.
Tuition Reimbursement. Lakewood provides a tuition reimbursement benefit of up to $5,250 per calendar year (the Code Section 127 exclusion amount) for job-related undergraduate and graduate coursework. As of the April 30, 2025 census date, approximately 22 employees are actively participating in the tuition reimbursement program, with aggregate outstanding tuition reimbursement commitments for the 2025 calendar year of approximately $95,000. We recommend that the APA address the treatment of outstanding tuition reimbursement commitments — specifically, whether Crestline will honor in-progress reimbursement commitments for Transferred Employees or whether Lakewood will satisfy such commitments through the Closing Date.
Professional Development Allowances. Physicians and nurse practitioners/physician assistants receive an annual professional development allowance of $3,500 to $5,000 for continuing medical education ("CME"), conference attendance, and professional licensing fees. The aggregate annual cost is approximately $240,000. This benefit is consistent with industry practice and is expected to be continued by Crestline, although the specific amounts and terms may differ under Crestline's policies.
Materiality Assessment. The other welfare benefits described in this Section V.F have a combined annual cost of approximately $425,000 and do not present material transition risk or liability exposure. They are included for completeness and to ensure that employee communications accurately describe any changes in supplemental benefits following the Closing.
VI. COBRA Obligations
A. Pre-Closing COBRA Compliance
The Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), as amended, requires employers with 20 or more employees that sponsor group health plans to offer continuation coverage to qualified beneficiaries who experience a qualifying event that would otherwise result in a loss of group health coverage. Lakewood, as an employer with approximately 410 employees, is subject to federal COBRA requirements with respect to its group health plan, dental plan, vision plan, and Healthcare FSA (to the extent the FSA is an "underspent" account at the time of the qualifying event).
COBRA Administration. Lakewood's COBRA administration is handled by BenefitBridge Administration Services, LLC, Syracuse, New York. BenefitBridge is responsible for generating and distributing initial COBRA notices (general notice), COBRA election notices upon qualifying events, tracking election periods and payment deadlines, and coordinating coverage activation and termination with the applicable carriers and the Excellus TPA.
Compliance Review. We reviewed a sample of COBRA administration files provided by BenefitBridge and noted the following:
(a) Initial Notices. BenefitBridge provides initial COBRA notices (general notices) to newly eligible employees and their spouses upon enrollment in the Lakewood Health Plan. We reviewed a sample of 15 initial notices and confirmed that they are distributed within the 90-day timeframe required by COBRA regulations and that the content appears to comply with the model notice requirements.
(b) Election Notices. Upon the occurrence of a qualifying event, BenefitBridge generates and distributes an election notice within 14 days of receiving notification of the qualifying event from Lakewood's HR department. We reviewed a sample of 10 election notices from the past 12 months and did not identify any material deficiencies in content or timing, although we note that one notice (dated September 12, 2024, relating to an employee termination at the Utica location) was sent 18 days after the qualifying event rather than the 14-day regulatory requirement. This appears to be an isolated incident, and BenefitBridge has represented that corrective measures were implemented. We do not believe this isolated delay gives rise to material liability, but we recommend that Sellers provide a representation and warranty regarding compliance with COBRA notice requirements and agree to indemnify Buyer for any pre-Closing COBRA violations.
(c) Current COBRA Qualified Beneficiaries. Based on available records (which are incomplete — see Section II regarding outstanding diligence items), there are approximately 14 individuals currently receiving COBRA continuation coverage under the Lakewood Health Plan, dental plan, and/or vision plan. The COBRA coverage for these individuals is attributable to qualifying events that occurred prior to the date of this memorandum, including voluntary and involuntary terminations, reductions in hours, and one divorce. We have requested a complete COBRA qualified beneficiary census from BenefitBridge, including election status, coverage type, premium payment status, and maximum coverage period expiration dates.
State Mini-COBRA. New York Insurance Law Section 3221(m) provides a state continuation coverage requirement (commonly referred to as "mini-COBRA") that extends continuation coverage rights for small employer group health plans (fewer than 20 employees) for up to 36 months. Because Lakewood employs approximately 410 individuals, the federal COBRA requirements apply, and the New York mini-COBRA provisions are generally not separately applicable. However, to the extent that any Lakewood subsidiary or affiliated entity maintains a separate group health plan covering fewer than 20 employees, the New York mini-COBRA requirements could apply. Based on our review, all Lakewood employees participate in a single group health plan, and no subsidiary or affiliated entity maintains a separate plan. Pennsylvania does not have a state mini-COBRA statute.
B. Post-Closing COBRA Obligations
The allocation of COBRA obligations between Sellers and Buyer following the Closing is a critical transition issue in any asset purchase transaction. Under applicable COBRA regulations and Revenue Ruling 2002-32, in an asset purchase, the buyer generally assumes the COBRA obligations of the seller with respect to the seller's group health plan if the buyer is a "successor employer" that continues the seller's business operations and employs a significant number of the seller's former employees. In this case, because Crestline is acquiring substantially all of Lakewood's assets and is offering employment to substantially all of Lakewood's employees, Crestline will likely be treated as a successor employer for COBRA purposes.
Notwithstanding the potential successor employer treatment, the APA allocates COBRA obligations as follows:
(a) S