MEMORANDUM
PRIVILEGED & CONFIDENTIAL / ATTORNEY WORK PRODUCT
FROM: Calderwood & Harkness LLP
James R. Prentice, Partner (Responsible Partner) Derek A. Okonkwo, Senior Associate (Lead Associate) Tiffany M. Rosenthal, Associate (Working Associate)
TO: Crestline Packaging Solutions LLC
Marcus Waverly, Chief Executive Officer Patricia Hsu, Chief Financial Officer
Pinnacle River Capital Partners, LP
Elliot Bergstrom, Managing Partner Jordan Samuels, Vice President — Deal Lead
DATE: June 5, 2025
RE: Real Estate Due Diligence Summary — Proposed Acquisition of Substantially All Assets of Lakewood Regional Health Partners, LLC
C&H Matter No.: 1006-00008
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I. Executive Summary
The purpose of this memorandum is to summarize the real estate due diligence findings for all eleven clinic locations operated by Lakewood Regional Health Partners, LLC ("Lakewood," "LRHP," or "Seller") in connection with the proposed acquisition by Crestline Packaging Solutions LLC ("Crestline," "CPS," or "Buyer") of substantially all of the assets of Lakewood pursuant to that certain Asset Purchase Agreement, dated as of June 16, 2025 (the "APA"), by and between Crestline, CPS Holdings, Inc. ("CPS Holdings"), and Lakewood, for an aggregate Purchase Price of One Hundred Forty Million Dollars ($140,000,000) (the "Transaction"). This memorandum has been prepared at the direction of Buyer's management and the deal team at Pinnacle River Capital Partners, LP ("Pinnacle River") and is protected by the attorney-client privilege and the work product doctrine.
Real Estate Portfolio Overview. Lakewood's healthcare operations are conducted across eleven clinic facilities situated in two states—New York and Pennsylvania. Of these eleven locations, two are owned in fee simple by Lakewood and nine are occupied pursuant to commercial lease agreements. The eight New York facilities include the two owned properties (Rochester Main and Syracuse) and six leased locations (Brighton, Henrietta, Utica, Binghamtonhamton, Ithaca, and Albany). The three Pennsylvania facilities (Scranton, Wilkes-Barre, and Towanda) are all leased. The aggregate appraised value of the two owned real properties is Eleven Million Eight Hundred Thousand Dollars ($11,800,000), based on independent appraisals conducted by licensed appraisers retained by Lakewood in 2024. The aggregate annual base rent payable under the nine lease agreements is approximately Two Million Seven Hundred Forty Thousand Dollars ($2,740,000), and the weighted-average remaining lease term across all nine leases is approximately 4.3 years as of the anticipated Closing Date of August 15, 2025 (the "Estimated Closing Date").
Key Findings and Risk Items. Our real estate due diligence review has identified the following principal risk items that warrant Buyer's attention:
(i) Landlord Consent Requirements. Assignment of several of the leased premises to Buyer in connection with the Transaction will require the prior written consent of the applicable landlord. At least two leases provide that such consent may be granted or withheld in the landlord's sole discretion, which presents a meaningful consent risk. We recommend that the landlord consent solicitation process be initiated promptly following execution of the APA, with a target commencement date of June 16, 2025, to allow adequate time for negotiation prior to the Estimated Closing Date.
(ii) Zoning Non-Conformance. Our review has identified an open zoning non-conformance item at the Syracuse owned facility (3340 Erie Boulevard East) relating to on-site parking ratios. This matter requires further analysis to determine whether the facility qualifies for legal non-conforming (grandfathered) status or whether a variance application will be necessary.
(iii) Phase I Environmental Site Assessments. Clearfield Environmental Consultants, Inc. ("Clearfield") has been engaged to prepare Phase I Environmental Site Assessments ("Phase I ESAs") in accordance with ASTM E1527-21 for all eleven clinic locations. As of the date of this memorandum, reports for seven of the eleven locations have been received in final form; reports for the remaining four locations are expected within the next ten to fourteen business days. Preliminary results from the completed reports are summarized in Section VII below.
(iv) Title Encumbrances on Owned Properties. The title commitments obtained for both owned properties reflect certain non-standard exceptions—including a mortgage lien and a mechanics' lien at the Rochester Main facility—that must be satisfied, released, or otherwise addressed at or prior to Closing.
Cross-Reference to APA Provisions. The owned real property and leasehold interests constitute "Purchased Assets" under Section 2.1 of the APA. Seller's representations and warranties regarding real property are set forth in Section 4.12 (Owned Real Property) and Section 4.13 (Leased Real Property) of the APA. The delivery of owner's title insurance policies and landlord consent letters for designated leases are specified as conditions to Closing under Article 7 of the APA. This memorandum identifies the Schedules to be delivered by Seller pursuant to the APA Disclosure Schedules, including the Schedule of Owned Real Property, the Schedule of Leased Real Property, the Schedule of Required Consents, the Schedule of Permitted Encumbrances, the Schedule of Environmental Matters, and the Schedule of Zoning Non-Conformances. Specific schedule implications are discussed in Section IX.C below.
This memorandum does not constitute a legal opinion and is subject to the limitations and qualifications set forth herein, including the non-receipt of certain outstanding diligence materials identified in Section IX.A. All capitalized terms used but not defined herein shall have the meanings ascribed to them in the APA.
II. Scope and Methodology
Documents Reviewed. In connection with the preparation of this memorandum, Calderwood & Harkness LLP has reviewed, or caused to be reviewed, the following categories of documents and materials:
• Recorded deeds for both owned properties (Rochester Main and Syracuse);
• Title commitments issued by Apex Title & Escrow Services, LLC ("Apex Title") (Denise Kowalski, Escrow Officer) for both owned properties;
• Existing owner's title insurance policies (if previously obtained);
• Existing ALTA/NSPS land title surveys for both owned properties;
• All nine lease agreements, including all amendments, addenda, supplements, extension agreements, and side letters thereto;
• Landlord estoppel certificates (where received to date);
• Zoning compliance letters and/or zoning verification reports for applicable locations;
• Certificates of occupancy on file for each location (where available);
• Real property tax assessment records and payment histories for the two owned properties;
• Current year property tax bills for all eleven locations (where the tenant bears direct or indirect tax responsibility);
• Phase I Environmental Site Assessment reports prepared by Clearfield Environmental Consultants, Inc. (received to date);
• Lakewood management's written responses to Calderwood & Harkness's Real Estate Due Diligence Request List (Request List No. RE-001 through RE-047, dated May 9, 2025);
• Medical waste disposal contracts and hazardous materials inventories maintained by Lakewood;
• Capital expenditure reports and deferred maintenance schedules provided by Lakewood's facilities management department;
• Relevant correspondence between Lakewood and landlords, municipalities, and governmental authorities relating to the real property;
• Draft APA and ancillary transaction documents; and
• Such other documents and materials as are referenced in the body of this memorandum.
Engagement of Third-Party Consultants. In addition to our internal review, the following third-party consultants have been engaged in connection with the real estate due diligence process:
• Clearfield Environmental Consultants, Inc. (225 West Jefferson Street, Suite 400, Syracuse, NY 13202; David Reinhardt, Project Manager). Clearfield has been retained to prepare Phase I Environmental Site Assessment reports in accordance with ASTM E1527-21 for all eleven Lakewood clinic locations. The engagement letter was executed on May 12, 2025, and site inspections commenced on May 19, 2025.
• Apex Title & Escrow Services, LLC (Denise Kowalski, Escrow Officer). Apex Title has been engaged to conduct title searches and issue title commitments for the two owned properties, and to serve as the title and escrow agent for the Transaction. Title commitments for both owned properties have been received and are under review.
Outstanding Diligence Items. As of the date of this memorandum, the following categories of documents and materials have not yet been received and remain outstanding:
1. Final Phase I ESA reports for four clinic locations (Utica, Ithaca, Scranton, and Towanda);
2. Updated ALTA/NSPS surveys for both owned properties (ordered but not yet received);
3. Landlord estoppel certificates for five of the nine leased locations (Brighton, Utica, Albany, Wilkes-Barre, and Towanda);
4. Zoning compliance letters from the City of Syracuse (for the owned Syracuse property) and from the municipalities of Ithaca and Towanda (for the leased locations in those jurisdictions);
5. Copies of certificates of occupancy for the Scranton and Towanda leased locations; and
6. Lakewood's responses to supplemental due diligence requests RE-041 through RE-047.
Our conclusions and recommendations are subject to modification upon receipt and review of these outstanding items. We will provide supplemental updates to the deal team as additional materials are received.
III. Owned Real Property
A. Overview
Lakewood Regional Health Partners, LLC holds fee simple title to two parcels of real property, both located in the State of New York. These properties constitute a significant portion of Lakewood's operational footprint, as the Rochester Main facility serves as Lakewood's principal office, headquarters, and primary clinic, while the Syracuse facility is one of its higher-volume clinic locations. Based on independent appraisals, the aggregate appraised value of these two properties is Eleven Million Eight Hundred Thousand Dollars ($11,800,000).
The following table summarizes the owned real property portfolio:
The Rochester Main property also serves as the co-location for Lakewood's principal office and corporate headquarters, housing both clinical operations and administrative staff. The conveyance of these properties to Buyer at Closing will be effected by statutory bargain and sale deeds with covenants against grantor's acts, in form and substance satisfactory to Buyer's counsel, as contemplated by Section 2.5(a)(iv) of the APA.
B. Rochester Main — 450 East Ridge Road, Rochester, NY 14621
1. Title Review
Apex Title & Escrow Services, LLC issued Title Commitment No. ATES-2025-NY-07821 on May 22, 2025, for the Rochester Main property (the "Rochester Title Commitment"). The Rochester Title Commitment identifies Lakewood Regional Health Partners, LLC as the current fee simple owner of the property, as vested by Bargain and Sale Deed recorded in the Monroe County Clerk's Office on March 14, 2016, in Liber 11487, Page 224 (Instrument No. 2016-014882).
The Rochester Title Commitment reflects the following standard permitted exceptions under Schedule B-II, which are customary and not expected to impair the use of the property for its intended purpose:
(a) Real property taxes, assessments, and water/sewer charges for the fiscal year 2025-2026, not yet due and payable;
(b) Utility easements of record, including a ten-foot (10') utility easement in favor of Camberwell Corporation, recorded in Liber 8944, Page 112, and a five-foot (5') utility easement in favor of the Monroe County Water Authority, recorded in Liber 9201, Page 87;
(c) Applicable zoning ordinances and regulations of the City of Rochester, New York;
(d) Rights, if any, of the State of New York or the City of Rochester in and to any portion of the property within the bounds of East Ridge Road; and
(e) Such facts as would be disclosed by a current and accurate survey of the property.
In addition to the standard exceptions, the Rochester Title Commitment has identified the following non-standard exceptions that require attention:
(f) Mortgage Lien. A mortgage in the original principal amount of $3,800,000 in favor of Great Lakes Community Bank, N.A., dated April 2, 2018, and recorded in the Monroe County Clerk's Office on April 9, 2018, in Liber 11892, Page 441 (Instrument No. 2018-009341). This mortgage secures a term loan with a current outstanding balance of approximately $2,150,000 (based on information provided by Lakewood's CFO). This mortgage must be satisfied and discharged at or prior to Closing, and a payoff letter from Great Lakes Community Bank, N.A. must be obtained.
(g) Mechanics' Lien. A mechanic's lien in the amount of $87,500 filed by upstate Mechanical Contractors, Inc. on February 14, 2025, and recorded in the Monroe County Clerk's Office as Instrument No. 2025-003217. Lakewood management has represented that this lien relates to a disputed invoice for HVAC system repairs performed in late 2024 and that the dispute is currently being negotiated. This lien must be satisfied, released, or bonded prior to Closing.
(h) UCC Fixture Filing. A UCC-1 Financing Statement (Filing No. NY-2023-045892) filed by Marlowe Asset Management Medical Equipment Finance, LLC, covering certain MRI equipment and related fixtures located at the property. This filing corresponds to Marlowe Asset Management MEF Lease Schedule No. VML-2023-1140 (Rochester Main MRI). The treatment of this UCC filing will depend on the disposition of the Marlowe Asset Management equipment lease at Closing, which is addressed in the equipment lease due diligence workstream.
Schedule B-I of the Rochester Title Commitment sets forth the following requirements to be satisfied prior to issuance of the owner's title insurance policy: (i) delivery of a satisfactory deed from Seller to Buyer; (ii) payment of all applicable transfer taxes and recording fees; (iii) satisfaction of the Great Lakes Community Bank mortgage; (iv) satisfaction or bonding of the upstate Mechanical Contractors mechanics' lien; and (v) delivery of a current ALTA/NSPS survey.
The facility holds CMS Certification Number 33-7021 and New York State Article 28 Operating Certificate Number D&TC-4821.
2. Survey Matters
An existing ALTA/NSPS land title survey of the Rochester Main property was prepared by Tavrenis Land Surveying, P.C., dated September 8, 2016 (the "2016 Rochester Survey"). The 2016 Rochester Survey depicts a 1.47-acre parcel improved with a two-story commercial building of approximately 28,500 square feet, together with a paved parking lot containing approximately 112 parking spaces, associated landscaping, and site improvements.
The 2016 Rochester Survey reflects the following:
• The building is located within the lot lines with no apparent encroachments onto adjacent properties or from adjacent properties onto the subject property;
• The utility easements referenced in the title commitment (Rochester Gas & Electric and Monroe County Water Authority) are depicted on the survey and run along the northern and eastern property boundaries, respectively, and do not encroach upon or interfere with the building footprint;
• No boundary discrepancies or overlapping claims were noted;
• The property is located in FEMA Flood Zone X (area of minimal flood hazard), as shown on FIRM Panel No. 36055C0310G, effective date June 22, 2010; and
• No setback violations are depicted on the survey based on the applicable zoning district requirements.
We have ordered an updated ALTA/NSPS survey from Tavrenis Land Surveying, P.C., which is expected to be delivered on or about June 20, 2025. The updated survey will incorporate current Table A items as required by Apex Title and any additional requirements of Ironclad National Bank in connection with the Incremental Term Loan. Upon receipt, we will review the updated survey and provide a supplemental report if any material changes or discrepancies are identified.
3. Zoning and Land Use Compliance
The Rochester Main property is located within the C-2 (Community Commercial) zoning district of the City of Rochester, New York, as classified under the Rochester City Zoning Code (Chapter 120). Outpatient medical clinics and diagnostic and treatment centers are a permitted use within the C-2 district, subject to compliance with applicable site development standards, including building height, lot coverage, setback, and parking requirements.
A Certificate of Occupancy (CO No. 2016-08834) was issued by the City of Rochester Department of Neighborhood and Business Development on June 2, 2016, authorizing use of the premises as a "medical office / outpatient clinic." The Certificate of Occupancy remains in effect and has not been modified, suspended, or revoked.
Our review has not identified any special use permits, variances, or conditional use approvals applicable to the Rochester Main property. Based on the 2016 Rochester Survey and available records, the property appears to comply with applicable parking requirements for the C-2 district (minimum 1 space per 250 square feet of gross floor area for medical office use, yielding a requirement of approximately 114 spaces; the survey depicts 112 spaces, which is within the tolerance typically accepted by the City). We recommend confirming compliance with the updated survey.
No zoning enforcement actions or violations are reflected in the records reviewed.
4. Tax Assessment and Real Property Taxes
The Rochester Main property is currently assessed by the City of Rochester (Monroe County) at a total assessed value of $5,650,000 (land: $1,100,000; improvements: $4,550,000). The annual real property tax obligation for the current fiscal year (2024-2025) is approximately $148,500, inclusive of city, county, and school district taxes.
Based on information provided by Lakewood management and confirmed through a review of Monroe County tax records, all real property taxes for the Rochester Main property are current, and no delinquencies or arrearages exist. There are no pending tax certiorari proceedings or assessment challenges filed by Lakewood with respect to this property.
At Closing, real property taxes for the current fiscal year will be prorated between Seller and Buyer as of the Closing Date in accordance with Section 2.7(c) of the APA, using a per diem calculation based on the most recent tax bill.
5. Physical Condition and Capital Improvements
The Rochester Main facility consists of a two-story commercial building originally constructed in 2001 and substantially renovated in 2016 in connection with Lakewood's acquisition. The building comprises approximately 28,500 square feet of combined clinical and administrative space, including examination rooms, diagnostic imaging suites, administrative offices, patient waiting areas, and ancillary support spaces. The building is of steel-frame construction with a brick and glass curtain wall exterior and a flat membrane roof.
According to Lakewood management's responses to our due diligence request list, the following capital expenditures have been incurred at the Rochester Main facility within the past three years:
• 2022: Roof membrane replacement ($215,000);
• 2023: HVAC system upgrades to examination room wing ($178,000);
• 2024: Interior renovation of administrative suite ($92,000); and
• 2024–2025: HVAC system repairs (the subject of the upstate Mechanical Contractors dispute referenced in Section III.B.1 above).
Lakewood management has indicated that no material deferred maintenance items exist at the Rochester Main facility, other than the HVAC matter currently in dispute. We have not independently verified the physical condition of the property and recommend that Buyer consider engaging an independent building condition assessment if deemed appropriate.
The facility houses certain diagnostic imaging equipment, including an MRI system that is the subject of Marlowe Asset Management MEF Lease Schedule No. VML-2023-1140 (Rochester Main MRI). The disposition of this equipment lease is being addressed in the equipment and personal property due diligence workstream and is cross-referenced in the title review above with respect to the associated UCC fixture filing.
C. Syracuse — 3340 Erie Boulevard East, Syracuse, NY 13214
1. Title Review
Apex Title & Escrow Services, LLC issued Title Commitment No. ATES-2025-NY-07822 on May 22, 2025, for the Syracuse property (the "Syracuse Title Commitment"). The Syracuse Title Commitment identifies Lakewood Regional Health Partners, LLC as the current fee simple owner, as vested by Warranty Deed recorded in the Onondaga County Clerk's Office on July 22, 2014, in Book 5671, Page 188 (Instrument No. 2014-027641).
The Syracuse Title Commitment reflects the following standard permitted exceptions under Schedule B-II:
(a) Real property taxes, assessments, and water/sewer charges for the fiscal year 2025-2026, not yet due and payable;
(b) Utility easements of record, including a twelve-foot (12') utility easement in favor of Ostrander & Co., recorded in Book 4892, Page 311, running along the rear (northern) boundary of the property;
(c) Applicable zoning ordinances and regulations of the City of Syracuse, New York;
(d) Rights, if any, of the State of New York, the City of Syracuse, or Onondaga County in and to any portion of the property within the bounds of Erie Boulevard East; and
(e) Such facts as would be disclosed by a current and accurate survey of the property.
The following non-standard exceptions have been identified:
(f) Mortgage Lien. A mortgage in the original principal amount of $2,600,000 in favor of Penmark Financial, dated August 1, 2014, and recorded in the Onondaga County Clerk's Office on August 8, 2014, in Book 5674, Page 92 (Instrument No. 2014-029113). The current outstanding balance is approximately $1,380,000 (per Lakewood management). This mortgage must be satisfied and discharged at or prior to Closing, and a payoff letter from Penmark Financial must be obtained.
(g) Restrictive Covenant. A restrictive covenant recorded in Book 4488, Page 204, imposed by a prior owner in 1998, restricting the use of the property to "office, medical, and professional service" uses. This covenant is consistent with Lakewood's current use and Buyer's intended post-Closing use and is not expected to present an issue. However, we recommend that this covenant be listed as a Permitted Encumbrance on the applicable APA Schedule.
(h) UCC Fixture Filing. A UCC-1 Financing Statement (Filing No. NY-2023-051204) filed by Marlowe Asset Management Medical Equipment Finance, LLC, covering certain CT scanner equipment and related fixtures located at the property. This filing corresponds to Marlowe Asset Management MEF Lease Schedule No. VML-2023-1141 (Syracuse CT Scanner).
Schedule B-I of the Syracuse Title Commitment requires: (i) delivery of a satisfactory deed from Seller to Buyer; (ii) payment of all applicable transfer taxes and recording fees; (iii) satisfaction of the Penmark Financial mortgage; and (iv) delivery of a current ALTA/NSPS survey.
The facility holds CMS Certification Number 33-7024 and New York State Article 28 Operating Certificate Number D&TC-4824.
2. Survey Matters
An existing ALTA/NSPS land title survey was prepared by Northpoint Surveying Associates, PLLC, dated October 15, 2014 (the "2014 Syracuse Survey"). The 2014 Syracuse Survey depicts a 0.94-acre parcel improved with a single-story commercial building of approximately 18,200 square feet and a surface parking lot containing approximately 58 parking spaces.
Key observations from the 2014 Syracuse Survey include:
• No encroachments of the building or other improvements onto adjacent properties or from adjacent properties onto the subject property were depicted;
• The Ostrander & Co. utility easement is shown along the northern boundary and does not affect the building footprint;
• The property is located in FEMA Flood Zone X (area of minimal flood hazard), as shown on FIRM Panel No. 36067C0395G, effective date February 19, 2014; and
• Parking lot striping indicates 58 spaces, which is relevant to the parking non-conformance issue discussed in Section III.C.3 below.
An updated ALTA/NSPS survey has been ordered from Northpoint Surveying Associates, PLLC, and is expected to be delivered on or about June 23, 2025. We will supplement our analysis upon receipt.
3. Zoning and Land Use Compliance
The Syracuse property is located within the LC-1 (Local Commercial) zoning district under the Syracuse Zoning Ordinance (Chapter 915, Revised General Ordinances). Medical offices and outpatient clinics are permitted uses within the LC-1 district.
A Certificate of Occupancy (CO No. 2014-11278) was issued by the City of Syracuse Division of Code Enforcement on November 3, 2014, authorizing use of the premises as a "medical clinic / outpatient diagnostic center." The Certificate of Occupancy is current and on file.
Parking Non-Conformance. Our review has identified a potential zoning non-conformance relating to on-site parking at the Syracuse facility. The Syracuse Zoning Ordinance requires a minimum of 1 parking space per 200 square feet of gross floor area for medical clinic uses in the LC-1 district. Based on the facility's 18,200 square feet, the minimum parking requirement is 91 spaces. The 2014 Syracuse Survey depicts only 58 parking spaces on-site, resulting in a deficit of approximately 33 spaces.
This parking deficit appears to have existed at the time of Lakewood's acquisition of the property in 2014. We have not located any variance or special permit in the records reviewed that would have authorized a reduced parking count. It is possible that the property benefits from legal non-conforming (grandfathered) status if the parking configuration predates the adoption or amendment of the current parking requirement, but we have been unable to confirm this through the records available to date. We have requested a zoning compliance letter from the City of Syracuse Department of Zoning Administration, which remains outstanding.
We recommend the following course of action to resolve this issue:
(i) Obtain the zoning compliance letter from the City of Syracuse to determine whether the City recognizes the property's parking configuration as legally non-conforming;
(ii) If the City does not recognize legal non-conforming status, assess the feasibility and timeline for obtaining a parking variance from the Syracuse Board of Zoning Appeals;
(iii) Evaluate whether alternative parking arrangements (e.g., shared parking agreements with adjacent property owners) could be used to supplement the on-site parking count; and
(iv) Consider the risk of enforcement action and the likelihood that the City would require remediation, taking into account the fact that the property has operated with this parking configuration for over a decade without any known enforcement action.
This issue should be disclosed on the Schedule of Zoning Non-Conformances under the APA and reflected in Seller's representations and warranties.
4. Tax Assessment and Real Property Taxes
The Syracuse property is currently assessed by the City of Syracuse (Onondaga County) at a total assessed value of $4,100,000 (land: $750,000; improvements: $3,350,000). The annual real property tax obligation for the current fiscal year (2024-2025) is approximately $122,400, inclusive of city, county, and school district taxes.
All real property taxes for the Syracuse property are current, with no delinquencies or arrearages. There are no pending tax certiorari proceedings or assessment challenges filed by Lakewood with respect to this property. Proration at Closing will be calculated in the same manner as described for the Rochester Main property.
5. Physical Condition and Capital Improvements
The Syracuse facility is a single-story commercial building originally constructed in 1997 and renovated by a prior owner in 2008. The building comprises approximately 18,200 square feet of clinical space, including examination rooms, a CT imaging suite, laboratory space, and patient reception and waiting areas. The building is of masonry and steel-frame construction with a flat built-up roof.
Lakewood management has reported the following capital expenditures at the Syracuse facility within the past three years:
• 2022: Electrical panel upgrade and generator installation ($134,000);
• 2023: Interior renovation of patient waiting area and reception ($67,000); and
• 2024: Parking lot resurfacing and restriping ($41,000).
No material deferred maintenance items have been flagged by Lakewood management for this location. The facility houses a CT scanner system that is the subject of Marlowe Asset Management MEF Lease Schedule No. VML-2023-1141 (Syracuse CT Scanner), as referenced in the title review above.
6. OIG Inquiry Note
We note that the Syracuse facility is the subject of a pending inquiry by the Office of Inspector General ("OIG") of the U.S. Department of Health and Human Services relating to alleged upcoding of certain office visits billed under CPT Code 99214. Lakewood management has estimated the potential financial exposure arising from this inquiry at between Three Hundred Fifty Thousand Dollars ($350,000) and Nine Hundred Thousand Dollars ($900,000). While this matter is relevant to Buyer's overall risk assessment for the Syracuse location—including the potential impact on facility operations and patient volume—the OIG inquiry is a regulatory and compliance matter that is addressed substantively in the separate regulatory due diligence memorandum prepared by Marchand Healthcare Regulatory Advisors, LLC, dated May 28, 2025, and is not further analyzed in this real estate due diligence memorandum. For purposes of the real estate diligence, we note only that the existence of this inquiry should be considered in the context of the overall valuation of the Syracuse facility and any post-Closing operational risk factors.
IV. Leased Real Property
A. Overview
Lakewood Regional Health Partners, LLC occupies nine clinic locations pursuant to commercial lease agreements with third-party landlords. These leased facilities are situated across both New York (six locations) and Pennsylvania (three locations). The aggregate annual base rent payable under all nine leases is approximately Two Million Seven Hundred Forty Thousand Dollars ($2,740,000), and the weighted-average remaining lease term across all nine leases is approximately 4.3 years as calculated from the Estimated Closing Date of August 15, 2025.
The following table summarizes the leased real property portfolio:
The aggregate annual base rent totals $2,740,000. The weighted-average remaining lease term, computed on the basis of each lease's remaining term weighted by its respective annual base rent, is approximately 4.3 years.
The applicable healthcare facility certification and licensing numbers for each leased location are as follows:
• Brighton: CMS Certification No. 33-7022; NY Article 28 Operating Certificate No. D&TC-4822
• Henrietta: CMS Certification No. 33-7023; NY Article 28 Operating Certificate No. D&TC-4823
• Utica: CMS Certification No. 33-7025; NY Article 28 Operating Certificate No. D&TC-4825
• Binghamtonhamton: CMS Certification No. 33-7026; NY Article 28 Operating Certificate No. D&TC-4826
• Ithaca: CMS Certification No. 33-7027; NY Article 28 Operating Certificate No. D&TC-4827
• Albany: CMS Certification No. 33-7028; NY Article 28 Operating Certificate No. D&TC-4828
• Scranton: CMS Certification No. 39-6011; PA Facility License No. OPC-20140892
• Wilkes-Barre: CMS Certification No. 39-6012; PA Facility License No. OPC-20140893
• Towanda: CMS Certification No. 39-6013; PA Facility License No. OPC-20140894
B. Key Lease Terms — Individual Lease Summaries
Set forth below are individual lease summaries for each of the nine leased locations, organized by geographic sequence. Each summary addresses the material terms and conditions of the applicable lease and identifies items requiring further attention.
1. Brighton — 2480 Westfall Road, Brighton, NY 14618
Landlord: Westfall Professional Center, LLC. Notice Address: c/o Greystone Property Management, Inc., 100 Corporate Woods, Suite 450, Rochester, NY 14623.
Lease Date and History: Original Lease dated April 15, 2017 (the "Brighton Lease"). First Amendment dated March 1, 2020 (extending term and adjusting rent). Second Amendment dated February 15, 2023 (expanding premises and adjusting rent).
Premises: Approximately 8,200 square feet, comprising Suite 150 (original premises) and Suite 160 (expansion premises added by Second Amendment), in a multi-tenant professional office building.
Current Annual Base Rent: $385,000 ($46.95 per square foot), payable in equal monthly installments of $32,083.33. Rent escalation: annual increases of 2.75% commencing on each anniversary of the rent commencement date.
Operating Expenses / CAM / NNN: Modified gross lease structure. Tenant responsible for pro rata share (approximately 22.8%) of increases in building operating expenses and real property taxes above a base year (2023 calendar year base). Estimated current year additional rent: approximately $34,000.
Renewal Options: Two (2) consecutive renewal options of five (5) years each, exercisable upon not less than nine (9) months' prior written notice before expiration of the then-current term. Renewal rent to be at fair market rent, with a floor of 95% of the then-current base rent.
Current Term Expiration: March 31, 2029.
Assignment and Subletting: Assignment requires prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned, or delayed. The Brighton Lease contains a change-of-control provision defining a "transfer" to include any assignment, sublease, or change in ownership or control of Tenant; however, the provision specifies that a transfer of all or substantially all of the assets of Tenant in connection with a bona fide business transaction shall be subject to the consent standard (not to be unreasonably withheld), provided the assignee demonstrates financial capacity and operational qualifications reasonably acceptable to Landlord. No landlord consent fee. Landlord does not have a recapture right in connection with an assignment.
Permitted Use: "Medical office, outpatient clinic, diagnostic and treatment center, and related ancillary medical uses." The permitted use clause is sufficiently broad to encompass Buyer's intended post-Closing operations.
Co-tenancy / Exclusivity / Radius Restrictions: None identified.
Tenant Improvement Obligations: No outstanding tenant improvement allowance or build-out obligations. All tenant improvements previously completed and accepted.
Security Deposit: $64,167 held by Landlord (two months' base rent at the time of the Second Amendment).
Landlord Estoppel Certificate: Requested on May 15, 2025. Not yet received as of the date of this memorandum.
Default / Delinquency History: No defaults or delinquencies reported by Lakewood management.
2. Henrietta — 975 Jefferson Road, Suite 200, Henrietta, NY 14623
Landlord: Jefferson Commons Associates, LP. Notice Address: 200 Meridian Centre Boulevard, Suite 100, Rochester, NY 14618.
Lease Date and History: Original Lease dated September 1, 2018 (the "Henrietta Lease"). No amendments.
Premises: Approximately 7,500 square feet, comprising Suite 200 in a two-story professional office building.
Current Annual Base Rent: $310,000 ($41.33 per square foot), payable in equal monthly installments of $25,833.33. Rent escalation: fixed 3.0% annual increase on each anniversary date.
Operating Expenses / CAM / NNN: Triple net (NNN) lease. Tenant responsible for pro rata share (approximately 18.5%) of all building operating expenses, real property taxes, insurance, and common area maintenance costs. Estimated current year NNN charges: approximately $52,000.
Renewal Options: One (1) renewal option of five (5) years, exercisable upon not less than twelve (12) months' prior written notice. Renewal rent at fair market rent with no floor or ceiling.
Current Term Expiration: December 31, 2030.
Assignment and Subletting: The Henrietta Lease does not contain an anti-assignment clause or a change-of-control provision. Article 14 of the Henrietta Lease provides that "Tenant may freely assign this Lease or sublet all or any portion of the Premises without the prior consent of Landlord, provided that Tenant gives Landlord not less than thirty (30) days' prior written notice of such assignment or subletting." Accordingly, no landlord consent is required for the assignment of the Henrietta Lease to Buyer in connection with the Transaction; only prior written notice is required.
Permitted Use: "General office, medical office, clinic, and professional services."
Co-tenancy / Exclusivity / Radius Restrictions: None identified.
Tenant Improvement Obligations: None outstanding. Landlord provided a tenant improvement allowance of $25.00 per square foot at lease commencement, which has been fully utilized and reconciled.
Security Deposit: $25,833 held by Landlord (one month's base rent at commencement).
Landlord Estoppel Certificate: Received on May 30, 2025. Under review; no material discrepancies identified to date.
Default / Delinquency History: No defaults or delinquencies reported.
3. Utica — 1120 Oriskany Street West, Utica, NY 13502
Landlord: Mohawk Valley Medical Realty Trust. Notice Address: 400 Genesee Street, Suite 800, Utica, NY 13502.
Lease Date and History: Original Lease dated January 1, 2019 (the "Utica Lease"). First Amendment dated July 1, 2022 (adjusting rent and extending term by two years).
Premises: Approximately 6,200 square feet, comprising the entirety of a single-tenant medical office building.
Current Annual Base Rent: $245,000 ($39.52 per square foot), payable in equal monthly installments of $20,416.67. Rent escalation: CPI-based annual adjustment, with a cap of 3.5% per year, applied on each January 1.
Operating Expenses / CAM / NNN: Triple net (NNN) lease. Tenant responsible for 100% of all real property taxes, insurance, and maintenance costs (single-tenant building).
Renewal Options: One (1) renewal option of three (3) years, exercisable upon not less than six (6) months' prior written notice. Renewal rent at CPI-adjusted rate.
Current Term Expiration: June 30, 2028.