Vanessa and Derek,
Following the pause in negotiations for Crestline Packaging Solutions LLC's proposed acquisition of 100% of the outstanding common stock of Allegheny Chemical Coatings, Inc. (the "Transaction," proposed purchase price of $94.5M) on or about October 28, 2022, I wanted to provide a comprehensive status update on the environmental diligence workstream under Matter No. 1006-00003. This email covers the work completed to date, outstanding items at the time of the pause, our preliminary environmental liability estimates, the status of environmental risk allocation negotiations, document preservation measures we are implementing, and a recommended protocol for resumption should Crestline elect to reactivate the workstream.
I have attached the Environmental Diligence Status Tracker (last updated October 28, 2022) for ease of reference. Several additional work product documents referenced below — including the draft Comprehensive Environmental Diligence Summary Memorandum, TerraVerde's Preliminary Remediation Cost Estimate for McKeesport, our Environmental Risk Allocation Negotiation Memorandum, and the Comparative Analysis of Environmental Escrow vs. PLL Insurance — are available upon request and can be forwarded separately.
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**I. SUMMARY OF COMPLETED ENVIRONMENTAL DILIGENCE WORK**
**A. Phase I Environmental Site Assessments (All Four Facilities — Completed)**
Phase I ESAs were completed by TerraVerde Environmental Consulting for all four ACC facilities. A summary of findings follows:
1. **McKeesport Main Plant** (2200 Iron Works Boulevard, McKeesport, PA 15132). TerraVerde Phase I ESA dated August 15, 2022. Two Recognized Environmental Conditions ("RECs") were identified: (i) elevated VOC readings and vapor intrusion potential near Building C associated with residual subsurface contamination beneath a former underground storage tank ("UST") field, and (ii) staining and stressed vegetation along the eastern property boundary adjacent to an unlined stormwater drainage channel near the outdoor drum storage area. One Historical REC ("HREC") was identified: a 1994 Act 2 release associated with former USTs, for which a No Further Action ("NFA") letter was issued by PA DEP in May 2001. Phase II ESA was recommended and subsequently completed (see below).
2. **Charleroi Specialty Coatings Plant** (450 Industrial Park Road, Charleroi, PA 15022). TerraVerde Phase I ESA dated August 18, 2022. No RECs, Controlled RECs ("CRECs"), or HRECs were identified — clean site. The facility was built in 2003 on former agricultural land (greenfield development). No Phase II ESA was recommended.
3. **Clarksburg Resin Blending Facility** (1875 Route 50 West, Clarksburg, WV 26301). TerraVerde Phase I ESA dated August 22, 2022. One CREC was identified: residual diesel-range organics with institutional controls (WV DEP Site ID WVUST-2012-04887; deed restriction recorded with the Harrison County Clerk's Office, Book 1245, Page 312). One REC was identified: staining on the concrete floor in the northeast corner of the warehouse from drum storage operations. Phase II ESA was recommended and subsequently commenced (see below).
4. **Weirton Warehouse & Distribution Center** (600 Commerce Way, Weirton, WV 26062). TerraVerde Phase I ESA dated August 25, 2022. One CREC was identified: a WV Voluntary Remediation and Development Program ("VRDP") Certificate of Completion dated September 2015, with an associated deed restriction recorded with the Hancock County Clerk's Office, Book 487, Page 89. A de minimis condition was noted (minor hydraulic fluid stain, approximately 4 square feet). No Phase II ESA was recommended.
**B. Phase II Environmental Site Assessments**
1. **McKeesport Main Plant — Completed.** The Phase II ESA commenced on September 12, 2022, with TerraVerde installing 18 soil borings and 6 temporary monitoring wells. Sampling was completed on September 26, 2022, and laboratory analytical results were received on October 10, 2022. Key findings were transmitted to Derek and Patricia Okonkwo via email on October 12, 2022 and are summarized as follows:
- *Toluene in groundwater at MW-3:* 1,420 µg/L (PA Act 2 Statewide Health Standard: 1,000 µg/L — 42% exceedance) - *Xylene in groundwater at MW-3:* 8,200 µg/L (standard: 10,000 µg/L — below standard) - *Tetrachloroethylene (PCE) in soil at SB-7:* 3.8 mg/kg (exceeds residential standard of 2.4 mg/kg; below non-residential standard of 14 mg/kg) - *Lead in soil at SB-14:* 680 mg/kg (exceeds residential standard of 450 mg/kg; below non-residential standard of 1,000 mg/kg) - *Trichloroethylene (TCE) in sub-slab soil gas beneath Building C:* 42 µg/m³ (PA DEP vapor intrusion screening level: 21 µg/m³ — 100% exceedance), confirming an active vapor intrusion pathway
TerraVerde's preliminary remediation cost estimate (dated October 18, 2022) projects costs of **$1.2M–$2.8M** for groundwater treatment and installation of a vapor mitigation system (sub-slab depressurization) at Building C.
2. **Clarksburg Resin Blending Facility — Sampling Completed, Analytical Results Pending.** Samples were submitted to Keystone Analytical Laboratories (Monroeville, PA) on October 7, 2022. Results were expected by approximately October 28, 2022, but were not received before work was halted. This item is discussed further in the Outstanding Items section below.
**C. Regulatory Compliance Reviews (Completed)**
1. **RCRA Compliance:** C&H completed a RCRA compliance review across all four facilities. Generator status is as follows: McKeesport — Large Quantity Generator (EPA ID PAD-098-721-445); Charleroi — Small Quantity Generator (EPA ID PAD-112-583-667); Clarksburg — Conditionally Exempt Small Quantity Generator (EPA ID WVD-054-319-882); and Weirton — not a generator. Substantial compliance was confirmed at all facilities.
2. **Clean Air Act:** McKeesport operates under Title V Operating Permit No. TV-0383-0125 (expiration: May 31, 2024). ACC is classified as a major source, emitting 38.2 tons per year of combined hazardous air pollutants against a 25-ton major source threshold. A permit modification application for a new thermal oxidizer on Line 4 has been pending with PA DEP since March 2022 (see Outstanding Items below).
3. **Clean Water Act / NPDES:** McKeesport operates under NPDES Permit No. PA0025631. A March 2022 total suspended solids ("TSS") exceedance was identified (48 mg/L vs. 40 mg/L permit limit, a 20% exceedance). The exceedance was self-reported to PA DEP, no enforcement action was taken, and corrective actions have been implemented.
4. **EPCRA / TRI / Tier II:** McKeesport TRI filings are current. Reported 2021 releases include toluene (12,400 lbs) and xylene (8,700 lbs).
5. **Spill History:** Two reportable spills were identified at McKeesport: (i) a June 2017 xylene spill (~50 gallons, contained, NFA), and (ii) a February 2020 epoxy hardener release (~120 gallons to floor drain/sanitary sewer, resulting in a $4,500 PA DEP fine; corrective action completed).
**D. Lease/Property Reviews (Environmental Focus — Completed)**
1. **Clarksburg:** C&H reviewed the lease with Mountainview Properties LLC (Gerald Boothe, principal). The lease assigns tenant remediation obligations for tenant-caused contamination. Landlord consent was obtained for the Phase II ESA.
2. **Weirton:** C&H reviewed the lease with Northern Panhandle Realty Corp. (Susan Delvecchio, principal) and the associated VRDP Certificate of Completion. Ongoing engineering and institutional control compliance obligations were assessed.
**E. Asbestos and Lead-Based Paint**
1. **Asbestos-Containing Materials ("ACM") — McKeesport:** ACM was identified in pipe insulation in Buildings A and B (~2,400 linear feet) and in floor tiles in Building A (~14,000 square feet). These materials are currently managed in place pursuant to a September 2019 Operations & Maintenance Plan. If full removal is required, the estimated abatement cost is $180K–$310K.
2. **Lead-Based Paint ("LBP") — McKeesport Office Building:** The office building (built circa 1955) has LBP on interior and exterior surfaces per a 2019 survey. LBP is currently managed in place. Estimated abatement cost if removal is required: $45K–$85K.
3. C&H flagged the need for updated condition assessments for both ACM and LBP at McKeesport prior to closing, but these assessments were not commissioned before the pause.
**F. Transaction Document Work (Environmental Provisions)**
1. C&H prepared the buyer's initial draft of environmental representations and warranties (Article IV, Section 4.18 of the draft Stock Purchase Agreement dated August 12, 2022).
2. C&H reviewed and analyzed the counterproposal redline of Section 4.18 received from Seller's counsel, Hargrove, Dalton & Speer LLP.
3. C&H drafted Special Environmental Indemnity and escrow provisions, proposing a $4.0M environmental escrow (holdback from the purchase price), uncapped fundamental environmental indemnity for pre-closing environmental conditions, and a 7-year survival period.
4. C&H prepared an internal risk allocation negotiation strategy memorandum analyzing the gap between Crestline's position and Seller's position (dated October 21, 2022).
5. C&H prepared a comparative analysis of environmental escrow vs. pollution legal liability ("PLL") insurance as alternative or complementary risk transfer mechanisms.
**G. Environmental Insurance**
Whitfield & Calder Insurance Advisors LLC (Douglas Whitfield and Lauren Petrov) was engaged to evaluate PLL insurance options. An insurance submission package was transmitted to Whitfield & Calder on approximately October 5, 2022, including the Phase I ESAs and the McKeesport Phase II results.
Ironclad Specialty Insurance Company provided a non-binding indication on the following terms: $15M aggregate limit / $10M per occurrence, 10-year policy term, indicative annual premium of $187,500, and a $250K self-insured retention.
C&H reviewed and commented on Ironclad's indicative terms and identified several coverage gaps warranting negotiation, including: (i) a known-conditions exclusion that could potentially exclude the identified McKeesport contamination, (ii) the breadth of the pre-existing contamination definition, (iii) a vapor intrusion sublimit, and (iv) defense cost erosion of the policy limit.
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**II. ENVIRONMENTAL LIABILITY ESTIMATES**
Based on the work completed to date, C&H's preliminary estimate of total environmental liabilities across all four ACC facilities is as follows:
| Component
These estimates are preliminary and subject to material revision, particularly once the Clarksburg Phase II analytical results are received and evaluated. The Clarksburg component alone could shift significantly — if groundwater contamination is confirmed at Clarksburg, the additional remediation cost could be $150K–$400K beyond the soil excavation estimates shown above.
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**III. STATUS OF ENVIRONMENTAL RISK ALLOCATION NEGOTIATIONS**
As of the pause, the parties' respective positions on environmental risk allocation were as follows:
- **Crestline's Position:** $4.0M environmental escrow (holdback from purchase price); uncapped fundamental environmental indemnity for pre-closing environmental conditions; 7-year survival period.
- **Seller's Position** (per counterproposal from Hargrove, Dalton & Speer, received October 24, 2022): $1.5M environmental escrow; environmental indemnity capped at $3.5M; 3-year survival period; general representation basket/deductible of $475K applied to environmental claims.
- **Gap:** $2.5M difference in escrow amount; indemnity cap difference (uncapped vs. $3.5M); 4-year difference in survival period (7 years vs. 3 years); and Seller's application of the general basket to environmental claims, which Crestline's draft had excluded.
Crestline's response to the Seller's counterproposal was not transmitted before the pause. C&H's recommendation, as set forth in our comparative analysis memorandum, had been to explore a hybrid approach using PLL insurance to potentially bridge part of the escrow gap — specifically, using an Ironclad policy (with negotiated improvements to the indicative terms) to provide Crestline with tail coverage that could allow for a reduced escrow amount while maintaining meaningful protection against long-tail environmental liabilities.
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**IV. OUTSTANDING ITEMS AT TIME OF PAUSE**
The following items remained incomplete or unresolved at the time the workstream was paused:
1. **Clarksburg Phase II Analytical Results.** Samples were submitted to Keystone Analytical Laboratories (Monroeville, PA) on October 7, 2022. Results were expected by approximately October 28, 2022, but were not received before work was halted. TerraVerde's project manager, Kevin O'Malley, has confirmed that the samples remain in the laboratory's chain of custody and that data integrity should not be compromised by the delay. C&H has not reviewed or analyzed these results. This data point could materially affect overall environmental liability estimates, particularly the Clarksburg component ($350K–$750K estimated for soil excavation/disposal, plus $150K–$400K additional if groundwater contamination is confirmed).
2. **Comprehensive Environmental Diligence Summary Memorandum.** A draft dated October 22, 2022 is incomplete. The Clarksburg Phase II findings cannot be incorporated until analytical data is received, and the conclusions section remains in outline form. The draft was not finalized or circulated to the client in final form.
3. **PLL Insurance Underwriting.** Ironclad Specialty's indication is non-binding only. A formal application was not submitted. Underwriting is paused pending completion of the Clarksburg Phase II analysis and deal resumption.
4. **Environmental Escrow/Indemnification Negotiations.** The last exchange was Seller's counterproposal received from Hargrove, Dalton & Speer via email on October 24, 2022. Crestline's response was not transmitted before the pause.
5. **Title V Permit Modification — McKeesport Thermal Oxidizer (Line 4).** ACC's permit modification application has been pending with PA DEP since March 2022. Issuance of this modification would affect operational capacity and post-closing compliance obligations. Status was unknown as of the pause date and should be verified upon resumption.
6. **Asbestos and Lead-Based Paint Updated Condition Assessments — McKeesport.** C&H flagged the need for updated condition assessments but did not commission them before the pause. ACC's existing management-in-place programs for both ACM and LBP continue under ACC's protocols in the interim.
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**V. DOCUMENT PRESERVATION MEASURES**
Calderwood & Harkness is issuing an internal Document Preservation and Hold Notice effective immediately, directing all team members working on Matter No. 1006-00003 to preserve all work product, correspondence, electronic files, and physical documents related to the Transaction.
The preservation directive extends to all communications with Crestline, Briarwood Capital, TerraVerde Environmental Consulting, Hargrove Dalton & Speer LLP, Whitfield & Calder Insurance Advisors LLC, and Ironclad Specialty Insurance Company.
All files will be maintained in C&H's document management system and will remain accessible for prompt retrieval upon resumption. TerraVerde's Phase I and Phase II reports, field notes, analytical data, and chain-of-custody documentation are preserved in TerraVerde's project files, and copies of all such materials are maintained in C&H's diligence files.
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**VI. RECOMMENDED RESUMPTION PROTOCOL**
If Crestline decides to resume negotiations and reactivate the environmental diligence workstream, C&H recommends the following eight-step protocol:
1. Reconfirm the engagement scope and any updated terms with Derek Huang and Crestline's management team.
2. Run an updated conflict check, as new parties may have entered the picture during any dormancy period.
3. Contact TerraVerde (Dr. Nina Sorensen, Principal) to confirm availability and retrieve the Clarksburg Phase II analytical results from Keystone Analytical Laboratories.
4. Request updated environmental records from ACC for the dormancy period — specifically, any new releases, inspections, permit actions, notices of violation, or enforcement matters arising since October 2022.
5. Reassess remediation cost estimates in light of any changed site conditions, newly available data (particularly Clarksburg Phase II results), or updated regulatory standards.
6. Re-engage Whitfield & Calder Insurance Advisors and Ironclad Specialty regarding PLL insurance, if risk transfer through insurance remains part of Crestline's strategy.
7. Coordinate with Commonwealth National Bank (Victoria Chen, Managing Director) on the status of the commitment letter (signed July 8, 2022) and any updated environmental diligence conditions imposed by the lender — noting that Commonwealth's commitment letter requires Phase I ESAs on all target real property with no unaddressed RECs, or acceptable PLL insurance in place as a condition to funding.
8. Prepare a revised budget estimate for completion of the remaining environmental diligence work and provide it to Derek and Vanessa for approval.
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**VII. BILLING STATUS**
For your records, C&H fees incurred through October 31, 2022 total $218,740 (net of a $100 billing adjustment), plus $4,215 in disbursements. Our final invoice under the current active period — Invoice #48217, dated October 31, 2022, covering September and October fees in the amount of $67,430 — has been issued. TerraVerde's fees have been invoiced directly to Crestline, totaling $127,500 through October 2022.
Matter No. 1006-00003 will be placed on dormant status effective immediately. No further time will be billed to the matter absent instruction from Crestline to resume.
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**VIII. CLOSING**
We are prepared to resume work on this matter promptly upon instruction. In the interim, Harrison Caldwell and Grace Nakamura remain available for any questions regarding the environmental diligence findings summarized above or any of the underlying work product.
Derek and Vanessa, please do not hesitate to call me directly if you would like to discuss any aspect of this status report or the timing for a potential resumption decision. I am also happy to forward any of the work product documents referenced in this email upon request.
We appreciate the opportunity to work with the Crestline and Briarwood teams on this matter and look forward to re-engaging when the time is right.
Best regards,
**Beatrice Holloway** Partner, Mergers & Acquisitions Calderwood & Harkness LLP 1900 Euclid Avenue, Suite 3200 Cleveland, OH 44115 Tel: (216) 555-4100 Email: bholloway@calderwoodharkness.com
*Attachment: Environmental Diligence Status Tracker (last updated October 28, 2022)*