1006-00003 · Crestline Packaging Solutions LLC · Correspondence

letter-to-seller-counsel-environmental-concerns.docx DOCUMENT M&A / Corporate

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CALDERWOOD & HARKNESS LLP Attorneys at Law 1900 Euclid Avenue, Suite 3200 Cleveland, Ohio 44115

October 20, 2022

Via Email and Overnight Courier

Franklin Speer, Esq. Hargrove, Dalton & Speer LLP 500 Grant Street, Suite 3800 Pittsburgh, PA 15219

Re: Proposed Acquisition of Allegheny Chemical Coatings, Inc. by Crestline Packaging Solutions LLC — Environmental Due Diligence Findings and Purchase Price Adjustment Request

C&H Matter No.: 1006-00003

Dear Mr. Speer:

I. Introduction and Purpose

This firm represents Crestline Packaging Solutions LLC, an Ohio limited liability company ("Crestline" or the "Buyer"), in connection with the proposed acquisition of one hundred percent (100%) of the outstanding common stock of Allegheny Chemical Coatings, Inc. ("ACC" or the "Company"), a Pennsylvania corporation, pursuant to the draft Stock Purchase Agreement circulated by your firm on August 12, 2022 (the "SPA"). We write on behalf of Crestline to address matters of critical importance to the parties' ongoing negotiations and the successful completion of this transaction.

The purpose of this letter is threefold. First, we formally communicate the results of the environmental due diligence investigation conducted on behalf of Crestline at each of ACC's four operating facilities. Second, we identify and describe in detail the material environmental liabilities and conditions of concern discovered during the course of that investigation. Third, we set forth Crestline's position regarding the purchase price protections that will be required as a condition to proceeding toward closing — specifically, the establishment of a funded environmental escrow and enhanced environmental indemnification provisions within the SPA.

The environmental due diligence described herein was conducted by TerraVerde Environmental Consulting LLC ("TerraVerde"), an Ohio-based environmental consulting firm retained by Crestline under our direction. TerraVerde's findings are based upon Phase I Environmental Site Assessments prepared in accordance with ASTM Standard E1527-21, Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, as well as Phase II subsurface investigations conducted at two of the four ACC facilities. These investigations were conducted between August and October 2022, and the findings described in this letter represent the most current information available to Crestline as of the date hereof.

As you are aware, the proposed purchase price for the acquisition is Ninety-Four Million Five Hundred Thousand Dollars ($94,500,000), calculated as $13,500,000 in adjusted EBITDA multiplied by a 7.0x enterprise value multiple. The environmental conditions identified through Crestline's due diligence represent material liabilities that were not fully reflected in the Seller's disclosure schedules or in the purchase price negotiations to date. Accordingly, Crestline believes that meaningful adjustments to the risk allocation framework of the SPA are warranted, as described more fully below.

II. Scope of Environmental Due Diligence

TerraVerde conducted Phase I Environmental Site Assessments at all four of ACC's operating facilities. At two of those facilities — where Recognized Environmental Conditions ("RECs") were identified during the Phase I process — TerraVerde subsequently conducted Phase II subsurface investigations involving the installation of soil borings and temporary monitoring wells, the collection of soil, groundwater, and soil gas samples, and the laboratory analysis of those samples against applicable state regulatory standards.

The four ACC operating facilities assessed during the due diligence process are as follows:

Facility 1 — McKeesport Main Plant. The McKeesport Main Plant is located at 2200 Iron Works Boulevard, McKeesport, Pennsylvania 15132, in Allegheny County. The facility consists of approximately 14.3 acres of land owned in fee simple by ACC since 1987. The McKeesport facility serves as ACC's primary manufacturing location for solvent-based and epoxy coating products and includes multiple production buildings, an office building, outdoor drum storage areas, a wastewater treatment system, and associated loading and shipping infrastructure.

Facility 2 — Charleroi Specialty Coatings Plant. The Charleroi Specialty Coatings Plant is located at 450 Industrial Park Road, Charleroi, Pennsylvania 15022, in Washington County. The facility consists of approximately 8.7 acres of land owned by ACC since 2003. The Charleroi facility is dedicated to the manufacture of water-based and UV-curable coating products and was constructed as a greenfield development on the site.

Facility 3 — Clarksburg Resin Blending Facility. The Clarksburg Resin Blending Facility is located at 1875 Route 50 West, Clarksburg, West Virginia 26301, in Harrison County. The facility consists of approximately 5.2 acres of land leased from Mountainview Properties LLC. ACC operates the Clarksburg facility for resin blending and redistribution activities.

Facility 4 — Weirton Warehouse & Distribution Center. The Weirton Warehouse & Distribution Center is located at 600 Commerce Way, Weirton, West Virginia 26062, in Hancock County. The facility consists of approximately 3.1 acres of land leased from Northern Panhandle Realty Corp. The Weirton facility is used for finished goods storage and distribution operations.

TerraVerde completed the Phase I ESAs on the following dates: McKeesport Main Plant (August 15, 2022), Charleroi Specialty Coatings Plant (August 18, 2022), Clarksburg Resin Blending Facility (August 22, 2022), and Weirton Warehouse & Distribution Center (August 25, 2022).

Based on the Phase I findings, Phase II Environmental Site Assessments (subsurface investigations) were conducted at two facilities. At the McKeesport Main Plant, the Phase II investigation commenced on September 12, 2022, with field sampling activities completed on September 26, 2022. Analytical results from the laboratory were received on October 10, 2022, and are discussed in detail in Section IV of this letter. At the Clarksburg Resin Blending Facility, the Phase II investigation commenced on October 3, 2022, with sampling completed on October 7, 2022. As of the date of this letter, analytical results from Keystone Analytical Laboratories Inc. (Monroeville, Pennsylvania) remain pending and are expected by approximately October 28, 2022. The status of the Clarksburg Phase II investigation is addressed in Section V below.

No Phase II investigation was recommended or conducted at the Charleroi Specialty Coatings Plant, where no RECs were identified during the Phase I assessment. The Charleroi facility is situated on former agricultural land with no prior industrial use, and no conditions warranting further investigation were observed. Similarly, no Phase II investigation was recommended at the Weirton Warehouse & Distribution Center, where only a Controlled Recognized Environmental Condition ("CREC") was identified in connection with the site's prior remediation under the West Virginia Voluntary Remediation and Redevelopment Program ("VRDP"), with engineering and institutional controls in place.

III. Summary of Phase I Environmental Site Assessment Findings

A. McKeesport Main Plant

The Phase I ESA for the McKeesport Main Plant, dated August 15, 2022, identified two Recognized Environmental Conditions and one Historical Recognized Environmental Condition. These findings are summarized as follows:

REC-1: Potential Vapor Intrusion Pathway — Former UST Field / Building C. TerraVerde identified elevated volatile organic compound ("VOC") readings in indoor air near the mixing area in Building C, suggesting a potential vapor intrusion pathway from residual subsurface contamination beneath the former underground storage tank ("UST") field located immediately adjacent to the south side of Building C. Three 10,000-gallon USTs were removed from the property in 1993. Following the UST removal, a release was reported to the Pennsylvania Department of Environmental Protection ("PA DEP"), and a cleanup was initiated under Pennsylvania's Act 2 Land Recycling and Environmental Remediation Standards Act, 35 P.S. §§ 6026.101–6026.908. A No Further Action ("NFA") letter was issued by PA DEP in May 2001 under the Statewide Health Standard for soils. However, TerraVerde's Phase I investigation identified conditions — including the elevated indoor air VOC readings, the proximity of Building C to the former UST cavity, and the geological characteristics of the site (including shallow fractured bedrock) — that suggest residual contamination may remain in the subsurface beneath and in the vicinity of the former UST field, potentially creating an active vapor intrusion pathway into the occupied manufacturing space of Building C. The 2001 NFA letter addressed soil conditions only and did not evaluate groundwater or vapor intrusion pathways, which had not yet been subject to regulatory scrutiny at the time of the original investigation.

REC-2: Eastern Property Boundary — Potential Release from Drum Storage Area. TerraVerde observed visible staining on soil surfaces and stressed vegetation along the eastern property boundary of the McKeesport facility, adjacent to an unlined stormwater drainage channel that runs along the property's eastern perimeter. This area is situated downslope and downgradient from an outdoor drum storage area used for the staging and temporary storage of coating raw materials and waste drums. The observed conditions are indicative of a potential release of hazardous substances from the drum storage area to the surrounding soil and potentially to the stormwater drainage channel. The nature and extent of any such release have not been fully characterized.

HREC-1: 1994 UST Release — Act 2 Cleanup. The 1994 release associated with the removal of the three 10,000-gallon USTs was classified as a Historical Recognized Environmental Condition on the basis that the PA DEP NFA letter was obtained in May 2001 and no further action is required by the regulatory agency unless site conditions have changed. As noted above, however, TerraVerde's findings suggest that site conditions may have changed or that the original NFA determination did not fully address all contaminant pathways, warranting the reclassification of the residual contamination as an active REC (REC-1, above).

It bears noting that the McKeesport property was formerly operated as a steel fabrication facility prior to ACC's acquisition of the site in 1987. The former operator, Keystone Metalworks, is now defunct. Chemicals of concern at the site include VOCs — specifically toluene, xylene, methyl ethyl ketone ("MEK"), and ethylbenzene — associated with ACC's solvent-based coating manufacturing operations, as well as heavy metals — specifically chromium and lead — associated with legacy pigment processing operations conducted by both ACC and Keystone Metalworks during earlier periods of the site's industrial history.

B. Charleroi Specialty Coatings Plant

The Phase I ESA for the Charleroi Specialty Coatings Plant, dated August 18, 2022, identified no RECs, CRECs, or HRECs. The facility was developed as a greenfield site on former agricultural land, with construction completed in 2003. There is no history of prior industrial use, no underground storage tanks have been installed at the site, and no environmental concerns were identified during the records review, site reconnaissance, or interviews conducted as part of the assessment. Accordingly, no further investigation was recommended at the Charleroi facility, and this facility does not contribute to the identified environmental liabilities discussed in this letter.

C. Clarksburg Resin Blending Facility

The Phase I ESA for the Clarksburg Resin Blending Facility, dated August 22, 2022, identified one Controlled Recognized Environmental Condition and one Recognized Environmental Condition:

CREC: Residual Diesel-Range Organics — Former UST Cavity. TerraVerde identified residual diesel-range organics ("DRO") in soil above West Virginia Department of Environmental Protection ("WV DEP") action levels beneath the cavity of a former 15,000-gallon diesel underground storage tank. The UST was removed in 2012 by the facility's prior tenant, Valley Freight Lines Inc. (now dissolved). Following the UST removal and associated investigation, WV DEP issued a closure letter in March 2013 with institutional controls, including a land-use restriction, which was recorded at the Harrison County Clerk's Office in Book 1245, Page 312. The WV DEP Site Identification Number for this matter is WVUST-2012-04887. Because residual contamination remains at the site above unrestricted use levels but is subject to ongoing institutional controls that restrict land use to industrial/commercial purposes, TerraVerde classified this condition as a CREC in accordance with the ASTM standard.

REC: Potential Release from Drum Storage Operations. TerraVerde observed staining on the concrete floor in the northeast corner of the warehouse building at the Clarksburg facility, consistent with a potential release from drum storage operations. The staining appeared to be relatively recent and was not associated with any documented release or cleanup. The nature of the substance involved and the extent of any release to the subsurface have not been characterized, and this condition was identified as a REC warranting further investigation.

The Clarksburg facility is leased from Mountainview Properties LLC (Gerald Boothe, Managing Member) under a triple-net lease that commenced on January 1, 2015, and expires on December 31, 2029. Notably, the lease agreement requires the tenant to remediate any contamination caused by the tenant's operations at the facility. To the extent the staining identified as a REC is attributable to ACC's operations, the remediation obligation would fall on ACC (and, post-closing, on the acquired entity). The allocation of responsibility for any pre-existing contamination at the site — including the DRO contamination addressed through the WV DEP closure process — may involve obligations of the landlord and the former tenant, Valley Freight Lines Inc., although the latter entity has been dissolved and is unlikely to be a viable responsible party.

D. Weirton Warehouse & Distribution Center

The Phase I ESA for the Weirton Warehouse & Distribution Center, dated August 25, 2022, identified one Controlled Recognized Environmental Condition and one de minimis condition:

CREC: Remediated Brownfield — Former Weirton Steel Parcel. The Weirton Warehouse & Distribution Center was constructed in 2016 on a parcel that was formerly part of the Weirton Steel industrial complex. The property was remediated under the West Virginia Voluntary Remediation and Redevelopment Program ("VRDP"), and a Certificate of Completion was issued by WV DEP in September 2015. Engineering controls (including an impervious cap over portions of the site) and institutional controls are in place, and a deed restriction reflecting these requirements was recorded at the Hancock County Clerk's Office in Book 487, Page 89. This condition is classified as a CREC because residual contamination exists at the site above unrestricted use levels, but the contamination has been addressed through the VRDP process and is managed through the engineering and institutional controls.

De Minimis Condition: Hydraulic Fluid Stain. A minor hydraulic fluid stain of approximately four (4) square feet was observed on the warehouse floor. This condition was classified as de minimis in accordance with the ASTM standard and does not represent a REC, CREC, or HREC.

No RECs were identified at the Weirton facility, and no Phase II investigation was recommended. However, Crestline notes that the ongoing compliance obligations associated with the engineering and institutional controls under the VRDP Certificate of Completion — including periodic monitoring, reporting, and maintenance of the cap — represent continuing obligations that will transfer to Crestline as the acquiring entity and will need to be accounted for in the parties' allocation of post-closing responsibilities.

IV. Phase II Environmental Site Assessment Findings — McKeesport Main Plant

A. Investigation Scope

Based on the RECs identified during the Phase I ESA, TerraVerde conducted a Phase II Environmental Site Assessment at the McKeesport Main Plant. The Phase II investigation commenced on September 12, 2022, with field sampling activities completed on September 26, 2022. The investigation was designed to characterize the nature and extent of subsurface contamination at the site and to evaluate the potential environmental pathways identified during the Phase I assessment.

The Phase II scope of work included the installation of eighteen (18) soil borings (designated SB-1 through SB-18) and six (6) temporary monitoring wells (designated MW-1 through MW-6) at locations distributed across the property, with a concentration of investigation points in the area of the former UST field, the eastern property boundary adjacent to the drum storage area, and beneath Building C. Sub-slab soil gas sampling was conducted beneath Building C at three (3) locations to evaluate the vapor intrusion pathway identified as REC-1 during the Phase I assessment.

The analytical suite for the Phase II investigation included VOCs — specifically toluene, xylene, methyl ethyl ketone, ethylbenzene, trichloroethylene ("TCE"), and tetrachloroethylene ("PCE") — as well as heavy metals (chromium and lead) and diesel-range organics/gasoline-range organics ("DRO/GRO"). All samples were analyzed by a Pennsylvania-accredited laboratory in accordance with applicable EPA methods.

Analytical results from the laboratory were received on October 10, 2022. The results are summarized below, with particular attention to those constituents detected at concentrations exceeding applicable Pennsylvania Act 2 standards and PA DEP screening levels.

B. Groundwater Contamination

The Phase II groundwater sampling results reveal an active groundwater contamination plume in the vicinity of the former UST field at the McKeesport facility. Most significantly:

Toluene was detected in groundwater at monitoring well MW-3 at a concentration of 1,420 micrograms per liter (µg/L). The applicable Pennsylvania Act 2 Statewide Health Standard for toluene in groundwater (used aquifer) is 1,000 µg/L. The detected concentration therefore exceeds the Statewide Health Standard by approximately 42% (1,420 ÷ 1,000 = 1.42x). Monitoring well MW-3 is located immediately downgradient of the former UST field, approximately forty feet southeast of the former UST cavities.

Xylene was detected in groundwater at monitoring well MW-3 at a concentration of 8,200 µg/L, which is below the applicable Pennsylvania Act 2 Statewide Health Standard of 10,000 µg/L. While the xylene concentration does not currently exceed the standard, it is sufficiently elevated (82% of the standard) to indicate a significant xylene mass in the groundwater and to warrant monitoring for potential future exceedances.

Other VOCs were detected in groundwater at concentrations below applicable standards at several monitoring well locations, consistent with a broader area of low-level contamination extending from the former UST field.

These groundwater results indicate that an active contamination plume exists in the vicinity of the former UST field at the McKeesport Main Plant. The plume is likely associated with historical operations — both the former UST operations and solvent handling activities — and constitutes an ongoing environmental liability requiring remedial action under Pennsylvania's Act 2 Land Recycling Program. The 2001 NFA letter, which addressed soil conditions only under the Statewide Health Standard, did not characterize or address the groundwater contamination now documented by TerraVerde's investigation. A new Act 2 cleanup is required to address the groundwater exceedance, and Crestline anticipates that PA DEP notification and engagement will be necessary.

C. Soil Contamination

The Phase II soil sampling results identified concentrations of certain contaminants that, while below the applicable non-residential standards given the facility's current industrial use, exceed the corresponding residential standards and thus present risk in the event of any future change in land use or regulatory approach:

Tetrachloroethylene (PCE) was detected in soil at boring location SB-7 at a concentration of 3.8 milligrams per kilogram (mg/kg). The Pennsylvania Act 2 Statewide Health Standard for PCE in soil is 2.4 mg/kg under the residential standard and 14 mg/kg under the non-residential standard. While the detected concentration is below the non-residential standard applicable to the facility's current industrial use, it exceeds the residential standard by approximately 58%. In the event of a future change in land use, a regulatory reclassification, or an application of the residential standard by PA DEP in connection with a broader site investigation, remediation obligations could be triggered. The presence of PCE in soil at the McKeesport facility is notable because PCE is not a constituent of ACC's current manufacturing processes, suggesting that the contamination may originate from legacy operations conducted by the former owner, Keystone Metalworks, or from off-site sources.

Lead was detected in soil at boring location SB-14 at a concentration of 680 mg/kg. The Pennsylvania Act 2 Statewide Health Standard for lead in soil is 450 mg/kg under the residential standard and 1,000 mg/kg under the non-residential standard. As with the PCE results, the lead concentration exceeds the residential standard (by approximately 51%) while remaining below the non-residential standard. Lead contamination at the McKeesport site is consistent with both ACC's historical pigment processing activities and the prior use of the site for steel fabrication.

Crestline notes that while these soil concentrations currently fall below the non-residential standards, they represent environmental conditions that could give rise to remediation obligations depending on future regulatory developments, site use changes, or third-party claims, and they contribute to the overall environmental risk profile of the McKeesport facility.

D. Vapor Intrusion

The sub-slab soil gas sampling conducted beneath Building C confirmed the existence of an active vapor intrusion pathway, as initially suspected during the Phase I assessment:

Trichloroethylene (TCE) was detected in sub-slab soil gas beneath Building C at a concentration of 42 micrograms per cubic meter (µg/m³). The applicable PA DEP vapor intrusion screening level for TCE is 21 µg/m³. The detected concentration therefore exceeds the PA DEP screening level by 100% (42 ÷ 21 = 2.0x).

This finding confirms the presence of an active vapor intrusion pathway from subsurface contamination into the occupied manufacturing space of Building C at the McKeesport facility. The implications of this finding are significant and multifaceted. First, the exceedance of the vapor intrusion screening level presents potential health risks to workers occupying Building C and raises immediate questions regarding occupational exposure and workplace safety. Second, under PA DEP's vapor intrusion guidance, mitigation is required when screening levels are exceeded. A vapor mitigation system — specifically, a sub-slab depressurization system ("SSDS") — will need to be designed, installed, and maintained to interrupt the vapor intrusion pathway and protect building occupants. Third, the confirmed vapor intrusion condition triggers potential notification obligations to PA DEP and may require reporting under applicable Occupational Safety and Health Administration ("OSHA") workplace exposure regulations, including potential industrial hygiene monitoring and exposure assessment. Fourth, the detection of TCE in sub-slab soil gas — like the detection of PCE in soil — is notable because TCE is not a current constituent of ACC's manufacturing processes, again suggesting legacy contamination from prior operations or off-site migration.

Crestline considers the confirmed vapor intrusion pathway at Building C to be one of the most significant environmental findings of the due diligence process, both because of the immediate operational and worker health implications and because of the ongoing cost obligations associated with designing, installing, and operating a mitigation system.

V. Phase II Investigation — Clarksburg (Status Pending)

TerraVerde initiated the Phase II Environmental Site Assessment at the Clarksburg Resin Blending Facility on October 3, 2022. The investigation scope included the installation of eight (8) soil borings and three (3) temporary monitoring wells in the vicinity of the REC identified during the Phase I assessment (the staining in the northeast corner of the warehouse). Sampling activities were completed on October 7, 2022, and all collected samples were submitted to Keystone Analytical Laboratories Inc., located in Monroeville, Pennsylvania, for analysis.

As of the date of this letter, the analytical results from Keystone Analytical Laboratories have not yet been received. Based on the laboratory's estimated turnaround time, results are expected by approximately October 28, 2022.

Notwithstanding the absence of confirmed analytical data, TerraVerde has prepared a preliminary remediation cost estimate for the Clarksburg facility assuming that contamination is confirmed at levels requiring corrective action. TerraVerde's preliminary estimate, based on the observed conditions at the site, the nature of the operations conducted in the vicinity of the staining, and the geological and hydrogeological characteristics of the property, ranges from $350,000 to $750,000 for soil excavation and off-site disposal if soil contamination is confirmed above applicable WV DEP action levels. If groundwater contamination is also identified — which is possible given the proximity of the staining to a potential subsurface release pathway — an additional $150,000 to $400,000 in remediation costs could be incurred for groundwater investigation, monitoring, and treatment.

Crestline expressly reserves the right to supplement its environmental liability estimates, adjust its position on risk allocation, and revise its requested escrow amount and indemnification terms based on the Clarksburg Phase II results once received and analyzed. The parties should anticipate that additional correspondence or negotiation may be required once the Clarksburg data is available.

VI. Additional Environmental Conditions and Liabilities

In addition to the subsurface contamination conditions identified through the Phase I and Phase II assessments, TerraVerde's due diligence identified several additional environmental conditions and regulatory compliance matters at ACC's facilities that contribute to the overall environmental risk profile of the target and are relevant to the purchase price protections sought by Crestline.

A. Asbestos-Containing Materials (McKeesport)

The McKeesport Main Plant contains asbestos-containing materials ("ACM") in two principal locations. First, pipe insulation in Buildings A and B contains friable asbestos, with an estimated total quantity of approximately 2,400 linear feet of insulated piping. Second, floor tiles in Building A — estimated at approximately 14,000 square feet — contain non-friable asbestos. These materials are currently managed in place pursuant to an Asbestos Operations and Maintenance ("O&M") Plan dated September 2019. While the O&M Plan provides for ongoing management and monitoring of the ACM in its current condition, full abatement (removal and disposal) would be required in the event of any renovation, demolition, or change in use of the affected areas. The estimated cost of full asbestos abatement, based on TerraVerde's assessment and current market pricing for licensed asbestos abatement contractors in the Pittsburgh metropolitan area, ranges from $180,000 to $310,000.

B. Lead-Based Paint (McKeesport)

Lead-based paint ("LBP") was identified on interior and exterior surfaces of the McKeesport office building, which was constructed circa 1955, pursuant to a lead-based paint survey conducted in 2019. The LBP is currently managed in place under a maintenance and monitoring protocol. As with asbestos, full abatement would be required in connection with renovation or demolition activities. The estimated cost of lead-based paint abatement ranges from $45,000 to $85,000.

C. Regulatory Compliance Matters

Crestline's environmental due diligence also identified several regulatory compliance matters that, while not necessarily giving rise to immediate remediation obligations, are indicative of the overall environmental risk profile of ACC's operations and are relevant to the scope and duration of environmental representations and indemnification protections in the SPA:

NPDES Total Suspended Solids Exceedance (March 2022). In March 2022, ACC's McKeesport facility reported a Total Suspended Solids ("TSS") concentration of 48 mg/L in its stormwater discharge, which exceeded the applicable limit of 40 mg/L specified in NPDES Permit No. PA0025631 — a 20% exceedance. ACC self-reported the exceedance to PA DEP and implemented corrective actions, including inspection and maintenance of the stormwater management system. While the matter appears to have been resolved informally without a formal enforcement action, the exceedance raises questions about the adequacy of the facility's stormwater management infrastructure and the potential for future violations.

Historical Releases. ACC has experienced at least two documented releases of hazardous substances at the McKeesport facility in recent years. On February 3, 2020, approximately 120 gallons of epoxy resin hardener were released to a floor drain connected to the sanitary sewer system. PA DEP assessed a fine of $4,500 in connection with this incident, and corrective action was completed. On June 14, 2017, approximately 50 gallons of xylene were released from a process vessel but were contained within secondary containment. The 2017 incident was reported to PA DEP and received a No Further Action determination. While both incidents were addressed and resolved, they are part of the facility's environmental compliance history and reflect the inherent risks associated with the handling and storage of hazardous substances at the McKeesport manufacturing operation.

Title V Clean Air Act Permit. ACC's McKeesport facility is classified as a major source under the Clean Air Act, with combined hazardous air pollutant ("HAP") emissions of 38.2 tons per year, which exceeds the 25-ton major source threshold. ACC operates the McKeesport facility under Title V Operating Permit No. TV-0383-0125, which expires on May 31, 2024. A permit modification application was submitted by ACC in March 2022 in connection with the installation and operation of a new thermal oxidizer on Production Line 4. The permit modification application remains pending with PA DEP as of the date of this letter. Crestline's post-closing operational planning will need to account for the permit renewal cycle, the pending modification, and the ongoing compliance obligations associated with major source status.

These regulatory compliance matters, taken together with the subsurface contamination and building material conditions described above, contribute to the overall environmental risk profile of the ACC acquisition and underscore the need for robust environmental protections in the SPA.

VII. Aggregate Environmental Liability Estimate

Based on TerraVerde's preliminary remediation cost estimate for the McKeesport Main Plant (dated October 18, 2022) and the additional condition assessments described above, Crestline has prepared the following summary of aggregate estimated environmental liabilities across all ACC facilities:

Crestline emphasizes that these estimates are preliminary in nature and are subject to material revision as additional data is received and as remedial planning progresses. In particular, the estimates may increase based on (a) the receipt and analysis of the Clarksburg Phase II analytical results, which remain pending; (b) the development of detailed remedial design work plans for the McKeesport groundwater and vapor intrusion conditions; (c) any additional investigation or delineation of the contamination plume at McKeesport that may be required by PA DEP; and (d) regulatory developments or changes in applicable cleanup standards.

Furthermore, Crestline notes that the foregoing estimates do not include potential costs for regulatory agency oversight and involvement (which can be substantial in Act 2 and VRDP proceedings), third-party claims (including claims by neighboring property owners, lessors, or other persons who may assert that they have been affected by contamination migrating from ACC's facilities), natural resource damages, or long-term monitoring and maintenance costs that may be required after the initial remediation is completed. Such costs can be significant and can extend for many years beyond the completion of active remediation activities.

VIII. Crestline's Position on Environmental Risk Allocation

In light of the environmental findings described above, Crestline sets forth the following position regarding the allocation of environmental risk in the SPA. Crestline believes that these provisions are necessary and appropriate given the nature, magnitude, and uncertainty of the identified environmental liabilities, and that they represent reasonable and market-standard protections for a buyer in a transaction of this type involving an industrial and chemical manufacturing target with identified contamination.

A. Environmental Escrow

Crestline requests the establishment of an environmental escrow in the amount of Four Million Dollars ($4,000,000), to be funded from the purchase price at closing and held in a segregated escrow account pursuant to an escrow agreement in form and substance satisfactory to Crestline and its counsel.

The requested escrow amount of $4,000,000 reflects the high end of the currently identified environmental liability range ($4,345,000), rounded to a practical figure. Crestline submits that this amount is reasonable and appropriate given the substantial uncertainties associated with the scope and cost of remediation at the McKeesport facility, the pending Clarksburg Phase II analytical results (which could increase the aggregate liability estimate), the potential for additional contamination to be identified as remediation progresses and additional subsurface data is collected, and the risk of regulatory developments that could affect cleanup standards or enforcement approaches.

The escrow release mechanics should be tied to the completion of specific remediation milestones — including, at a minimum, the completion of active remediation at each affected facility, the achievement of applicable cleanup standards, and the receipt of final closure determinations or No Further Action letters from the applicable regulatory agencies (PA DEP and WV DEP, as applicable). Release of escrowed funds should require the mutual agreement of the parties or, in the event of a dispute, determination by an agreed-upon environmental consultant or through the dispute resolution procedures of the SPA.

B. Special Environmental Indemnity

Crestline requests the inclusion in the SPA of a Special Environmental Indemnity covering all pre-closing environmental conditions at ACC's facilities, separate and apart from the general indemnification provisions of the Stock Purchase Agreement.

The Special Environmental Indemnity should be uncapped — that is, it should not be subject to the overall indemnification cap applicable to general representations and warranties. Crestline believes that an uncapped environmental indemnity is warranted for several reasons. First, the identified environmental conditions at the McKeesport facility, including active groundwater contamination and a confirmed vapor intrusion pathway, represent the type of legacy environmental liabilities that can give rise to remediation costs substantially exceeding initial estimates as investigation and cleanup progress. Second, the McKeesport facility has a long history of industrial operations — dating to before 1987 under the prior ownership of Keystone Metalworks — and the full nature and extent of contamination at the site may not be known for years. Third, the detection of PCE and TCE at the McKeesport site, despite neither compound being associated with ACC's current manufacturing processes, suggests the possible presence of additional legacy contamination that has not yet been identified. Fourth, the general indemnification cap in the SPA is designed to cover a broad range of potential breaches and should not be consumed by environmental liabilities that are known, material, and potentially very costly.

In addition, the Special Environmental Indemnity should be carved out from the general representation basket/deductible of $475,000 specified in the draft SPA. Environmental claims should be indemnifiable on a first-dollar basis (subject only to any self-insured retention under any applicable Pollution Legal Liability insurance policy), without the requirement that Crestline first satisfy the general basket/deductible. The identified environmental conditions are known, quantified (at least in preliminary terms), and significant; requiring Crestline to absorb the first $475,000 in environmental losses as part of the general basket would effectively shift a portion of the known environmental risk to the Buyer in a manner that is not justified by the facts.

C. Survival Period

Crestline requests a seven (7) year survival period for all environmental representations and warranties in the SPA and for the Special Environmental Indemnity, commencing on the closing date of the transaction.

A seven-year survival period is necessary and appropriate for several reasons. First, environmental remediation projects — particularly those involving groundwater contamination and vapor intrusion — are notoriously protracted, often requiring years or even decades to reach completion and regulatory closure. The McKeesport groundwater remediation, depending on the selected technology (pump-and-treat versus in-situ chemical oxidation), is likely to require a minimum of three to five years of active treatment, followed by a period of post-remediation monitoring before PA DEP will issue a final closure determination. Second, latent environmental conditions — including undiscovered contamination, previously unidentified contaminant pathways, and long-term migration of contaminant plumes — may take years to manifest. Third, the regulatory cycle for Act 2 cleanups in Pennsylvania and VRDP compliance monitoring in West Virginia is inherently lengthy, and the seven-year survival period is designed to ensure that Crestline's indemnification rights remain in effect through the anticipated completion of the remediation process and the receipt of regulatory closure.

A seven-year environmental survival period is consistent with market practice for mergers and acquisitions transactions involving industrial and chemical manufacturing targets with identified environmental conditions. Crestline has reviewed comparable transaction precedent and industry surveys confirming that extended survival periods of five to ten years (and in some cases, indefinite survival) are regularly negotiated for environmental representations in transactions involving targets with known contamination.

D. Environmental Representations and Warranties

Crestline refers to its proposed environmental representations and warranties set forth in Article IV, Section 4.18 of the draft SPA, as transmitted with Crestline's markup of the SPA on September 9, 2022. Crestline maintains that the environmental representations should be comprehensive and should cover, at a minimum, the following subjects:

(a) all environmental permits, licenses, and approvals held by ACC, including their current status, expiration dates, and compliance history;

(b) ACC's compliance with all applicable Environmental Laws (as defined in the SPA), including but not limited to the Clean Air Act, Clean Water Act, RCRA, CERCLA, TSCA, EPCRA, and all applicable state and local environmental statutes and regulations in Pennsylvania and West Virginia;

(c) all known contamination at, on, under, or migrating from ACC's owned or leased properties, including soil, groundwater, surface water, and air contamination;

(d) all releases or threatened releases of hazardous substances at or from ACC's facilities, including historical releases;

(e) all underground storage tanks currently or formerly present at ACC's facilities;

(f) the handling, storage, treatment, disposal, and transportation of hazardous substances and hazardous wastes by or on behalf of ACC;

(g) the presence and condition of asbestos-containing materials and lead-based paint at ACC's facilities;

(h) ACC's CERCLA/Superfund status, including whether any ACC facility is listed or proposed for listing on the National Priorities List or any state equivalent;

(i) all pending or threatened environmental claims, actions, proceedings, orders, consent decrees, or investigations involving ACC; and

(j) full disclosure of all environmental reports, assessments, audits, and studies in ACC's possession or control, including all Phase I and Phase II ESAs, remediation reports, regulatory correspondence, and permit applications.

Crestline objects to the knowledge qualifiers and materiality thresholds that were included in the Seller's counterproposal to Section 4.18, transmitted on September 23, 2022. The insertion of "to the Company's knowledge" qualifiers on representations regarding the existence of contamination, the occurrence of releases, and the presence of hazardous substances at ACC's facilities is inappropriate given the scope of the identified environmental conditions and would materially undermine the protective purpose of the environmental representations. Similarly, the insertion of materiality qualifiers (e.g., "except as would not reasonably be expected to have a Material Adverse Effect") would impermissibly narrow the coverage of the representations and create ambiguity regarding the threshold at which environmental conditions become indemnifiable. Crestline reserves its position on these issues for separate discussion, either in the context of a revised markup of the SPA or during in-person negotiations.

IX. Impact on Financing Conditions

Crestline notes that the resolution of environmental risk allocation in the SPA is not solely a commercial matter between the parties, but is also directly connected to the satisfaction of conditions to Crestline's acquisition financing.

Commonwealth National Bank, N.A. ("Commonwealth"), the agent bank under the proposed Sixty-Five Million Dollar ($65,000,000) senior secured term loan and Twenty Million Dollar ($20,000,000) revolving credit facility committed for the financing of this acquisition, has conditioned its financing commitment on the satisfactory completion of environmental due diligence with respect to all real property of the target company. Specifically, Commonwealth's commitment letter requires that Phase I Environmental Site Assessments be completed on all target real property and that no Recognized Environmental Conditions remain unaddressed, or, in the alternative, that acceptable Pollution Legal Liability insurance be in place to cover identified environmental risks.

The Recognized Environmental Conditions and Phase II exceedances identified at the McKeesport Main Plant, combined with the pending Clarksburg Phase II results, do not currently satisfy Commonwealth's environmental condition to closing. The lender has indicated that appropriate contractual protections — including an environmental escrow and enhanced indemnification provisions — and/or the placement of Pollution Legal Liability insurance will be required before the environmental condition can be satisfied and the financing commitment can be drawn upon.

Accordingly, the adequate allocation of environmental risk in the SPA is a prerequisite not only to Crestline's willingness to proceed to closing, but to Crestline's ability to close the transaction from a financing perspective. Delays in resolving these matters may jeopardize the financing commitment and the transaction timeline.

X. Pollution Legal Liability Insurance

Crestline is evaluating Pollution Legal Liability ("PLL") insurance as a potential supplemental risk transfer mechanism in connection with the identified environmental conditions at ACC's facilities. An indicative, non-binding term sheet has been received from Ironclad Specialty Insurance Company (Hartford, Connecticut), placed through Whitfield & Calder Insurance Advisors LLC, Crestline's insurance broker. The indicative terms include the following:

• Policy Limits: $15,000,000 aggregate / $10,000,000 per occurrence

• Policy Term: Ten (10) years

• Self-Insured Retention: $250,000

• Indicative Premium: $187,500 (one-time, prepaid)

However, Crestline wishes to be clear on the following point: Pollution Legal Liability insurance is not a substitute for contractual indemnification protections in the SPA. PLL insurance is being evaluated as a potential supplement to the environmental escrow and Special Environmental Indemnity described above, not as a replacement for those provisions. Several factors support this position. First, formal underwriting of the PLL policy has not been completed, and the indicative terms are subject to change based on the underwriter's review of the Phase II reports and other environmental data. Second, the coverage is subject to several exclusions and limitations that have not yet been fully negotiated, including potential known-conditions exclusions that could substantially limit or eliminate coverage for the identified contamination at McKeesport, and vapor intrusion sublimits that could cap the insurer's liability for the Building C vapor intrusion condition. Third, PLL insurance is a finite resource — the aggregate limit can be exhausted — and does not provide the same level of ongoing protection as an uncapped indemnity from the Seller.

Crestline reserves the right to address PLL insurance further in subsequent negotiations and to incorporate any PLL coverage obtained into the overall risk allocation structure. However, Crestline does not accept PLL insurance as an alternative to, or substitute for, the environmental escrow and indemnification provisions outlined in Section VIII above.

XI. Request for Response

In light of the foregoing, Crestline respectfully requests that Hargrove, Dalton & Speer LLP, on behalf of the Seller and ACC, provide a substantive written response and counterproposal addressing the following matters:

1. The establishment of an environmental escrow in the amount of Four Million Dollars ($4,000,000), funded from the purchase price at closing, with release mechanics tied to remediation milestones and regulatory closure, as described in Section VIII.A;

2. The inclusion of a Special Environmental Indemnity in the SPA covering all pre-closing environmental conditions, which indemnity should be uncapped and carved out from the general representation basket/deductible of $475,000, as described in Section VIII.B;

3. A seven (7) year survival period for all environmental representations and warranties and for the Special Environmental Indemnity, commencing on the closing date, as described in Section VIII.C; and

4. The scope and qualification of environmental representations and warranties in Article IV, Section 4.18 of the draft SPA, including the withdrawal of the knowledge qualifiers and materiality thresholds proposed in the Seller's counterproposal, as described in Section VIII.D.

Crestline requests that the Seller provide its response within ten (10) business days of the date of this letter — that is, by no later than November 3, 2022.

Crestline is prepared to engage in good-faith negotiations on these matters and recognizes that alternative structures may be available that provide Crestline with equivalent protection while accommodating the Seller's legitimate interests. Crestline is willing to discuss such alternatives in a constructive manner. However, Crestline must emphasize that adequate environmental risk allocation is a prerequisite to Crestline's willingness to proceed to closing. The environmental conditions identified at ACC's facilities are material, the associated liabilities are substantial, and Crestline cannot accept the transfer of these risks without appropriate contractual and financial protections.

XII. Reservation of Rights

Crestline Packaging Solutions LLC reserves all of its rights, remedies, claims, and defenses under the draft Stock Purchase Agreement, the exclusivity agreement between the parties dated June 30, 2022, and applicable law, including but not limited to the right to decline to proceed with the transaction if the environmental risk allocation matters addressed in this letter are not resolved to Crestline's satisfaction.

The environmental liability estimates set forth in this letter are preliminary in nature and are expressly subject to revision and supplementation based on, among other things: (a) the receipt and analysis of the Clarksburg Phase II analytical results from Keystone Analytical Laboratories Inc.; (b) any further investigation, delineation, or remedial design activities conducted at any ACC facility; (c) regulatory developments, including any actions, orders, or guidance issued by PA DEP, WV DEP, EPA, or any other governmental authority; and (d) any additional environmental information provided by ACC or the Seller during the due diligence process, whether through the data room, supplemental disclosures, or otherwise.

Nothing in this letter shall be construed as a waiver of any claim, right, remedy, or defense of Crestline, whether arising under the draft SPA, the exclusivity agreement, or applicable law. Nothing in this letter shall be construed as an acceptance of, or acquiescence to, any environmental condition or liability at any ACC facility, or as an assumption of responsibility for any pre-closing environmental obligation. Crestline's decision to proceed with negotiations and to engage in discussions regarding risk allocation mechanisms does not constitute a waiver of its right to terminate the transaction or to assert claims based on the environmental conditions described herein.

Crestline specifically reserves the right to supplement its position, adjust the requested environmental escrow amount, and modify its requested indemnification terms based on additional information received after the date of this letter, including without limitation the Clarksburg Phase II results and any additional information disclosed by the Seller.

XIII. Closing

We appreciate your attention to these matters and look forward to receiving the Seller's substantive response within the timeframe requested. Should you wish to discuss any of the foregoing in advance of providing a written response, please do not hesitate to contact me directly.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Beatrice Holloway, Partner Direct Telephone: (216) 555-8140

Email: bholloway@calderwoodharkness.com

cc:

Derek Huang, General Counsel, Crestline Packaging Solutions LLC Patricia Okonkwo, Vice President, Environmental Health & Safety, Crestline Packaging Solutions LLC Vanessa Moretti, Deal Partner, Briarwood Capital Partners LP Harrison Caldwell, Of Counsel, Calderwood & Harkness LLP Megan Trask, Associate, Hargrove, Dalton & Speer LLP

Enclosures / Referenced Documents

The following documents are available upon request or have been previously transmitted through the virtual data room. Unless otherwise noted, these documents are not physically enclosed with this letter:

1. TerraVerde Environmental Consulting LLC, Phase I Environmental Site Assessment — McKeesport Main Plant, 2200 Iron Works Boulevard, McKeesport, PA 15132 (dated August 15, 2022)

2. TerraVerde Environmental Consulting LLC, Phase I Environmental Site Assessment — Clarksburg Resin Blending Facility, 1875 Route 50 West, Clarksburg, WV 26301 (dated August 22, 2022)

3. TerraVerde Environmental Consulting LLC, Phase II Environmental Site Assessment Report — McKeesport Main Plant, 2200 Iron Works Boulevard, McKeesport, PA 15132 (draft, dated October 2022)

4. TerraVerde Environmental Consulting LLC, Preliminary Remediation Cost Estimate — McKeesport Main Plant (dated October 18, 2022)

5. Calderwood & Harkness LLP, Vapor Intrusion Risk Assessment Memorandum (dated October 16, 2022)

6. Summary Table of Phase II Analytical Results with Applicable Regulatory Standards (prepared by TerraVerde Environmental Consulting LLC)

Liability Component	Low Estimate	High Estimate
McKeesport Remediation (groundwater treatment: pump-and-treat or in-situ chemical oxidation; vapor mitigation: sub-slab depressurization system)	$1,200,000	$2,800,000
Clarksburg Remediation (soil excavation and off-site disposal, if contamination confirmed)	$350,000	$750,000
Asbestos Abatement (McKeesport)	$180,000	$310,000
Lead-Based Paint Abatement (McKeesport)	$45,000	$85,000
Groundwater Contingency (Clarksburg, if groundwater impacted)	$150,000	$400,000
Total	$1,925,000	$4,345,000

CALDERWOOD & HARKNESS LLP Attorneys at Law 1900 Euclid Avenue, Suite 3200 Cleveland, Ohio 44115
October 20, 2022
Via Email and Overnight Courier
Franklin Speer, Esq. Hargrove, Dalton & Speer LLP 500 Grant Street, Suite 3800 Pittsburgh, PA 15219
Re: Proposed Acquisition of Allegheny Chemical Coatings, Inc. by Crestline Packaging Solutions LLC — Environmental Due Diligence Findings and Purchase Price Adjustment Request
C&H Matter No.: 1006-00003
Dear Mr. Speer:
I. Introduction and Purpose
This firm represents Crestline Packaging Solutions LLC, an Ohio limited liability company ("Crestline" or the "Buyer"), in connection with the proposed acquisition of one hundred percent (100%) of the outstanding common stock of Allegheny Chemical Coatings, Inc. ("ACC" or the "Company"), a Pennsylvania corporation, pursuant to the draft Stock Purchase Agreement circulated by your firm on August 12, 2022 (the "SPA"). We write on behalf of Crestline to address matters of critical importance to the parties' ongoing negotiations and the successful completion of this transaction.
The purpose of this letter is threefold. First, we formally communicate the results of the environmental due diligence investigation conducted on behalf of Crestline at each of ACC's four operating facilities. Second, we identify and describe in detail the material environmental liabilities and conditions of concern discovered during the course of that investigation. Third, we set forth Crestline's position regarding the purchase price protections that will be required as a condition to proceeding toward closing — specifically, the establishment of a funded environmental escrow and enhanced environmental indemnification provisions within the SPA.
The environmental due diligence described herein was conducted by TerraVerde Environmental Consulting LLC ("TerraVerde"), an Ohio-based environmental consulting firm retained by Crestline under our direction. TerraVerde's findings are based upon Phase I Environmental Site Assessments prepared in accordance with ASTM Standard E1527-21, Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, as well as Phase II subsurface investigations conducted at two of the four ACC facilities. These investigations were conducted between August and October 2022, and the findings described in this letter represent the most current information available to Crestline as of the date hereof.
As you are aware, the proposed purchase price for the acquisition is Ninety-Four Million Five Hundred Thousand Dollars ($94,500,000), calculated as $13,500,000 in adjusted EBITDA multiplied by a 7.0x enterprise value multiple. The environmental conditions identified through Crestline's due diligence represent material liabilities that were not fully reflected in the Seller's disclosure schedules or in the purchase price negotiations to date. Accordingly, Crestline believes that meaningful adjustments to the risk allocation framework of the SPA are warranted, as described more fully below.
II. Scope of Environmental Due Diligence
TerraVerde conducted Phase I Environmental Site Assessments at all four of ACC's operating facilities. At two of those facilities — where Recognized Environmental Conditions ("RECs") were identified during the Phase I process — TerraVerde subsequently conducted Phase II subsurface investigations involving the installation of soil borings and temporary monitoring wells, the collection of soil, groundwater, and soil gas samples, and the laboratory analysis of those samples against applicable state regulatory standards.
The four ACC operating facilities assessed during the due diligence process are as follows:
Facility 1 — McKeesport Main Plant. The McKeesport Main Plant is located at 2200 Iron Works Boulevard, McKeesport, Pennsylvania 15132, in Allegheny County. The facility consists of approximately 14.3 acres of land owned in fee simple by ACC since 1987. The McKeesport facility serves as ACC's primary manufacturing location for solvent-based and epoxy coating products and includes multiple production buildings, an office building, outdoor drum storage areas, a wastewater treatment system, and associated loading and shipping infrastructure.
Facility 2 — Charleroi Specialty Coatings Plant. The Charleroi Specialty Coatings Plant is located at 450 Industrial Park Road, Charleroi, Pennsylvania 15022, in Washington County. The facility consists of approximately 8.7 acres of land owned by ACC since 2003. The Charleroi facility is dedicated to the manufacture of water-based and UV-curable coating products and was constructed as a greenfield development on the site.
Facility 3 — Clarksburg Resin Blending Facility. The Clarksburg Resin Blending Facility is located at 1875 Route 50 West, Clarksburg, West Virginia 26301, in Harrison County. The facility consists of approximately 5.2 acres of land leased from Mountainview Properties LLC. ACC operates the Clarksburg facility for resin blending and redistribution activities.
Facility 4 — Weirton Warehouse & Distribution Center. The Weirton Warehouse & Distribution Center is located at 600 Commerce Way, Weirton, West Virginia 26062, in Hancock County. The facility consists of approximately 3.1 acres of land leased from Northern Panhandle Realty Corp. The Weirton facility is used for finished goods storage and distribution operations.
TerraVerde completed the Phase I ESAs on the following dates: McKeesport Main Plant (August 15, 2022), Charleroi Specialty Coatings Plant (August 18, 2022), Clarksburg Resin Blending Facility (August 22, 2022), and Weirton Warehouse & Distribution Center (August 25, 2022).
Based on the Phase I findings, Phase II Environmental Site Assessments (subsurface investigations) were conducted at two facilities. At the McKeesport Main Plant, the Phase II investigation commenced on September 12, 2022, with field sampling activities completed on September 26, 2022. Analytical results from the laboratory were received on October 10, 2022, and are discussed in detail in Section IV of this letter. At the Clarksburg Resin Blending Facility, the Phase II investigation commenced on October 3, 2022, with sampling completed on October 7, 2022. As of the date of this letter, analytical results from Keystone Analytical Laboratories Inc. (Monroeville, Pennsylvania) remain pending and are expected by approximately October 28, 2022. The status of the Clarksburg Phase II investigation is addressed in Section V below.
No Phase II investigation was recommended or conducted at the Charleroi Specialty Coatings Plant, where no RECs were identified during the Phase I assessment. The Charleroi facility is situated on former agricultural land with no prior industrial use, and no conditions warranting further investigation were observed. Similarly, no Phase II investigation was recommended at the Weirton Warehouse & Distribution Center, where only a Controlled Recognized Environmental Condition ("CREC") was identified in connection with the site's prior remediation under the West Virginia Voluntary Remediation and Redevelopment Program ("VRDP"), with engineering and institutional controls in place.
III. Summary of Phase I Environmental Site Assessment Findings
A. McKeesport Main Plant
The Phase I ESA for the McKeesport Main Plant, dated August 15, 2022, identified two Recognized Environmental Conditions and one Historical Recognized Environmental Condition. These findings are summarized as follows:
REC-1: Potential Vapor Intrusion Pathway — Former UST Field / Building C. TerraVerde identified elevated volatile organic compound ("VOC") readings in indoor air near the mixing area in Building C, suggesting a potential vapor intrusion pathway from residual subsurface contamination beneath the former underground storage tank ("UST") field located immediately adjacent to the south side of Building C. Three 10,000-gallon USTs were removed from the property in 1993. Following the UST removal, a release was reported to the Pennsylvania Department of Environmental Protection ("PA DEP"), and a cleanup was initiated under Pennsylvania's Act 2 Land Recycling and Environmental Remediation Standards Act, 35 P.S. §§ 6026.101–6026.908. A No Further Action ("NFA") letter was issued by PA DEP in May 2001 under the Statewide Health Standard for soils. However, TerraVerde's Phase I investigation identified conditions — including the elevated indoor air VOC readings, the proximity of Building C to the former UST cavity, and the geological characteristics of the site (including shallow fractured bedrock) — that suggest residual contamination may remain in the subsurface beneath and in the vicinity of the former UST field, potentially creating an active vapor intrusion pathway into the occupied manufacturing space of Building C. The 2001 NFA letter addressed soil conditions only and did not evaluate groundwater or vapor intrusion pathways, which had not yet been subject to regulatory scrutiny at the time of the original investigation.
REC-2: Eastern Property Boundary — Potential Release from Drum Storage Area. TerraVerde observed visible staining on soil surfaces and stressed vegetation along the eastern property boundary of the McKeesport facility, adjacent to an unlined stormwater drainage channel that runs along the property's eastern perimeter. This area is situated downslope and downgradient from an outdoor drum storage area used for the staging and temporary storage of coating raw materials and waste drums. The observed conditions are indicative of a potential release of hazardous substances from the drum storage area to the surrounding soil and potentially to the stormwater drainage channel. The nature and extent of any such release have not been fully characterized.
HREC-1: 1994 UST Release — Act 2 Cleanup. The 1994 release associated with the removal of the three 10,000-gallon USTs was classified as a Historical Recognized Environmental Condition on the basis that the PA DEP NFA letter was obtained in May 2001 and no further action is required by the regulatory agency unless site conditions have changed. As noted above, however, TerraVerde's findings suggest that site conditions may have changed or that the original NFA determination did not fully address all contaminant pathways, warranting the reclassification of the residual contamination as an active REC (REC-1, above).
It bears noting that the McKeesport property was formerly operated as a steel fabrication facility prior to ACC's acquisition of the site in 1987. The former operator, Keystone Metalworks, is now defunct. Chemicals of concern at the site include VOCs — specifically toluene, xylene, methyl ethyl ketone ("MEK"), and ethylbenzene — associated with ACC's solvent-based coating manufacturing operations, as well as heavy metals — specifically chromium and lead — associated with legacy pigment processing operations conducted by both ACC and Keystone Metalworks during earlier periods of the site's industrial history.
B. Charleroi Specialty Coatings Plant
The Phase I ESA for the Charleroi Specialty Coatings Plant, dated August 18, 2022, identified no RECs, CRECs, or HRECs. The facility was developed as a greenfield site on former agricultural land, with construction completed in 2003. There is no history of prior industrial use, no underground storage tanks have been installed at the site, and no environmental concerns were identified during the records review, site reconnaissance, or interviews conducted as part of the assessment. Accordingly, no further investigation was recommended at the Charleroi facility, and this facility does not contribute to the identified environmental liabilities discussed in this letter.
C. Clarksburg Resin Blending Facility
The Phase I ESA for the Clarksburg Resin Blending Facility, dated August 22, 2022, identified one Controlled Recognized Environmental Condition and one Recognized Environmental Condition:
CREC: Residual Diesel-Range Organics — Former UST Cavity. TerraVerde identified residual diesel-range organics ("DRO") in soil above West Virginia Department of Environmental Protection ("WV DEP") action levels beneath the cavity of a former 15,000-gallon diesel underground storage tank. The UST was removed in 2012 by the facility's prior tenant, Valley Freight Lines Inc. (now dissolved). Following the UST removal and associated investigation, WV DEP issued a closure letter in March 2013 with institutional controls, including a land-use restriction, which was recorded at the Harrison County Clerk's Office in Book 1245, Page 312. The WV DEP Site Identification Number for this matter is WVUST-2012-04887. Because residual contamination remains at the site above unrestricted use levels but is subject to ongoing institutional controls that restrict land use to industrial/commercial purposes, TerraVerde classified this condition as a CREC in accordance with the ASTM standard.
REC: Potential Release from Drum Storage Operations. TerraVerde observed staining on the concrete floor in the northeast corner of the warehouse building at the Clarksburg facility, consistent with a potential release from drum storage operations. The staining appeared to be relatively recent and was not associated with any documented release or cleanup. The nature of the substance involved and the extent of any release to the subsurface have not been characterized, and this condition was identified as a REC warranting further investigation.
The Clarksburg facility is leased from Mountainview Properties LLC (Gerald Boothe, Managing Member) under a triple-net lease that commenced on January 1, 2015, and expires on December 31, 2029. Notably, the lease agreement requires the tenant to remediate any contamination caused by the tenant's operations at the facility. To the extent the staining identified as a REC is attributable to ACC's operations, the remediation obligation would fall on ACC (and, post-closing, on the acquired entity). The allocation of responsibility for any pre-existing contamination at the site — including the DRO contamination addressed through the WV DEP closure process — may involve obligations of the landlord and the former tenant, Valley Freight Lines Inc., although the latter entity has been dissolved and is unlikely to be a viable responsible party.
D. Weirton Warehouse & Distribution Center
The Phase I ESA for the Weirton Warehouse & Distribution Center, dated August 25, 2022, identified one Controlled Recognized Environmental Condition and one de minimis condition:
CREC: Remediated Brownfield — Former Weirton Steel Parcel. The Weirton Warehouse & Distribution Center was constructed in 2016 on a parcel that was formerly part of the Weirton Steel industrial complex. The property was remediated under the West Virginia Voluntary Remediation and Redevelopment Program ("VRDP"), and a Certificate of Completion was issued by WV DEP in September 2015. Engineering controls (including an impervious cap over portions of the site) and institutional controls are in place, and a deed restriction reflecting these requirements was recorded at the Hancock County Clerk's Office in Book 487, Page 89. This condition is classified as a CREC because residual contamination exists at the site above unrestricted use levels, but the contamination has been addressed through the VRDP process and is managed through the engineering and institutional controls.
De Minimis Condition: Hydraulic Fluid Stain. A minor hydraulic fluid stain of approximately four (4) square feet was observed on the warehouse floor. This condition was classified as de minimis in accordance with the ASTM standard and does not represent a REC, CREC, or HREC.
No RECs were identified at the Weirton facility, and no Phase II investigation was recommended. However, Crestline notes that the ongoing compliance obligations associated with the engineering and institutional controls under the VRDP Certificate of Completion — including periodic monitoring, reporting, and maintenance of the cap — represent continuing obligations that will transfer to Crestline as the acquiring entity and will need to be accounted for in the parties' allocation of post-closing responsibilities.
IV. Phase II Environmental Site Assessment Findings — McKeesport Main Plant
A. Investigation Scope
Based on the RECs identified during the Phase I ESA, TerraVerde conducted a Phase II Environmental Site Assessment at the McKeesport Main Plant. The Phase II investigation commenced on September 12, 2022, with field sampling activities completed on September 26, 2022. The investigation was designed to characterize the nature and extent of subsurface contamination at the site and to evaluate the potential environmental pathways identified during the Phase I assessment.
The Phase II scope of work included the installation of eighteen (18) soil borings (designated SB-1 through SB-18) and six (6) temporary monitoring wells (designated MW-1 through MW-6) at locations distributed across the property, with a concentration of investigation points in the area of the former UST field, the eastern property boundary adjacent to the drum storage area, and beneath Building C. Sub-slab soil gas sampling was conducted beneath Building C at three (3) locations to evaluate the vapor intrusion pathway identified as REC-1 during the Phase I assessment.
The analytical suite for the Phase II investigation included VOCs — specifically toluene, xylene, methyl ethyl ketone, ethylbenzene, trichloroethylene ("TCE"), and tetrachloroethylene ("PCE") — as well as heavy metals (chromium and lead) and diesel-range organics/gasoline-range organics ("DRO/GRO"). All samples were analyzed by a Pennsylvania-accredited laboratory in accordance with applicable EPA methods.
Analytical results from the laboratory were received on October 10, 2022. The results are summarized below, with particular attention to those constituents detected at concentrations exceeding applicable Pennsylvania Act 2 standards and PA DEP screening levels.
B. Groundwater Contamination
The Phase II groundwater sampling results reveal an active groundwater contamination plume in the vicinity of the former UST field at the McKeesport facility. Most significantly:
Toluene was detected in groundwater at monitoring well MW-3 at a concentration of 1,420 micrograms per liter (µg/L). The applicable Pennsylvania Act 2 Statewide Health Standard for toluene in groundwater (used aquifer) is 1,000 µg/L. The detected concentration therefore exceeds the Statewide Health Standard by approximately 42% (1,420 ÷ 1,000 = 1.42x). Monitoring well MW-3 is located immediately downgradient of the former UST field, approximately forty feet southeast of the former UST cavities.
Xylene was detected in groundwater at monitoring well MW-3 at a concentration of 8,200 µg/L, which is below the applicable Pennsylvania Act 2 Statewide Health Standard of 10,000 µg/L. While the xylene concentration does not currently exceed the standard, it is sufficiently elevated (82% of the standard) to indicate a significant xylene mass in the groundwater and to warrant monitoring for potential future exceedances.
Other VOCs were detected in groundwater at concentrations below applicable standards at several monitoring well locations, consistent with a broader area of low-level contamination extending from the former UST field.
These groundwater results indicate that an active contamination plume exists in the vicinity of the former UST field at the McKeesport Main Plant. The plume is likely associated with historical operations — both the former UST operations and solvent handling activities — and constitutes an ongoing environmental liability requiring remedial action under Pennsylvania's Act 2 Land Recycling Program. The 2001 NFA letter, which addressed soil conditions only under the Statewide Health Standard, did not characterize or address the groundwater contamination now documented by TerraVerde's investigation. A new Act 2 cleanup is required to address the groundwater exceedance, and Crestline anticipates that PA DEP notification and engagement will be necessary.
C. Soil Contamination
The Phase II soil sampling results identified concentrations of certain contaminants that, while below the applicable non-residential standards given the facility's current industrial use, exceed the corresponding residential standards and thus present risk in the event of any future change in land use or regulatory approach:
Tetrachloroethylene (PCE) was detected in soil at boring location SB-7 at a concentration of 3.8 milligrams per kilogram (mg/kg). The Pennsylvania Act 2 Statewide Health Standard for PCE in soil is 2.4 mg/kg under the residential standard and 14 mg/kg under the non-residential standard. While the detected concentration is below the non-residential standard applicable to the facility's current industrial use, it exceeds the residential standard by approximately 58%. In the event of a future change in land use, a regulatory reclassification, or an application of the residential standard by PA DEP in connection with a broader site investigation, remediation obligations could be triggered. The presence of PCE in soil at the McKeesport facility is notable because PCE is not a constituent of ACC's current manufacturing processes, suggesting that the contamination may originate from legacy operations conducted by the former owner, Keystone Metalworks, or from off-site sources.
Lead was detected in soil at boring location SB-14 at a concentration of 680 mg/kg. The Pennsylvania Act 2 Statewide Health Standard for lead in soil is 450 mg/kg under the residential standard and 1,000 mg/kg under the non-residential standard. As with the PCE results, the lead concentration exceeds the residential standard (by approximately 51%) while remaining below the non-residential standard. Lead contamination at the McKeesport site is consistent with both ACC's historical pigment processing activities and the prior use of the site for steel fabrication.
Crestline notes that while these soil concentrations currently fall below the non-residential standards, they represent environmental conditions that could give rise to remediation obligations depending on future regulatory developments, site use changes, or third-party claims, and they contribute to the overall environmental risk profile of the McKeesport facility.
D. Vapor Intrusion
The sub-slab soil gas sampling conducted beneath Building C confirmed the existence of an active vapor intrusion pathway, as initially suspected during the Phase I assessment:
Trichloroethylene (TCE) was detected in sub-slab soil gas beneath Building C at a concentration of 42 micrograms per cubic meter (µg/m³). The applicable PA DEP vapor intrusion screening level for TCE is 21 µg/m³. The detected concentration therefore exceeds the PA DEP screening level by 100% (42 ÷ 21 = 2.0x).
This finding confirms the presence of an active vapor intrusion pathway from subsurface contamination into the occupied manufacturing space of Building C at the McKeesport facility. The implications of this finding are significant and multifaceted. First, the exceedance of the vapor intrusion screening level presents potential health risks to workers occupying Building C and raises immediate questions regarding occupational exposure and workplace safety. Second, under PA DEP's vapor intrusion guidance, mitigation is required when screening levels are exceeded. A vapor mitigation system — specifically, a sub-slab depressurization system ("SSDS") — will need to be designed, installed, and maintained to interrupt the vapor intrusion pathway and protect building occupants. Third, the confirmed vapor intrusion condition triggers potential notification obligations to PA DEP and may require reporting under applicable Occupational Safety and Health Administration ("OSHA") workplace exposure regulations, including potential industrial hygiene monitoring and exposure assessment. Fourth, the detection of TCE in sub-slab soil gas — like the detection of PCE in soil — is notable because TCE is not a current constituent of ACC's manufacturing processes, again suggesting legacy contamination from prior operations or off-site migration.
Crestline considers the confirmed vapor intrusion pathway at Building C to be one of the most significant environmental findings of the due diligence process, both because of the immediate operational and worker health implications and because of the ongoing cost obligations associated with designing, installing, and operating a mitigation system.
V. Phase II Investigation — Clarksburg (Status Pending)
TerraVerde initiated the Phase II Environmental Site Assessment at the Clarksburg Resin Blending Facility on October 3, 2022. The investigation scope included the installation of eight (8) soil borings and three (3) temporary monitoring wells in the vicinity of the REC identified during the Phase I assessment (the staining in the northeast corner of the warehouse). Sampling activities were completed on October 7, 2022, and all collected samples were submitted to Keystone Analytical Laboratories Inc., located in Monroeville, Pennsylvania, for analysis.
As of the date of this letter, the analytical results from Keystone Analytical Laboratories have not yet been received. Based on the laboratory's estimated turnaround time, results are expected by approximately October 28, 2022.
Notwithstanding the absence of confirmed analytical data, TerraVerde has prepared a preliminary remediation cost estimate for the Clarksburg facility assuming that contamination is confirmed at levels requiring corrective action. TerraVerde's preliminary estimate, based on the observed conditions at the site, the nature of the operations conducted in the vicinity of the staining, and the geological and hydrogeological characteristics of the property, ranges from $350,000 to $750,000 for soil excavation and off-site disposal if soil contamination is confirmed above applicable WV DEP action levels. If groundwater contamination is also identified — which is possible given the proximity of the staining to a potential subsurface release pathway — an additional $150,000 to $400,000 in remediation costs could be incurred for groundwater investigation, monitoring, and treatment.
Crestline expressly reserves the right to supplement its environmental liability estimates, adjust its position on risk allocation, and revise its requested escrow amount and indemnification terms based on the Clarksburg Phase II results once received and analyzed. The parties should anticipate that additional correspondence or negotiation may be required once the Clarksburg data is available.
VI. Additional Environmental Conditions and Liabilities
In addition to the subsurface contamination conditions identified through the Phase I and Phase II assessments, TerraVerde's due diligence identified several additional environmental conditions and regulatory compliance matters at ACC's facilities that contribute to the overall environmental risk profile of the target and are relevant to the purchase price protections sought by Crestline.
A. Asbestos-Containing Materials (McKeesport)
The McKeesport Main Plant contains asbestos-containing materials ("ACM") in two principal locations. First, pipe insulation in Buildings A and B contains friable asbestos, with an estimated total quantity of approximately 2,400 linear feet of insulated piping. Second, floor tiles in Building A — estimated at approximately 14,000 square feet — contain non-friable asbestos. These materials are currently managed in place pursuant to an Asbestos Operations and Maintenance ("O&M") Plan dated September 2019. While the O&M Plan provides for ongoing management and monitoring of the ACM in its current condition, full abatement (removal and disposal) would be required in the event of any renovation, demolition, or change in use of the affected areas. The estimated cost of full asbestos abatement, based on TerraVerde's assessment and current market pricing for licensed asbestos abatement contractors in the Pittsburgh metropolitan area, ranges from $180,000 to $310,000.
B. Lead-Based Paint (McKeesport)
Lead-based paint ("LBP") was identified on interior and exterior surfaces of the McKeesport office building, which was constructed circa 1955, pursuant to a lead-based paint survey conducted in 2019. The LBP is currently managed in place under a maintenance and monitoring protocol. As with asbestos, full abatement would be required in connection with renovation or demolition activities. The estimated cost of lead-based paint abatement ranges from $45,000 to $85,000.
C. Regulatory Compliance Matters
Crestline's environmental due diligence also identified several regulatory compliance matters that, while not necessarily giving rise to immediate remediation obligations, are indicative of the overall environmental risk profile of ACC's operations and are relevant to the scope and duration of environmental representations and indemnification protections in the SPA:
NPDES Total Suspended Solids Exceedance (March 2022). In March 2022, ACC's McKeesport facility reported a Total Suspended Solids ("TSS") concentration of 48 mg/L in its stormwater discharge, which exceeded the applicable limit of 40 mg/L specified in NPDES Permit No. PA0025631 — a 20% exceedance. ACC self-reported the exceedance to PA DEP and implemented corrective actions, including inspection and maintenance of the stormwater management system. While the matter appears to have been resolved informally without a formal enforcement action, the exceedance raises questions about the adequacy of the facility's stormwater management infrastructure and the potential for future violations.
Historical Releases. ACC has experienced at least two documented releases of hazardous substances at the McKeesport facility in recent years. On February 3, 2020, approximately 120 gallons of epoxy resin hardener were released to a floor drain connected to the sanitary sewer system. PA DEP assessed a fine of $4,500 in connection with this incident, and corrective action was completed. On June 14, 2017, approximately 50 gallons of xylene were released from a process vessel but were contained within secondary containment. The 2017 incident was reported to PA DEP and received a No Further Action determination. While both incidents were addressed and resolved, they are part of the facility's environmental compliance history and reflect the inherent risks associated with the handling and storage of hazardous substances at the McKeesport manufacturing operation.
Title V Clean Air Act Permit. ACC's McKeesport facility is classified as a major source under the Clean Air Act, with combined hazardous air pollutant ("HAP") emissions of 38.2 tons per year, which exceeds the 25-ton major source threshold. ACC operates the McKeesport facility under Title V Operating Permit No. TV-0383-0125, which expires on May 31, 2024. A permit modification application was submitted by ACC in March 2022 in connection with the installation and operation of a new thermal oxidizer on Production Line 4. The permit modification application remains pending with PA DEP as of the date of this letter. Crestline's post-closing operational planning will need to account for the permit renewal cycle, the pending modification, and the ongoing compliance obligations associated with major source status.
These regulatory compliance matters, taken together with the subsurface contamination and building material conditions described above, contribute to the overall environmental risk profile of the ACC acquisition and underscore the need for robust environmental protections in the SPA.
VII. Aggregate Environmental Liability Estimate
Based on TerraVerde's preliminary remediation cost estimate for the McKeesport Main Plant (dated October 18, 2022) and the additional condition assessments described above, Crestline has prepared the following summary of aggregate estimated environmental liabilities across all ACC facilities:
Crestline emphasizes that these estimates are preliminary in nature and are subject to material revision as additional data is received and as remedial planning progresses. In particular, the estimates may increase based on (a) the receipt and analysis of the Clarksburg Phase II analytical results, which remain pending; (b) the development of detailed remedial design work plans for the McKeesport groundwater and vapor intrusion conditions; (c) any additional investigation or delineation of the contamination plume at McKeesport that may be required by PA DEP; and (d) regulatory developments or changes in applicable cleanup standards.
Furthermore, Crestline notes that the foregoing estimates do not include potential costs for regulatory agency oversight and involvement (which can be substantial in Act 2 and VRDP proceedings), third-party claims (including claims by neighboring property owners, lessors, or other persons who may assert that they have been affected by contamination migrating from ACC's facilities), natural resource damages, or long-term monitoring and maintenance costs that may be required after the initial remediation is completed. Such costs can be significant and can extend for many years beyond the completion of active remediation activities.
VIII. Crestline's Position on Environmental Risk Allocation
In light of the environmental findings described above, Crestline sets forth the following position regarding the allocation of environmental risk in the SPA. Crestline believes that these provisions are necessary and appropriate given the nature, magnitude, and uncertainty of the identified environmental liabilities, and that they represent reasonable and market-standard protections for a buyer in a transaction of this type involving an industrial and chemical manufacturing target with identified contamination.
A. Environmental Escrow
Crestline requests the establishment of an environmental escrow in the amount of Four Million Dollars ($4,000,000), to be funded from the purchase price at closing and held in a segregated escrow account pursuant to an escrow agreement in form and substance satisfactory to Crestline and its counsel.
The requested escrow amount of $4,000,000 reflects the high end of the currently identified environmental liability range ($4,345,000), rounded to a practical figure. Crestline submits that this amount is reasonable and appropriate given the substantial uncertainties associated with the scope and cost of remediation at the McKeesport facility, the pending Clarksburg Phase II analytical results (which could increase the aggregate liability estimate), the potential for additional contamination to be identified as remediation progresses and additional subsurface data is collected, and the risk of regulatory developments that could affect cleanup standards or enforcement approaches.
The escrow release mechanics should be tied to the completion of specific remediation milestones — including, at a minimum, the completion of active remediation at each affected facility, the achievement of applicable cleanup standards, and the receipt of final closure determinations or No Further Action letters from the applicable regulatory agencies (PA DEP and WV DEP, as applicable). Release of escrowed funds should require the mutual agreement of the parties or, in the event of a dispute, determination by an agreed-upon environmental consultant or through the dispute resolution procedures of the SPA.
B. Special Environmental Indemnity
Crestline requests the inclusion in the SPA of a Special Environmental Indemnity covering all pre-closing environmental conditions at ACC's facilities, separate and apart from the general indemnification provisions of the Stock Purchase Agreement.
The Special Environmental Indemnity should be uncapped — that is, it should not be subject to the overall indemnification cap applicable to general representations and warranties. Crestline believes that an uncapped environmental indemnity is warranted for several reasons. First, the identified environmental conditions at the McKeesport facility, including active groundwater contamination and a confirmed vapor intrusion pathway, represent the type of legacy environmental liabilities that can give rise to remediation costs substantially exceeding initial estimates as investigation and cleanup progress. Second, the McKeesport facility has a long history of industrial operations — dating to before 1987 under the prior ownership of Keystone Metalworks — and the full nature and extent of contamination at the site may not be known for years. Third, the detection of PCE and TCE at the McKeesport site, despite neither compound being associated with ACC's current manufacturing processes, suggests the possible presence of additional legacy contamination that has not yet been identified. Fourth, the general indemnification cap in the SPA is designed to cover a broad range of potential breaches and should not be consumed by environmental liabilities that are known, material, and potentially very costly.
In addition, the Special Environmental Indemnity should be carved out from the general representation basket/deductible of $475,000 specified in the draft SPA. Environmental claims should be indemnifiable on a first-dollar basis (subject only to any self-insured retention under any applicable Pollution Legal Liability insurance policy), without the requirement that Crestline first satisfy the general basket/deductible. The identified environmental conditions are known, quantified (at least in preliminary terms), and significant; requiring Crestline to absorb the first $475,000 in environmental losses as part of the general basket would effectively shift a portion of the known environmental risk to the Buyer in a manner that is not justified by the facts.
C. Survival Period
Crestline requests a seven (7) year survival period for all environmental representations and warranties in the SPA and for the Special Environmental Indemnity, commencing on the closing date of the transaction.
A seven-year survival period is necessary and appropriate for several reasons. First, environmental remediation projects — particularly those involving groundwater contamination and vapor intrusion — are notoriously protracted, often requiring years or even decades to reach completion and regulatory closure. The McKeesport groundwater remediation, depending on the selected technology (pump-and-treat versus in-situ chemical oxidation), is likely to require a minimum of three to five years of active treatment, followed by a period of post-remediation monitoring before PA DEP will issue a final closure determination. Second, latent environmental conditions — including undiscovered contamination, previously unidentified contaminant pathways, and long-term migration of contaminant plumes — may take years to manifest. Third, the regulatory cycle for Act 2 cleanups in Pennsylvania and VRDP compliance monitoring in West Virginia is inherently lengthy, and the seven-year survival period is designed to ensure that Crestline's indemnification rights remain in effect through the anticipated completion of the remediation process and the receipt of regulatory closure.
A seven-year environmental survival period is consistent with market practice for mergers and acquisitions transactions involving industrial and chemical manufacturing targets with identified environmental conditions. Crestline has reviewed comparable transaction precedent and industry surveys confirming that extended survival periods of five to ten years (and in some cases, indefinite survival) are regularly negotiated for environmental representations in transactions involving targets with known contamination.
D. Environmental Representations and Warranties
Crestline refers to its proposed environmental representations and warranties set forth in Article IV, Section 4.18 of the draft SPA, as transmitted with Crestline's markup of the SPA on September 9, 2022. Crestline maintains that the environmental representations should be comprehensive and should cover, at a minimum, the following subjects:
(a) all environmental permits, licenses, and approvals held by ACC, including their current status, expiration dates, and compliance history;
(b) ACC's compliance with all applicable Environmental Laws (as defined in the SPA), including but not limited to the Clean Air Act, Clean Water Act, RCRA, CERCLA, TSCA, EPCRA, and all applicable state and local environmental statutes and regulations in Pennsylvania and West Virginia;
(c) all known contamination at, on, under, or migrating from ACC's owned or leased properties, including soil, groundwater, surface water, and air contamination;
(d) all releases or threatened releases of hazardous substances at or from ACC's facilities, including historical releases;
(e) all underground storage tanks currently or formerly present at ACC's facilities;
(f) the handling, storage, treatment, disposal, and transportation of hazardous substances and hazardous wastes by or on behalf of ACC;
(g) the presence and condition of asbestos-containing materials and lead-based paint at ACC's facilities;
(h) ACC's CERCLA/Superfund status, including whether any ACC facility is listed or proposed for listing on the National Priorities List or any state equivalent;
(i) all pending or threatened environmental claims, actions, proceedings, orders, consent decrees, or investigations involving ACC; and
(j) full disclosure of all environmental reports, assessments, audits, and studies in ACC's possession or control, including all Phase I and Phase II ESAs, remediation reports, regulatory correspondence, and permit applications.
Crestline objects to the knowledge qualifiers and materiality thresholds that were included in the Seller's counterproposal to Section 4.18, transmitted on September 23, 2022. The insertion of "to the Company's knowledge" qualifiers on representations regarding the existence of contamination, the occurrence of releases, and the presence of hazardous substances at ACC's facilities is inappropriate given the scope of the identified environmental conditions and would materially undermine the protective purpose of the environmental representations. Similarly, the insertion of materiality qualifiers (e.g., "except as would not reasonably be expected to have a Material Adverse Effect") would impermissibly narrow the coverage of the representations and create ambiguity regarding the threshold at which environmental conditions become indemnifiable. Crestline reserves its position on these issues for separate discussion, either in the context of a revised markup of the SPA or during in-person negotiations.
IX. Impact on Financing Conditions
Crestline notes that the resolution of environmental risk allocation in the SPA is not solely a commercial matter between the parties, but is also directly connected to the satisfaction of conditions to Crestline's acquisition financing.
Commonwealth National Bank, N.A. ("Commonwealth"), the agent bank under the proposed Sixty-Five Million Dollar ($65,000,000) senior secured term loan and Twenty Million Dollar ($20,000,000) revolving credit facility committed for the financing of this acquisition, has conditioned its financing commitment on the satisfactory completion of environmental due diligence with respect to all real property of the target company. Specifically, Commonwealth's commitment letter requires that Phase I Environmental Site Assessments be completed on all target real property and that no Recognized Environmental Conditions remain unaddressed, or, in the alternative, that acceptable Pollution Legal Liability insurance be in place to cover identified environmental risks.
The Recognized Environmental Conditions and Phase II exceedances identified at the McKeesport Main Plant, combined with the pending Clarksburg Phase II results, do not currently satisfy Commonwealth's environmental condition to closing. The lender has indicated that appropriate contractual protections — including an environmental escrow and enhanced indemnification provisions — and/or the placement of Pollution Legal Liability insurance will be required before the environmental condition can be satisfied and the financing commitment can be drawn upon.
Accordingly, the adequate allocation of environmental risk in the SPA is a prerequisite not only to Crestline's willingness to proceed to closing, but to Crestline's ability to close the transaction from a financing perspective. Delays in resolving these matters may jeopardize the financing commitment and the transaction timeline.
X. Pollution Legal Liability Insurance
Crestline is evaluating Pollution Legal Liability ("PLL") insurance as a potential supplemental risk transfer mechanism in connection with the identified environmental conditions at ACC's facilities. An indicative, non-binding term sheet has been received from Ironclad Specialty Insurance Company (Hartford, Connecticut), placed through Whitfield & Calder Insurance Advisors LLC, Crestline's insurance broker. The indicative terms include the following:
• Policy Limits: $15,000,000 aggregate / $10,000,000 per occurrence
• Policy Term: Ten (10) years
• Self-Insured Retention: $250,000
• Indicative Premium: $187,500 (one-time, prepaid)
However, Crestline wishes to be clear on the following point: Pollution Legal Liability insurance is not a substitute for contractual indemnification protections in the SPA. PLL insurance is being evaluated as a potential supplement to the environmental escrow and Special Environmental Indemnity described above, not as a replacement for those provisions. Several factors support this position. First, formal underwriting of the PLL policy has not been completed, and the indicative terms are subject to change based on the underwriter's review of the Phase II reports and other environmental data. Second, the coverage is subject to several exclusions and limitations that have not yet been fully negotiated, including potential known-conditions exclusions that could substantially limit or eliminate coverage for the identified contamination at McKeesport, and vapor intrusion sublimits that could cap the insurer's liability for the Building C vapor intrusion condition. Third, PLL insurance is a finite resource — the aggregate limit can be exhausted — and does not provide the same level of ongoing protection as an uncapped indemnity from the Seller.
Crestline reserves the right to address PLL insurance further in subsequent negotiations and to incorporate any PLL coverage obtained into the overall risk allocation structure. However, Crestline does not accept PLL insurance as an alternative to, or substitute for, the environmental escrow and indemnification provisions outlined in Section VIII above.
XI. Request for Response
In light of the foregoing, Crestline respectfully requests that Hargrove, Dalton & Speer LLP, on behalf of the Seller and ACC, provide a substantive written response and counterproposal addressing the following matters:
1. The establishment of an environmental escrow in the amount of Four Million Dollars ($4,000,000), funded from the purchase price at closing, with release mechanics tied to remediation milestones and regulatory closure, as described in Section VIII.A;
2. The inclusion of a Special Environmental Indemnity in the SPA covering all pre-closing environmental conditions, which indemnity should be uncapped and carved out from the general representation basket/deductible of $475,000, as described in Section VIII.B;
3. A seven (7) year survival period for all environmental representations and warranties and for the Special Environmental Indemnity, commencing on the closing date, as described in Section VIII.C; and
4. The scope and qualification of environmental representations and warranties in Article IV, Section 4.18 of the draft SPA, including the withdrawal of the knowledge qualifiers and materiality thresholds proposed in the Seller's counterproposal, as described in Section VIII.D.
Crestline requests that the Seller provide its response within ten (10) business days of the date of this letter — that is, by no later than November 3, 2022.
Crestline is prepared to engage in good-faith negotiations on these matters and recognizes that alternative structures may be available that provide Crestline with equivalent protection while accommodating the Seller's legitimate interests. Crestline is willing to discuss such alternatives in a constructive manner. However, Crestline must emphasize that adequate environmental risk allocation is a prerequisite to Crestline's willingness to proceed to closing. The environmental conditions identified at ACC's facilities are material, the associated liabilities are substantial, and Crestline cannot accept the transfer of these risks without appropriate contractual and financial protections.
XII. Reservation of Rights
Crestline Packaging Solutions LLC reserves all of its rights, remedies, claims, and defenses under the draft Stock Purchase Agreement, the exclusivity agreement between the parties dated June 30, 2022, and applicable law, including but not limited to the right to decline to proceed with the transaction if the environmental risk allocation matters addressed in this letter are not resolved to Crestline's satisfaction.
The environmental liability estimates set forth in this letter are preliminary in nature and are expressly subject to revision and supplementation based on, among other things: (a) the receipt and analysis of the Clarksburg Phase II analytical results from Keystone Analytical Laboratories Inc.; (b) any further investigation, delineation, or remedial design activities conducted at any ACC facility; (c) regulatory developments, including any actions, orders, or guidance issued by PA DEP, WV DEP, EPA, or any other governmental authority; and (d) any additional environmental information provided by ACC or the Seller during the due diligence process, whether through the data room, supplemental disclosures, or otherwise.
Nothing in this letter shall be construed as a waiver of any claim, right, remedy, or defense of Crestline, whether arising under the draft SPA, the exclusivity agreement, or applicable law. Nothing in this letter shall be construed as an acceptance of, or acquiescence to, any environmental condition or liability at any ACC facility, or as an assumption of responsibility for any pre-closing environmental obligation. Crestline's decision to proceed with negotiations and to engage in discussions regarding risk allocation mechanisms does not constitute a waiver of its right to terminate the transaction or to assert claims based on the environmental conditions described herein.
Crestline specifically reserves the right to supplement its position, adjust the requested environmental escrow amount, and modify its requested indemnification terms based on additional information received after the date of this letter, including without limitation the Clarksburg Phase II results and any additional information disclosed by the Seller.
XIII. Closing
We appreciate your attention to these matters and look forward to receiving the Seller's substantive response within the timeframe requested. Should you wish to discuss any of the foregoing in advance of providing a written response, please do not hesitate to contact me directly.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Beatrice Holloway, Partner Direct Telephone: (216) 555-8140
Email: bholloway@calderwoodharkness.com
cc:
Derek Huang, General Counsel, Crestline Packaging Solutions LLC Patricia Okonkwo, Vice President, Environmental Health & Safety, Crestline Packaging Solutions LLC Vanessa Moretti, Deal Partner, Briarwood Capital Partners LP Harrison Caldwell, Of Counsel, Calderwood & Harkness LLP Megan Trask, Associate, Hargrove, Dalton & Speer LLP
Enclosures / Referenced Documents
The following documents are available upon request or have been previously transmitted through the virtual data room. Unless otherwise noted, these documents are not physically enclosed with this letter:
1. TerraVerde Environmental Consulting LLC, Phase I Environmental Site Assessment — McKeesport Main Plant, 2200 Iron Works Boulevard, McKeesport, PA 15132 (dated August 15, 2022)
2. TerraVerde Environmental Consulting LLC, Phase I Environmental Site Assessment — Clarksburg Resin Blending Facility, 1875 Route 50 West, Clarksburg, WV 26301 (dated August 22, 2022)
3. TerraVerde Environmental Consulting LLC, Phase II Environmental Site Assessment Report — McKeesport Main Plant, 2200 Iron Works Boulevard, McKeesport, PA 15132 (draft, dated October 2022)
4. TerraVerde Environmental Consulting LLC, Preliminary Remediation Cost Estimate — McKeesport Main Plant (dated October 18, 2022)
5. Calderwood & Harkness LLP, Vapor Intrusion Risk Assessment Memorandum (dated October 16, 2022)
6. Summary Table of Phase II Analytical Results with Applicable Regulatory Standards (prepared by TerraVerde Environmental Consulting LLC)
Liability Component | Low Estimate | High Estimate
McKeesport Remediation (groundwater treatment: pump-and-treat or in-situ chemical oxidation; vapor mitigation: sub-slab depressurization system) | $1,200,000 | $2,800,000
Clarksburg Remediation (soil excavation and off-site disposal, if contamination confirmed) | $350,000 | $750,000
Asbestos Abatement (McKeesport) | $180,000 | $310,000
Lead-Based Paint Abatement (McKeesport) | $45,000 | $85,000
Groundwater Contingency (Clarksburg, if groundwater impacted) | $150,000 | $400,000
Total | $1,925,000 | $4,345,000

CALDERWOOD & HARKNESS LLP Attorneys at Law 1900 Euclid Avenue, Suite 3200 Cleveland, Ohio 44115

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