1006-00003 · Crestline Packaging Solutions LLC · Diligence/Lease & Property Review

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MEMORANDUM

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It was prepared in anticipation of litigation and for the purpose of providing legal advice in connection with the proposed acquisition of Allegheny Chemical Coatings, Inc. by Crestline Packaging Solutions LLC. This memorandum should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.

FROM: Grace Nakamura, Senior Associate (Real Estate), Calderwood & Harkness LLP

TO: Beatrice Holloway, Responsible Partner (M&A); Harrison Caldwell, Of Counsel (Environmental & Land Use)

CC: Rafael Dominguez, Working Associate (Real Estate); Derek Huang, General Counsel, Crestline Packaging Solutions LLC; Patricia Okonkwo, VP, Environmental Health & Safety, Crestline Packaging Solutions LLC

DATE: September 15, 2022

RE: Environmental Provisions Analysis — Lease Agreement Between Allegheny Chemical Coatings, Inc. (Tenant) and Mountainview Properties LLC (Landlord) for 1875 Route 50 West, Clarksburg, WV 26301

MATTER NO.: 1006-00003

RELATED DOCUMENTS:

• Phase I ESA Review Memorandum — Clarksburg (dated August 22, 2022, TerraVerde Environmental Consulting LLC)

• Phase II Scope of Work Review & Comment Letter — Clarksburg

• Draft Landlord Consent Letter — Mountainview Properties LLC

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I. Executive Summary

This memorandum analyzes the environmental provisions of the lease agreement (the "Lease") governing the premises located at 1875 Route 50 West, Clarksburg, West Virginia 26301 (the "Property" or the "Clarksburg Facility"), by and between Mountainview Properties LLC, a West Virginia limited liability company ("Landlord" or "Mountainview"), and Allegheny Chemical Coatings, Inc., a Pennsylvania corporation ("ACC" or "Tenant"). This analysis has been prepared in connection with the proposed acquisition by Crestline Packaging Solutions LLC ("Crestline") of one hundred percent (100%) of the outstanding common stock of ACC (the "Transaction") and is intended to inform the deal team's assessment of the environmental risk profile associated with the Clarksburg Facility. The analysis focuses on four principal areas: (a) the allocation of environmental liability between Landlord and Tenant under the Lease, (b) the Tenant's affirmative remediation obligations, (c) Landlord consent requirements applicable to environmental investigations, and (d) the implications of the Transaction structure for Crestline as the successor owner of the Tenant entity.

Key Conclusion. The Lease places affirmative remediation obligations on the Tenant for contamination arising from the Tenant's operations during the Lease term ("tenant-caused contamination"), and it imposes a general obligation on the Tenant to comply with all applicable environmental laws. However, the Lease is silent or materially ambiguous on several critical environmental issues that bear directly on Crestline's risk exposure. Specifically, the Lease does not expressly allocate liability for pre-existing contamination — most notably, the residual diesel-range organics ("DRO") in soil attributable to the former tenant, Valley Freight Lines Inc. ("Valley Freight"), and associated with the prior underground storage tank ("UST") closure. The Lease does not contain an environmental indemnification provision running from the Landlord to the Tenant for pre-existing conditions, and it does not address the treatment of the institutional controls (land-use restrictions) recorded against the Property in connection with the UST closure. The Lease also does not appear to require, and no party appears to have commissioned, a baseline environmental assessment at lease commencement. These gaps create material uncertainty regarding the allocation of environmental liability between Landlord and Tenant, particularly at lease expiration or in the event of a dispute.

Critically, because the Transaction is structured as a stock purchase, ACC will remain the legal tenant entity under the Lease. Crestline will acquire ACC's stock and thereby assume all of ACC's contractual obligations under the Lease — including all environmental compliance, remediation, indemnification, and surrender obligations — without the opportunity to negotiate new lease terms or modified environmental provisions. Unless Crestline negotiates a separate lease amendment or environmental side letter with Mountainview (through its Managing Member, Gerald Boothe), Crestline will step into ACC's shoes and inherit all of the environmental risk associated with the current Lease provisions, including the ambiguities described herein.

Facility Overview. The Clarksburg Facility is located at 1875 Route 50 West, Clarksburg, Harrison County, West Virginia 26301 (Parcel ID 04-0012-0056-0000). The Property consists of approximately 5.2 acres improved with an approximately 48,000-square-foot warehouse and blending facility and an approximately 3,000-square-foot office building. ACC's operations at the facility consist of the receipt, blending, and redistribution of resin products, with minimal manufacturing activity. The principal chemicals of concern associated with ACC's operations include epoxy resins, hardeners (amines), and solvents, specifically acetone and methyl ethyl ketone ("MEK"). The facility operates as a Conditionally Exempt Small Quantity Generator ("CESQG") under the Resource Conservation and Recovery Act ("RCRA"), holding EPA Identification Number WVD-054-319-882. The facility also holds West Virginia Department of Environmental Protection ("WV DEP") Registration Permit R13-3201, designating the facility as a minor source under applicable air quality regulations.

II. Lease Overview and Key Terms

A. Parties. The Lease is between the following parties:

Landlord: Mountainview Properties LLC, a West Virginia limited liability company, whose Managing Member is Gerald Boothe. Mountainview is the fee owner of the Property. Based on our review of the Harrison County land records and the Lease itself, Mountainview acquired the Property in 2013, following the dissolution of Valley Freight Lines Inc. and the completion of the UST closure activities. Gerald Boothe is the sole managing member of Mountainview and exercises decision-making authority with respect to the Property, including the granting of landlord consents.

Tenant: Allegheny Chemical Coatings, Inc., a Pennsylvania corporation, whose President and Chief Executive Officer is Thomas Kessler. ACC is a specialty chemical coatings company that manufactures and distributes epoxy and polyurethane coatings for industrial applications. ACC is wholly owned by Walter Kessler, Thomas Kessler, and the Kessler Family Trust (collectively, the "Sellers" in the Transaction). In the proposed Transaction, Crestline would acquire 100% of ACC's outstanding common stock from the Sellers.

B. Lease Execution and Term

The Lease was executed on or about January 1, 2015, and the lease term commenced on the same date. The initial term of the Lease is fifteen (15) years, commencing January 1, 2015, and expiring on December 31, 2029. As of the originally targeted closing date for the Transaction (November 30, 2022), the remaining term under the Lease would be approximately seven (7) years and one (1) month.

The Lease includes one (1) renewal option for an additional five (5) year term, which may be exercised by the Tenant upon written notice to the Landlord no fewer than twelve (12) months prior to the expiration of the then-current term. The renewal option is subject to certain conditions, including the Tenant's compliance with all material obligations under the Lease and the absence of any uncured events of default at the time of exercise. Notably, the Lease does not expressly condition the exercise of the renewal option on the completion of an updated environmental assessment or the satisfaction of environmental obligations. However, to the extent that any environmental default (such as a failure to remediate tenant-caused contamination) constitutes a material uncured default, such a default could impair ACC's ability to exercise the renewal option. We recommend that this issue be addressed in any lease amendment or environmental side letter negotiated in connection with the Transaction.

C. Lease Type and Structure

The Lease is structured as a triple-net ("NNN") lease, under which the Tenant is responsible for the payment of all real estate taxes, property insurance premiums, and maintenance costs associated with the Property, in addition to the base rent. The Tenant bears substantially all operating costs and property-level expenses, including utility costs, common area maintenance, structural repairs, and capital expenditures, subject to certain negotiated exclusions for major structural components (foundation, roof structure, and load-bearing walls), which remain the Landlord's responsibility.

The triple-net structure is significant for purposes of this environmental analysis because it is consistent with the general allocation of environmental compliance costs to the Tenant during the Lease term. Under a triple-net lease, the Tenant is the party responsible for day-to-day operations, maintenance, and regulatory compliance at the Property, and the Lease accordingly places on the Tenant the obligation to comply with all applicable environmental laws, obtain and maintain all required environmental permits, and bear the costs of any environmental remediation arising from the Tenant's operations. This structure reinforces the principle that the Tenant bears the financial burden of environmental compliance during the Lease term, while the Landlord retains fee ownership and the associated benefits and risks of property ownership, including potential liability for pre-existing conditions and third-party claims.

D. Assignment and Change-of-Control Provisions

The Lease contains a standard assignment and subletting provision that prohibits the Tenant from assigning the Lease or subletting the premises, in whole or in part, without the prior written consent of the Landlord, which consent shall not be unreasonably withheld, conditioned, or delayed. The assignment provision is drafted broadly and includes language prohibiting any "transfer, assignment, sublease, mortgage, pledge, or encumbrance" of the Tenant's interest in the Lease without Landlord consent.

Stock Purchase Transaction Structure. The proposed Transaction is structured as a stock purchase, in which Crestline will acquire 100% of the outstanding common stock of ACC from the Sellers. Under this structure, ACC will remain the legal tenant entity under the Lease. There is no assignment of the Lease to a new tenant entity; ACC's legal identity is unchanged, and it continues to hold the leasehold interest. Accordingly, the Lease is not technically "assigned" within the meaning of the Lease's assignment and subletting provision, and the substitution of a new tenant is not required.

Change-of-Control Provision. However, the Lease includes a change-of-control provision in Section 14.3, which provides that any transfer of a controlling interest in the Tenant entity — whether by merger, consolidation, sale of stock, or other transaction resulting in a change in the identity of the person or persons exercising effective control of the Tenant — shall be deemed an assignment of the Lease requiring the prior written consent of the Landlord. The Lease defines "controlling interest" as ownership, directly or indirectly, of more than fifty percent (50%) of the voting equity interests in the Tenant.

Because the Transaction involves Crestline's acquisition of 100% of ACC's outstanding common stock, the Transaction clearly constitutes a change of "controlling interest" within the meaning of Section 14.3. Accordingly, Landlord consent (from Gerald Boothe, as Managing Member of Mountainview) must be obtained for the Transaction itself, separate and apart from any consent required for the Phase II environmental investigation. We understand that Calderwood & Harkness has not yet initiated the landlord consent process for the change-of-control provision, as the focus of the team's initial contact with Gerald Boothe has been limited to obtaining consent for the Phase II investigation. We recommend that the change-of-control consent be addressed promptly and, to the extent practicable, be incorporated into the same negotiation as the lease amendment or environmental side letter recommended in Section VII.A below.

Failure to obtain Landlord consent for the change of control prior to closing could constitute an event of default under the Lease, potentially entitling the Landlord to terminate the Lease and recover damages. This risk should be elevated to the deal team for immediate attention.

III. Environmental Provisions of the Lease

A. Tenant Environmental Compliance Obligation

Section 9.1 of the Lease requires the Tenant to "comply with all applicable Environmental Laws with respect to the Premises and the Tenant's use and occupancy thereof during the Term." The obligation is broadly stated and is not limited to environmental laws directly applicable to the Tenant's specific operations; rather, it encompasses all environmental laws applicable to the Property and the Tenant's use and occupancy.

The Lease defines "Environmental Laws" in Section 1.17 as "all federal, state, and local statutes, regulations, ordinances, rules, codes, judgments, orders, and decrees, now or hereafter enacted, promulgated, or issued, relating to the protection of human health or the environment, the generation, use, storage, treatment, transportation, disposal, or release of Hazardous Materials, or the contamination or remediation of real property, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. §§ 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. §§ 6901 et seq.), the Clean Air Act (42 U.S.C. §§ 7401 et seq.), the Clean Water Act (33 U.S.C. §§ 1251 et seq.), the Toxic Substances Control Act (15 U.S.C. §§ 2601 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. §§ 11001 et seq.), and the West Virginia Environmental Quality Board Act (W. Va. Code §§ 22B-1-1 et seq.), the West Virginia Hazardous Waste Management Act (W. Va. Code §§ 22-18-1 et seq.), and all rules and regulations promulgated thereunder."

This definition is broad and encompasses the principal federal and state environmental statutes governing hazardous materials management, contamination, and remediation. The inclusion of the West Virginia Hazardous Waste Management Act and the West Virginia Environmental Quality Board Act is significant, as these statutes govern the remediation of contaminated sites in West Virginia and provide the regulatory framework for the WV DEP's oversight of UST closures and related institutional controls.

The Lease further requires the Tenant, in Section 9.2, to "obtain, maintain in full force and effect, and comply with all environmental permits, licenses, approvals, registrations, and authorizations required under Environmental Laws for the Tenant's operations at the Premises." As noted above, the Clarksburg Facility currently holds WV DEP Registration Permit R13-3201 (minor source under air quality regulations, in compliance) and EPA Identification Number WVD-054-319-882 (CESQG status under RCRA, in compliance). Our review of the permit files, together with the compliance verification performed by TerraVerde as part of the Phase I ESA, indicates that the facility is in material compliance with its existing environmental permits as of the date of this memorandum.

B. Tenant Remediation Obligations

Section 9.4 of the Lease contains the core tenant remediation provision. It provides, in relevant part:

"In the event that any contamination of the Premises or surrounding property is caused by or results from the Tenant's operations, use, or occupancy of the Premises during the Term, including without limitation any release, spill, discharge, emission, or disposal of Hazardous Materials by the Tenant or the Tenant's agents, employees, contractors, invitees, or licensees, the Tenant shall, at the Tenant's sole cost and expense, promptly investigate, remediate, and clean up such contamination to the satisfaction of all applicable governmental authorities having jurisdiction and in compliance with all applicable Environmental Laws."

Several elements of this provision merit close analysis:

Trigger Language. The remediation obligation is triggered by contamination that is "caused by or results from" the Tenant's operations. This is a causation-based trigger, meaning the obligation arises upon the occurrence of contamination attributable to the Tenant's activities, rather than upon a specific procedural event (such as regulatory notification or lease expiration). The provision does not expressly require discovery or notice as a precondition to the obligation, suggesting that the obligation arises upon the occurrence of the contamination itself, regardless of when it is discovered. However, the practical effect is that the obligation will typically be triggered by the discovery of contamination through environmental investigation, regulatory action, or visual observation.

Standard of Remediation. The Lease requires the Tenant to remediate "to the satisfaction of all applicable governmental authorities having jurisdiction and in compliance with all applicable Environmental Laws." This language does not specify a particular remediation standard (e.g., WV DEP residential or non-residential cleanup standards, background levels, or risk-based corrective action levels). Instead, it defers to the applicable regulatory standard as determined by the regulatory authority with jurisdiction. Under the current WV DEP regulatory framework, the applicable remediation standards for the Clarksburg Facility would be the WV DEP's Voluntary Remediation Program ("VRP") standards or, if the matter is referred to the WV DEP for enforcement, the standards applicable under the West Virginia Hazardous Waste Management Act and implementing regulations. We note that remediation to non-residential (commercial/industrial) standards, which would be appropriate for the Clarksburg Facility given its current and reasonably anticipated future use, is generally less costly than remediation to residential standards.

Timing. The Lease requires the Tenant to "promptly investigate, remediate, and clean up" tenant-caused contamination. The word "promptly" imposes a duty of reasonable diligence but does not establish a fixed timeline. The Lease does not expressly require that remediation be completed during the Lease term, nor does it expressly permit the Tenant to continue remediation activities after lease expiration. This ambiguity is significant: if tenant-caused contamination is discovered late in the Lease term, the Tenant may not have sufficient time to complete remediation before the Lease expires on December 31, 2029. In that event, questions would arise regarding the Tenant's right of access to the Property after lease expiration to complete remediation activities, the Tenant's obligation to restore the Property to pre-contamination conditions at the time of surrender, and the Landlord's rights and remedies with respect to any ongoing contamination at lease expiration.

Scope Limitation. The remediation obligation under Section 9.4 is expressly limited to contamination "caused by or result[ing] from the Tenant's operations, use, or occupancy of the Premises during the Term." This is a critical limitation. By its terms, the provision does not impose remediation obligations on the Tenant for contamination that existed prior to the commencement of the Lease on January 1, 2015, or for contamination caused by parties other than the Tenant. As discussed in greater detail in Section IV below, this limitation is central to the allocation of liability for the pre-existing DRO contamination attributable to Valley Freight's former trucking operations.

C. Hazardous Materials Use and Storage Provisions

Section 9.3 of the Lease governs the Tenant's use and storage of hazardous materials on the Premises. The Lease defines "Hazardous Materials" in Section 1.18 broadly to include "any substance, material, or waste that is classified, listed, designated, or regulated as hazardous, toxic, radioactive, or dangerous under any Environmental Law, including without limitation petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, and mold."

The Lease permits the Tenant to use, store, and handle Hazardous Materials on the Premises "in quantities reasonably necessary for the conduct of the Tenant's business operations at the Premises, provided that such use, storage, and handling is in compliance with all applicable Environmental Laws and in accordance with the permitted use of the Premises." The Lease does not impose specific volumetric restrictions on the quantity of hazardous materials that may be stored on-site, nor does it enumerate specific categories of hazardous materials that are prohibited. However, the Lease requires that the Tenant's use of hazardous materials be "reasonably necessary" for the Tenant's operations, which would preclude speculative or excessive stockpiling of hazardous materials unrelated to the Tenant's resin blending and redistribution operations.

Reporting Obligations. Section 9.3(b) requires the Tenant to provide the Landlord with written notice within five (5) business days of: (i) any release, spill, or discharge of Hazardous Materials on, at, or from the Premises; (ii) any enforcement action, investigation, or inquiry by any governmental authority relating to Hazardous Materials at the Premises; and (iii) any claim, demand, or action brought by any third party against the Tenant relating to Hazardous Materials at the Premises. The Tenant is also required, upon the Landlord's written request, to provide the Landlord with a list of Hazardous Materials stored on the Premises, including quantities and storage locations.

Assessment of Current Operations. ACC's operations at the Clarksburg Facility involve the receipt, blending, and redistribution of epoxy resins, hardeners (amines), and solvents (acetone and MEK). These materials are classified as Hazardous Materials under the Lease definition. The quantities stored on-site are consistent with the facility's CESQG status under RCRA, and the operations fall within the "reasonably necessary" standard articulated in Section 9.3 of the Lease. We have not identified any basis for concluding that ACC's current operations violate the Lease's hazardous materials use and storage provisions.

Drum Storage and Phase I REC. The TerraVerde Phase I ESA dated August 22, 2022 identified staining on the concrete floor in the northeast corner of the warehouse, in the area where ACC stores drums of resin and solvent products. TerraVerde classified this staining as a Recognized Environmental Condition ("REC") under ASTM E1527-21, indicating the presence of a condition that may involve a release of hazardous substances to the subsurface. If subsequent investigation (i.e., the Phase II investigation) confirms that the staining is associated with a release of hazardous materials to the soil or groundwater beneath the warehouse floor, such contamination would likely be classified as tenant-caused contamination arising from ACC's operations, thereby triggering ACC's remediation obligation under Section 9.4 of the Lease. This is a material risk for Crestline, as it would inherit ACC's remediation obligation through the stock purchase.

D. Environmental Indemnification

Section 9.5 of the Lease contains an environmental indemnification provision running from the Tenant to the Landlord. The relevant language provides, in pertinent part:

"The Tenant shall indemnify, defend, and hold harmless the Landlord and its members, managers, officers, agents, and employees from and against any and all claims, actions, losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and costs of remediation) arising from or related to: (a) the Tenant's use, storage, generation, treatment, transportation, release, or disposal of Hazardous Materials on, at, or from the Premises; (b) any violation of Environmental Laws by the Tenant; or (c) any breach by the Tenant of its obligations under this Article 9."

Scope of Indemnification. The indemnification is broadly drafted and covers "claims, actions, losses, damages, liabilities, costs, and expenses," including specifically attorneys' fees and remediation costs. The indemnification is not expressly capped, nor does it exclude consequential damages, diminution in property value, or natural resource damages. As a practical matter, the inclusion of "costs of remediation" in the indemnification scope means that if the Landlord incurs remediation costs attributable to tenant-caused contamination (for example, if the Landlord undertakes remediation after the Tenant fails to do so), the Landlord may seek indemnification from the Tenant for those costs.

Survival. Section 9.5 provides that the Tenant's indemnification obligation "shall survive the expiration or earlier termination of this Lease." This survival provision is significant because it means that ACC's indemnification obligation will continue indefinitely after the Lease expires on December 31, 2029, and will not be extinguished merely because the Lease term has ended. As the owner of ACC, Crestline would bear the economic burden of this surviving indemnification obligation.

Absence of Reciprocal Indemnification. Critically, the Lease does not contain a reciprocal environmental indemnification provision running from the Landlord to the Tenant for pre-existing conditions. This is a significant gap. Under the current Lease provisions, the Landlord is not obligated to indemnify the Tenant for any claims, losses, or costs arising from pre-existing contamination at the Property, including the legacy DRO contamination from Valley Freight's operations. If the Tenant (ACC/Crestline) incurs costs or faces third-party claims arising from pre-existing contamination, the Tenant would have no contractual right to seek indemnification from the Landlord under the Lease. The Tenant's recourse would be limited to common-law claims (e.g., fraud, misrepresentation, breach of implied warranty of habitability, if applicable) or statutory contribution claims under CERCLA or the West Virginia Hazardous Waste Management Act.

E. Environmental Insurance Requirements

The Lease does not contain a specific provision requiring the Tenant to maintain environmental impairment liability ("EIL") or pollution legal liability ("PLL") insurance. The Lease's insurance requirements, set forth in Section 8.1, require the Tenant to maintain commercial general liability insurance, property insurance, workers' compensation insurance, and business automobile liability insurance, but do not reference environmental or pollution-related coverage.

Current Status. ACC does not currently maintain a PLL policy covering the Clarksburg Facility. As previously reported to the deal team, Ironclad Specialty Insurance Company has provided a non-binding indication of interest for a PLL policy with the following key terms: $15 million aggregate limit, $10 million per-occurrence limit, ten (10) year policy term, annual premium of $187,500, and a self-insured retention of $250,000. However, underwriting is currently paused pending completion of the Phase II investigations at the Clarksburg Facility and other ACC facilities. We understand that Whitfield & Calder Insurance Advisors LLC (Douglas Whitfield and Lauren Petrov) is managing the PLL placement process on behalf of Crestline.

Implications. Although the Lease does not require the Tenant to maintain PLL insurance, Crestline should independently evaluate the desirability of obtaining PLL coverage for the Clarksburg Facility as a risk management measure. PLL insurance could provide coverage for remediation costs, third-party bodily injury and property damage claims, legal defense costs, and business interruption losses arising from environmental contamination at the Clarksburg Facility. The availability and terms of such coverage, including any exclusions for pre-existing conditions, will be determined through the underwriting process once the Phase II results are available.

F. Landlord Access and Investigation Rights

Section 10.2 of the Lease grants the Landlord the right to enter the Premises upon reasonable notice during business hours for purposes of inspection, repair, and maintenance. Section 9.6 of the Lease specifically addresses environmental inspections and provides that:

"The Landlord shall have the right, at the Landlord's cost and expense (unless such investigation reveals contamination caused by the Tenant, in which case the cost shall be borne by the Tenant), to conduct environmental assessments, inspections, and investigations of the Premises at any time during the Term, upon not less than ten (10) business days' prior written notice to the Tenant, if the Landlord has reasonable grounds to believe that Hazardous Materials have been released on, at, or from the Premises in violation of Environmental Laws or this Lease."

This provision grants the Landlord a conditional right to conduct environmental assessments at the Tenant's cost if the investigation reveals tenant-caused contamination. The cost-shifting mechanism provides the Landlord with an economic incentive to investigate suspected contamination, while protecting the Tenant from bearing the cost of investigations that do not reveal tenant-caused conditions.

Tenant-Initiated Investigations. The Lease does not contain an express provision granting the Tenant the right to conduct environmental investigations of the Premises. This creates an ambiguity: while the Tenant has the obligation to remediate tenant-caused contamination (Section 9.4), the Tenant lacks an express contractual right to access the subsurface (e.g., through soil borings and monitoring well installations) to investigate potential contamination. In practice, this means that the Tenant must obtain the Landlord's consent before conducting subsurface investigations — a process that has already been undertaken in connection with the Phase II investigation, as discussed in Section V below. The absence of an express right to investigate underscores the importance of securing Landlord cooperation in the environmental due diligence process and in any future investigation or remediation activities.

G. Surrender and End-of-Lease Obligations

Section 15.1 of the Lease requires the Tenant, upon the expiration or earlier termination of the Lease, to surrender the Premises to the Landlord "in substantially the same condition as existed at the commencement of the Term, reasonable wear and tear excepted, and free of any contamination caused by the Tenant or the Tenant's agents, employees, contractors, invitees, or licensees." This provision imposes two related but distinct obligations: (1) a general obligation to return the premises in substantially the same physical condition as at lease commencement, and (2) a specific obligation to return the premises free of tenant-caused contamination.

Baseline Environmental Condition. The reference to the condition of the premises "at the commencement of the Term" raises a critical issue: was a baseline environmental assessment conducted at or before the lease commencement date of January 1, 2015? Based on our review of the Lease, the documents produced by ACC in connection with the Transaction, and our discussions with ACC's management, no baseline environmental assessment was conducted at the commencement of the Lease. This is a significant omission. The absence of a baseline assessment means that there is no contemporaneous documentation of the environmental condition of the Property as of January 1, 2015. As a practical matter, this makes it substantially more difficult to distinguish between contamination that existed at lease commencement (attributable to Valley Freight's operations and/or the residual DRO from the UST closure) and contamination caused by ACC's operations during the Lease term.

The significance of this gap is amplified by the site's history. As discussed in Section IV below, the Property was the subject of a UST closure that left residual DRO contamination in the soil, and institutional controls were recorded against the Property in 2013 — approximately two years before ACC's lease commenced. Without a baseline assessment, it will be difficult, at lease expiration, to demonstrate the precise environmental condition of the Property as of January 1, 2015, and to allocate responsibility for any contamination discovered at that time as between the Landlord (pre-existing conditions) and the Tenant (tenant-caused contamination).

Environmental Closure Requirements. The Lease does not contain a specific "environmental closure" provision requiring the Tenant to obtain a no-further-action ("NFA") determination or regulatory closure letter from the WV DEP as a condition of lease expiration. The surrender provision in Section 15.1 requires the Tenant to deliver the premises free of tenant-caused contamination, but it does not specify the standard by which "free of contamination" is to be determined. In practice, this ambiguity could lead to disputes between the Landlord and the Tenant at lease expiration regarding the scope and standard of required remediation.

IV. Allocation of Liability for Pre-Existing Conditions

A. Site History and Pre-Existing Contamination

The Property has a well-documented history of environmental contamination predating ACC's tenancy. The key facts are as follows:

Prior Use. The Property was operated as a trucking terminal from approximately 1968 to 2012 by Valley Freight Lines Inc. ("Valley Freight"), a West Virginia corporation that is now dissolved. Valley Freight's operations included the storage and dispensing of diesel fuel, which was supplied from an on-site underground storage tank.

UST Removal and Closure. In 2012, Valley Freight removed one 15,000-gallon diesel UST from the Property. The UST removal was conducted under the supervision of the WV DEP and was assigned WV DEP Site ID WVUST-2012-04887. During the UST removal, soil sampling confirmed the presence of DRO in soil above WV DEP action levels in the area beneath and immediately surrounding the former UST cavity. Contaminated soil was excavated to the extent practicable, but residual DRO contamination remained in the soil at concentrations above WV DEP action levels due to the presence of building foundations and utility infrastructure that precluded further excavation.

WV DEP Closure. The WV DEP issued a closure letter for the site in March 2013, acknowledging that the UST had been properly closed and removed, and that residual DRO contamination remained in the soil above WV DEP action levels. The closure was conditioned on the implementation of institutional controls (land-use restrictions) to ensure that the residual contamination would not pose a risk to human health or the environment under the property's anticipated commercial/industrial use.

Institutional Controls. Institutional controls in the form of a land-use restriction were recorded at the Harrison County Clerk's Office, Book 1245, Page 312. The recorded instrument restricts the use of the Property to commercial or industrial purposes and prohibits certain activities, including the use of groundwater from on-site wells for drinking water purposes, the disturbance of soils in the area of the former UST cavity without prior WV DEP approval, and the construction of residential structures on the Property.

Timeline. ACC commenced its lease on January 1, 2015 — approximately two years after the WV DEP issued the closure letter and the institutional controls were recorded. ACC was therefore aware, or should have been aware, of the pre-existing DRO contamination and institutional controls at the time of lease commencement. However, the Lease does not reference the prior contamination or the institutional controls, and no baseline environmental assessment was conducted.

B. Lease Provisions Regarding Pre-Existing Contamination

The Lease does not expressly allocate responsibility for pre-existing contamination. There is no provision stating that the Landlord bears liability for contamination existing prior to lease commencement, nor is there a provision allocating such liability to the Tenant. The Lease is entirely silent on this point.

The Tenant's remediation obligation under Section 9.4 is, by its terms, limited to contamination "caused by or result[ing] from the Tenant's operations, use, or occupancy of the Premises during the Term." By negative inference, contamination that was not caused by the Tenant's operations — including the legacy DRO contamination attributable to Valley Freight — should not fall within the Tenant's remediation obligation. Under this reading, pre-existing contamination would remain the responsibility of the Landlord, as the property owner and the party that acquired the Property with knowledge of the residual contamination and institutional controls.

However, this negative inference is not a substitute for an express allocation of liability, and several sources of ambiguity may undermine this analysis in practice:

(a) Commingling or Exacerbation. If ACC's operations have contributed to or exacerbated the pre-existing DRO contamination — for example, if ACC's solvents (acetone or MEK) have migrated to the same subsurface area as the legacy DRO — the resulting commingled contamination may be difficult to attribute to either the Tenant or the prior occupant. In that event, the Landlord might argue that the Tenant's remediation obligation under Section 9.4 extends to the entirety of the commingled plume, while the Tenant would argue that its obligation is limited to the incremental contamination attributable to its operations. This dispute would be fact-intensive and would likely require expert analysis (e.g., forensic chemistry, contaminant fingerprinting) to resolve.

(b) Absence of Baseline Assessment. As discussed in Section III.G above, no baseline environmental assessment was conducted at lease commencement. The absence of a baseline makes it difficult to establish the environmental condition of the Property as of January 1, 2015, and therefore difficult to prove whether particular contamination is pre-existing or tenant-caused. This evidentiary gap benefits the Landlord, who may argue that any contamination discovered during or after ACC's tenancy is attributable to ACC's operations and therefore subject to the Tenant's remediation obligation.

(c) Default Rules Under West Virginia Law. In the absence of express lease provisions, the allocation of environmental liability between landlord and tenant is governed by common-law principles and the applicable statutory framework. Under West Virginia common law, a landlord who leases property with knowledge of a defect or hazardous condition may be liable for damages to the tenant or third parties arising from that condition, particularly if the landlord failed to disclose the condition. West Virginia's Hazardous Waste Management Act (W. Va. Code §§ 22-18-1 et seq.) and the federal CERCLA impose liability on property owners and operators for contamination, regardless of fault. As the fee owner of the Property, Mountainview is a potentially responsible party ("PRP") under both state and federal law for pre-existing contamination, and cannot disclaim this liability through a lease provision that is silent on the issue. However, as between the Landlord and the Tenant, the absence of an express contractual allocation means that any dispute would be resolved through litigation, with the attendant costs, uncertainties, and delays.

Risk for Crestline. In a stock purchase, Crestline inherits ACC's contractual position under the Lease, including the ambiguities described above. If pre-existing contamination is discovered or requires remediation during the remaining Lease term or at lease expiration, Crestline (through ACC) may face claims from the Landlord that the contamination is tenant-caused and therefore subject to ACC's remediation and indemnification obligations. Conversely, if ACC/Crestline seeks to attribute contamination to pre-existing conditions, the absence of a baseline assessment will make this argument more difficult to sustain. The recommended lease amendment and baseline assessment (discussed in Section VII below) are intended to address these risks.

C. Institutional Controls Compliance

The institutional controls recorded against the Property impose land-use restrictions that run with the land and are binding on all successors and assigns of the property owner. The controls restrict the use of the Property to commercial or industrial purposes, prohibit the use of groundwater for drinking water, and restrict soil disturbance in the area of the former UST cavity without prior WV DEP approval.

The Lease is silent on the allocation of institutional controls compliance responsibilities between the Landlord and the Tenant. Under the general framework of West Virginia environmental law, the obligation to maintain compliance with institutional controls typically rests with the property owner, as the controls are recorded against the property and run with the land in favor of the regulatory authority. However, the Tenant, as the occupant of the Property, has practical compliance obligations — most notably, the obligation to refrain from activities that would violate the institutional controls, such as disturbing soils in the restricted area, using on-site groundwater for drinking water, or converting the Property to residential use.

Crestline, as successor owner of ACC, must ensure that ACC's operations at the Clarksburg Facility do not violate the institutional controls. This is of particular importance if Crestline contemplates any facility modifications or expansions post-acquisition (such as construction of additional storage or blending capacity, installation of new foundations, or modification of utility infrastructure in the area of the former UST cavity). Any such activities could trigger the institutional controls' restrictions on soil disturbance and could require prior approval from the WV DEP.

Additionally, failure to maintain the institutional controls could result in the WV DEP reopening the WVUST-2012-04887 case and requiring additional investigation, remediation, or corrective action at the Property. If such a reopening occurs, the question of who bears the cost of the additional investigation or remediation — the Landlord (as property owner and the party on whose behalf the institutional controls were recorded) or the Tenant (as the party whose activities may have triggered the violation) — would be resolved under the Lease's environmental provisions, which, as noted, are silent on this issue.

D. Phase I ESA CREC Classification

TerraVerde's Phase I ESA dated August 22, 2022 classified the residual DRO contamination with institutional controls as a Controlled Recognized Environmental Condition ("CREC") under ASTM E1527-21. A CREC is defined by ASTM as a recognized environmental condition resulting from a past release of hazardous substances or petroleum products that has been addressed to the satisfaction of the applicable regulatory authority, subject to the implementation of required engineering and/or institutional controls. A CREC is distinguished from both a REC (which indicates a condition that has not been addressed) and a Historical REC ("HREC") (which indicates a condition that has been addressed to the satisfaction of the regulatory authority without conditions).

A CREC classification is not a "clean" finding. It signifies that contamination exists at the Property, that the contamination has been managed to the satisfaction of the regulatory authority, and that ongoing controls are in place to ensure that the contamination does not pose an unacceptable risk. However, the CREC classification also signifies that if the institutional controls are not maintained — or if conditions change such that the assumptions underlying the closure are no longer valid — the regulatory authority may reopen the case and require additional action. Accordingly, the CREC classification represents an ongoing environmental risk that Crestline should monitor throughout the remaining Lease term and beyond.

V. Landlord Consent for Phase II Investigation

A. Lease Requirements

As discussed in Section III.F above, the Lease does not contain an express provision granting the Tenant the right to conduct subsurface environmental investigations on the Premises. The Tenant's remediation obligation under Section 9.4 implies a right to investigate, but the absence of an express investigation right means that the Tenant must obtain the Landlord's consent before conducting soil borings, installing monitoring wells, or otherwise disturbing the subsurface.

The Lease's general provisions regarding alterations and improvements (Section 11.1) require the Tenant to obtain the Landlord's prior written consent before making any "alterations, additions, improvements, or modifications" to the Premises. While subsurface environmental investigations are not "alterations" in the traditional sense, the installation of soil borings and monitoring wells involves physical disturbance of the Property and could be interpreted as falling within the scope of Section 11.1. Accordingly, we determined that obtaining Landlord consent prior to the Phase II investigation was both legally prudent and practically necessary to maintain a cooperative relationship with Gerald Boothe.

The Lease does not prescribe a specific process or form for obtaining Landlord consent for environmental investigations. In the absence of a specified process, we prepared a standalone consent letter incorporating customary terms for landlord consent to environmental investigation activities.

B. Consent Obtained from Mountainview Properties LLC

Calderwood & Harkness prepared and transmitted a landlord consent letter to Mountainview Properties LLC (attention: Gerald Boothe, Managing Member) requesting consent for TerraVerde Environmental Consulting LLC to conduct a Phase II subsurface investigation at the Clarksburg Facility. The consent letter included the following key terms:

(a) Scope of Investigation. The consent letter described the proposed scope of the Phase II investigation, including the number and approximate locations of soil borings and temporary monitoring wells, the sampling methodology, and the anticipated duration of field activities.

(b) Access Agreement. The consent letter included an access agreement granting TerraVerde and its subcontractors the right to enter the Premises during business hours for the purpose of conducting the Phase II investigation, subject to reasonable coordination with the Tenant's operations.

(c) Indemnification. The consent letter included an indemnification provision under which ACC agreed to indemnify Mountainview for any property damage arising from the investigation activities, excluding damage resulting from the discovery of pre-existing contamination.

(d) Insurance. The consent letter required TerraVerde to provide Mountainview with certificates of insurance evidencing commercial general liability insurance (minimum $1 million per occurrence / $2 million aggregate), professional liability (errors and omissions) insurance (minimum $1 million per occurrence / $2 million aggregate), and workers' compensation insurance, with Mountainview named as an additional insured on the commercial general liability policy.

(e) Restoration. The consent letter required ACC and TerraVerde to restore all soil borings and monitoring well installations upon completion of the investigation, including patching any concrete floors, capping any borings, and properly abandoning any temporary monitoring wells in accordance with WV DEP requirements.

Gerald Boothe, as Managing Member of Mountainview, executed the consent letter and returned it to Calderwood & Harkness. Consent was obtained prior to the commencement of the Phase II investigation on October 3, 2022.

Conditions and Limitations Imposed by Gerald Boothe. In granting consent, Gerald Boothe imposed two additional conditions not included in the original consent letter: (1) he required that all Phase II investigation results be shared with Mountainview within ten (10) business days of receipt by ACC or TerraVerde, and (2) he required that no soil borings or monitoring wells be installed within ten (10) feet of the building foundation without his prior approval. The first condition has significant implications, as discussed in Section V.C below. The second condition was accommodated by TerraVerde in the revised investigation plan without material impact on the scope or objectives of the Phase II investigation.

C. Implications of Sharing Investigation Results

Gerald Boothe's requirement that Phase II investigation results be shared with Mountainview within ten (10) business days of receipt creates both procedural and strategic implications for ACC/Crestline.

If Results Reveal Tenant-Caused Contamination. If the Phase II results demonstrate that ACC's drum storage operations have caused a release of solvents, resins, or other hazardous materials to the soil or groundwater beneath the warehouse, sharing those results with Mountainview would provide the Landlord with direct evidence of tenant-caused contamination. The Landlord could use this information to: (i) demand immediate remediation under Section 9.4 of the Lease; (ii) assert a claim for indemnification under Section 9.5; (iii) declare a default under the Lease if the Tenant fails to promptly remediate; or (iv) reserve its rights to terminate the Lease or refuse consent to the renewal option if the contamination constitutes a material breach.

If Results Reveal Exacerbation of Pre-Existing Conditions. If the Phase II results indicate that ACC's operations have exacerbated the legacy DRO contamination (e.g., through migration of solvents to the same subsurface zone), sharing those results could create a complex dispute over the allocation of remediation responsibility. The Landlord might argue that the Tenant is responsible for the entire commingled plume, while the Tenant would argue that its responsibility is limited to the incremental contamination attributable to its operations.

If Results Reveal Only Pre-Existing Conditions. If the Phase II results indicate that the contamination detected is limited to the legacy DRO associated with Valley Freight's operations and not attributable to ACC's activities, sharing the results with the Landlord could be favorable to the Tenant's position, as it would support the argument that the contamination is pre-existing and therefore the Landlord's responsibility.

Phase II Investigation Status. The Phase II investigation commenced on October 3, 2022, and was completed on October 7, 2022. A total of eight (8) soil borings and three (3) temporary monitoring wells were installed at the Clarksburg Facility. Soil and groundwater samples were collected and submitted to Keystone Analytical Laboratories Inc. in Monroeville, Pennsylvania for analysis. Analytical results were expected by October 28, 2022, but had not been received as of the date of this memorandum's last update. Due to the pause in the Transaction, the results have not yet been reviewed. This analysis will need to be updated once the Phase II analytical results are available, as the results will materially affect the assessment of environmental risk at the Clarksburg Facility and the allocation of remediation responsibility under the Lease.

VI. Implications for Crestline as Successor Tenant

A. Stock Purchase Structure and Assumption of Lease Obligations

As discussed in Section II.D above, the Transaction is structured as a stock purchase in which Crestline will acquire 100% of ACC's outstanding common stock. Under this structure, ACC will remain the legal tenant entity under the Lease. The acquisition of ACC's stock by Crestline does not extinguish, modify, or discharge any of ACC's obligations under the Lease. To the contrary, all of ACC's contractual rights and obligations under the Lease — including its environmental compliance obligations (Section 9.1), remediation obligations (Section 9.4), indemnification obligations (Section 9.5), and surrender obligations (Section 15.1) — continue in full force and effect following the closing of the Transaction.

Unlike an asset purchase, in which the acquiror typically negotiates a new lease or an assignment and assumption agreement with modified terms, a stock purchase affords Crestline no opportunity to renegotiate the terms of the Lease with the Landlord. Crestline steps into ACC's shoes and inherits the Lease as-is, with all of its provisions, ambiguities, and gaps. Unless Crestline separately negotiates a lease amendment or environmental side letter with Mountainview Properties LLC, the current Lease provisions — including the ambiguous allocation of pre-existing contamination liability, the absence of a baseline environmental assessment, and the silence on institutional controls compliance — will govern Crestline's environmental risk exposure at the Clarksburg Facility for the remainder of the Lease term and beyond (to the extent of surviving obligations).

B. Successor Liability Risks

Under West Virginia law, a successor entity that acquires the stock of a corporation generally does not assume new liabilities solely by virtue of the stock acquisition; rather, the acquired corporation (here, ACC) retains its existing liabilities, and the acquiror (here, Crestline) bears economic exposure to those liabilities through its ownership of the acquired entity. Because ACC is not changing its legal identity — it will continue to exist as a Pennsylvania corporation and will remain the named Tenant under the Lease — the successor liability analysis is relatively straightforward.

However, Crestline should be aware that any contamination caused by ACC's operations at the Clarksburg Facility during the period from lease commencement (January 1, 2015) through the closing of the Transaction becomes Crestline's responsibility as the owner of ACC. Crestline cannot disclaim responsibility for ACC's historical operations at Clarksburg, and the Sellers should not be permitted to take the position that pre-closing environmental liabilities are extinguished by the Transaction. To the contrary, the environmental indemnification provisions in the Stock Purchase Agreement should expressly require the Sellers to indemnify Crestline for environmental liabilities arising from ACC's operations prior to closing, including any liabilities under the Lease's environmental provisions. This point is discussed further in Section VII.C below.

In addition, Crestline should be aware that as the new owner of ACC, it could potentially face direct environmental liability under CERCLA and the West Virginia Hazardous Waste Management Act as an "operator" of the Clarksburg Facility, if Crestline exercises sufficient control over ACC's operations to be deemed an operator under the applicable standards. While this risk is generally manageable through appropriate corporate governance practices (e.g., maintaining ACC as a separate corporate entity, avoiding direct involvement in ACC's day-to-day environmental compliance decisions), it is a consideration that Crestline's management should keep in mind.

C. Remaining Lease Term Considerations

The Lease expires on December 31, 2029, leaving approximately seven (7) years and one (1) month in the Lease term as of the originally targeted closing date. This remaining term is relevant to the environmental analysis in several respects.

End-of-Lease Environmental Obligations. ACC's obligation to surrender the premises free of tenant-caused contamination (Section 15.1) will fall to Crestline/ACC at lease expiration. If Phase II results reveal tenant-caused contamination requiring remediation, the remediation timeline must be planned and executed within the remaining Lease term to ensure compliance with the surrender obligation. Environmental remediation projects, particularly those involving soil excavation and groundwater treatment, frequently extend over multi-year periods. A seven-year runway is generally adequate for moderate-scale remediation (such as the soil excavation and disposal scenario estimated by TerraVerde), but may be insufficient for complex remediation involving groundwater treatment, monitored natural attenuation, or institutional control implementation.

TerraVerde Preliminary Cost Estimates. TerraVerde has provided preliminary remediation cost estimates for the Clarksburg Facility, contingent on Phase II results confirming the presence of contamination requiring remediation. The estimates are as follows:

These cost estimates are preliminary and subject to revision based on the Phase II analytical results, the extent and concentration of contamination, the applicable remediation standards, and the selected remediation approach. However, they provide a reasonable order-of-magnitude estimate for planning and financial modeling purposes. These costs would be borne by ACC/Crestline if the contamination is determined to be tenant-caused, and should be reflected in Crestline's transaction financial model and in the sizing of the environmental escrow under the Stock Purchase Agreement.

D. Operational Continuity and Environmental Compliance

Crestline must maintain ACC's existing environmental compliance posture at the Clarksburg Facility following the closing of the Transaction. This includes maintaining the following:

• WV DEP Registration Permit R13-3201 (minor source, air quality);

• EPA Identification Number WVD-054-319-882 (CESQG status under RCRA);

• Compliance with all applicable federal, state, and local environmental laws, as required by Section 9.1 of the Lease; and

• Compliance with the institutional controls recorded against the Property.

Any change in ACC's operations at the Clarksburg Facility post-acquisition — such as increased blending volumes, the introduction of different chemical inputs, or the expansion of storage capacity — could alter the facility's regulatory profile and trigger additional permitting requirements. For example, if increased throughput causes ACC's hazardous waste generation to exceed the CESQG threshold (currently 100 kilograms per month under RCRA), the facility would be reclassified as a Small Quantity Generator ("SQG") or Large Quantity Generator ("LQG"), which would impose more stringent regulatory requirements, including additional recordkeeping, training, emergency planning, and waste management obligations.

Crestline should evaluate whether the Clarksburg Facility's role in the combined entity's supply chain would change post-acquisition. The stated acquisition rationale includes the vertical integration of specialty coatings supply, with estimated annual procurement cost savings of $12 million to $15 million. If the integration plan contemplates increased production or blending activity at the Clarksburg Facility to serve Crestline's broader customer base, Crestline should assess the environmental regulatory implications of such changes before implementation. We recommend that Crestline's integration planning team consult with Patricia Okonk

MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It was prepared in anticipation of litigation and for the purpose of providing legal advice in connection with the proposed acquisition of Allegheny Chemical Coatings, Inc. by Crestline Packaging Solutions LLC. This memorandum should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
FROM: Grace Nakamura, Senior Associate (Real Estate), Calderwood & Harkness LLP
TO: Beatrice Holloway, Responsible Partner (M&A); Harrison Caldwell, Of Counsel (Environmental & Land Use)
CC: Rafael Dominguez, Working Associate (Real Estate); Derek Huang, General Counsel, Crestline Packaging Solutions LLC; Patricia Okonkwo, VP, Environmental Health & Safety, Crestline Packaging Solutions LLC
DATE: September 15, 2022
RE: Environmental Provisions Analysis — Lease Agreement Between Allegheny Chemical Coatings, Inc. (Tenant) and Mountainview Properties LLC (Landlord) for 1875 Route 50 West, Clarksburg, WV 26301
MATTER NO.: 1006-00003
RELATED DOCUMENTS:
• Phase I ESA Review Memorandum — Clarksburg (dated August 22, 2022, TerraVerde Environmental Consulting LLC)
• Phase II Scope of Work Review & Comment Letter — Clarksburg
• Draft Landlord Consent Letter — Mountainview Properties LLC
Right-click to update Table of Contents
I. Executive Summary
This memorandum analyzes the environmental provisions of the lease agreement (the "Lease") governing the premises located at 1875 Route 50 West, Clarksburg, West Virginia 26301 (the "Property" or the "Clarksburg Facility"), by and between Mountainview Properties LLC, a West Virginia limited liability company ("Landlord" or "Mountainview"), and Allegheny Chemical Coatings, Inc., a Pennsylvania corporation ("ACC" or "Tenant"). This analysis has been prepared in connection with the proposed acquisition by Crestline Packaging Solutions LLC ("Crestline") of one hundred percent (100%) of the outstanding common stock of ACC (the "Transaction") and is intended to inform the deal team's assessment of the environmental risk profile associated with the Clarksburg Facility. The analysis focuses on four principal areas: (a) the allocation of environmental liability between Landlord and Tenant under the Lease, (b) the Tenant's affirmative remediation obligations, (c) Landlord consent requirements applicable to environmental investigations, and (d) the implications of the Transaction structure for Crestline as the successor owner of the Tenant entity.
Key Conclusion. The Lease places affirmative remediation obligations on the Tenant for contamination arising from the Tenant's operations during the Lease term ("tenant-caused contamination"), and it imposes a general obligation on the Tenant to comply with all applicable environmental laws. However, the Lease is silent or materially ambiguous on several critical environmental issues that bear directly on Crestline's risk exposure. Specifically, the Lease does not expressly allocate liability for pre-existing contamination — most notably, the residual diesel-range organics ("DRO") in soil attributable to the former tenant, Valley Freight Lines Inc. ("Valley Freight"), and associated with the prior underground storage tank ("UST") closure. The Lease does not contain an environmental indemnification provision running from the Landlord to the Tenant for pre-existing conditions, and it does not address the treatment of the institutional controls (land-use restrictions) recorded against the Property in connection with the UST closure. The Lease also does not appear to require, and no party appears to have commissioned, a baseline environmental assessment at lease commencement. These gaps create material uncertainty regarding the allocation of environmental liability between Landlord and Tenant, particularly at lease expiration or in the event of a dispute.
Critically, because the Transaction is structured as a stock purchase, ACC will remain the legal tenant entity under the Lease. Crestline will acquire ACC's stock and thereby assume all of ACC's contractual obligations under the Lease — including all environmental compliance, remediation, indemnification, and surrender obligations — without the opportunity to negotiate new lease terms or modified environmental provisions. Unless Crestline negotiates a separate lease amendment or environmental side letter with Mountainview (through its Managing Member, Gerald Boothe), Crestline will step into ACC's shoes and inherit all of the environmental risk associated with the current Lease provisions, including the ambiguities described herein.
Facility Overview. The Clarksburg Facility is located at 1875 Route 50 West, Clarksburg, Harrison County, West Virginia 26301 (Parcel ID 04-0012-0056-0000). The Property consists of approximately 5.2 acres improved with an approximately 48,000-square-foot warehouse and blending facility and an approximately 3,000-square-foot office building. ACC's operations at the facility consist of the receipt, blending, and redistribution of resin products, with minimal manufacturing activity. The principal chemicals of concern associated with ACC's operations include epoxy resins, hardeners (amines), and solvents, specifically acetone and methyl ethyl ketone ("MEK"). The facility operates as a Conditionally Exempt Small Quantity Generator ("CESQG") under the Resource Conservation and Recovery Act ("RCRA"), holding EPA Identification Number WVD-054-319-882. The facility also holds West Virginia Department of Environmental Protection ("WV DEP") Registration Permit R13-3201, designating the facility as a minor source under applicable air quality regulations.
II. Lease Overview and Key Terms
A. Parties. The Lease is between the following parties:
Landlord: Mountainview Properties LLC, a West Virginia limited liability company, whose Managing Member is Gerald Boothe. Mountainview is the fee owner of the Property. Based on our review of the Harrison County land records and the Lease itself, Mountainview acquired the Property in 2013, following the dissolution of Valley Freight Lines Inc. and the completion of the UST closure activities. Gerald Boothe is the sole managing member of Mountainview and exercises decision-making authority with respect to the Property, including the granting of landlord consents.
Tenant: Allegheny Chemical Coatings, Inc., a Pennsylvania corporation, whose President and Chief Executive Officer is Thomas Kessler. ACC is a specialty chemical coatings company that manufactures and distributes epoxy and polyurethane coatings for industrial applications. ACC is wholly owned by Walter Kessler, Thomas Kessler, and the Kessler Family Trust (collectively, the "Sellers" in the Transaction). In the proposed Transaction, Crestline would acquire 100% of ACC's outstanding common stock from the Sellers.
B. Lease Execution and Term
The Lease was executed on or about January 1, 2015, and the lease term commenced on the same date. The initial term of the Lease is fifteen (15) years, commencing January 1, 2015, and expiring on December 31, 2029. As of the originally targeted closing date for the Transaction (November 30, 2022), the remaining term under the Lease would be approximately seven (7) years and one (1) month.
The Lease includes one (1) renewal option for an additional five (5) year term, which may be exercised by the Tenant upon written notice to the Landlord no fewer than twelve (12) months prior to the expiration of the then-current term. The renewal option is subject to certain conditions, including the Tenant's compliance with all material obligations under the Lease and the absence of any uncured events of default at the time of exercise. Notably, the Lease does not expressly condition the exercise of the renewal option on the completion of an updated environmental assessment or the satisfaction of environmental obligations. However, to the extent that any environmental default (such as a failure to remediate tenant-caused contamination) constitutes a material uncured default, such a default could impair ACC's ability to exercise the renewal option. We recommend that this issue be addressed in any lease amendment or environmental side letter negotiated in connection with the Transaction.
C. Lease Type and Structure
The Lease is structured as a triple-net ("NNN") lease, under which the Tenant is responsible for the payment of all real estate taxes, property insurance premiums, and maintenance costs associated with the Property, in addition to the base rent. The Tenant bears substantially all operating costs and property-level expenses, including utility costs, common area maintenance, structural repairs, and capital expenditures, subject to certain negotiated exclusions for major structural components (foundation, roof structure, and load-bearing walls), which remain the Landlord's responsibility.
The triple-net structure is significant for purposes of this environmental analysis because it is consistent with the general allocation of environmental compliance costs to the Tenant during the Lease term. Under a triple-net lease, the Tenant is the party responsible for day-to-day operations, maintenance, and regulatory compliance at the Property, and the Lease accordingly places on the Tenant the obligation to comply with all applicable environmental laws, obtain and maintain all required environmental permits, and bear the costs of any environmental remediation arising from the Tenant's operations. This structure reinforces the principle that the Tenant bears the financial burden of environmental compliance during the Lease term, while the Landlord retains fee ownership and the associated benefits and risks of property ownership, including potential liability for pre-existing conditions and third-party claims.
D. Assignment and Change-of-Control Provisions
The Lease contains a standard assignment and subletting provision that prohibits the Tenant from assigning the Lease or subletting the premises, in whole or in part, without the prior written consent of the Landlord, which consent shall not be unreasonably withheld, conditioned, or delayed. The assignment provision is drafted broadly and includes language prohibiting any "transfer, assignment, sublease, mortgage, pledge, or encumbrance" of the Tenant's interest in the Lease without Landlord consent.
Stock Purchase Transaction Structure. The proposed Transaction is structured as a stock purchase, in which Crestline will acquire 100% of the outstanding common stock of ACC from the Sellers. Under this structure, ACC will remain the legal tenant entity under the Lease. There is no assignment of the Lease to a new tenant entity; ACC's legal identity is unchanged, and it continues to hold the leasehold interest. Accordingly, the Lease is not technically "assigned" within the meaning of the Lease's assignment and subletting provision, and the substitution of a new tenant is not required.
Change-of-Control Provision. However, the Lease includes a change-of-control provision in Section 14.3, which provides that any transfer of a controlling interest in the Tenant entity — whether by merger, consolidation, sale of stock, or other transaction resulting in a change in the identity of the person or persons exercising effective control of the Tenant — shall be deemed an assignment of the Lease requiring the prior written consent of the Landlord. The Lease defines "controlling interest" as ownership, directly or indirectly, of more than fifty percent (50%) of the voting equity interests in the Tenant.
Because the Transaction involves Crestline's acquisition of 100% of ACC's outstanding common stock, the Transaction clearly constitutes a change of "controlling interest" within the meaning of Section 14.3. Accordingly, Landlord consent (from Gerald Boothe, as Managing Member of Mountainview) must be obtained for the Transaction itself, separate and apart from any consent required for the Phase II environmental investigation. We understand that Calderwood & Harkness has not yet initiated the landlord consent process for the change-of-control provision, as the focus of the team's initial contact with Gerald Boothe has been limited to obtaining consent for the Phase II investigation. We recommend that the change-of-control consent be addressed promptly and, to the extent practicable, be incorporated into the same negotiation as the lease amendment or environmental side letter recommended in Section VII.A below.
Failure to obtain Landlord consent for the change of control prior to closing could constitute an event of default under the Lease, potentially entitling the Landlord to terminate the Lease and recover damages. This risk should be elevated to the deal team for immediate attention.
III. Environmental Provisions of the Lease
A. Tenant Environmental Compliance Obligation
Section 9.1 of the Lease requires the Tenant to "comply with all applicable Environmental Laws with respect to the Premises and the Tenant's use and occupancy thereof during the Term." The obligation is broadly stated and is not limited to environmental laws directly applicable to the Tenant's specific operations; rather, it encompasses all environmental laws applicable to the Property and the Tenant's use and occupancy.
The Lease defines "Environmental Laws" in Section 1.17 as "all federal, state, and local statutes, regulations, ordinances, rules, codes, judgments, orders, and decrees, now or hereafter enacted, promulgated, or issued, relating to the protection of human health or the environment, the generation, use, storage, treatment, transportation, disposal, or release of Hazardous Materials, or the contamination or remediation of real property, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. §§ 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. §§ 6901 et seq.), the Clean Air Act (42 U.S.C. §§ 7401 et seq.), the Clean Water Act (33 U.S.C. §§ 1251 et seq.), the Toxic Substances Control Act (15 U.S.C. §§ 2601 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. §§ 11001 et seq.), and the West Virginia Environmental Quality Board Act (W. Va. Code §§ 22B-1-1 et seq.), the West Virginia Hazardous Waste Management Act (W. Va. Code §§ 22-18-1 et seq.), and all rules and regulations promulgated thereunder."
This definition is broad and encompasses the principal federal and state environmental statutes governing hazardous materials management, contamination, and remediation. The inclusion of the West Virginia Hazardous Waste Management Act and the West Virginia Environmental Quality Board Act is significant, as these statutes govern the remediation of contaminated sites in West Virginia and provide the regulatory framework for the WV DEP's oversight of UST closures and related institutional controls.
The Lease further requires the Tenant, in Section 9.2, to "obtain, maintain in full force and effect, and comply with all environmental permits, licenses, approvals, registrations, and authorizations required under Environmental Laws for the Tenant's operations at the Premises." As noted above, the Clarksburg Facility currently holds WV DEP Registration Permit R13-3201 (minor source under air quality regulations, in compliance) and EPA Identification Number WVD-054-319-882 (CESQG status under RCRA, in compliance). Our review of the permit files, together with the compliance verification performed by TerraVerde as part of the Phase I ESA, indicates that the facility is in material compliance with its existing environmental permits as of the date of this memorandum.
B. Tenant Remediation Obligations
Section 9.4 of the Lease contains the core tenant remediation provision. It provides, in relevant part:
"In the event that any contamination of the Premises or surrounding property is caused by or results from the Tenant's operations, use, or occupancy of the Premises during the Term, including without limitation any release, spill, discharge, emission, or disposal of Hazardous Materials by the Tenant or the Tenant's agents, employees, contractors, invitees, or licensees, the Tenant shall, at the Tenant's sole cost and expense, promptly investigate, remediate, and clean up such contamination to the satisfaction of all applicable governmental authorities having jurisdiction and in compliance with all applicable Environmental Laws."
Several elements of this provision merit close analysis:
Trigger Language. The remediation obligation is triggered by contamination that is "caused by or results from" the Tenant's operations. This is a causation-based trigger, meaning the obligation arises upon the occurrence of contamination attributable to the Tenant's activities, rather than upon a specific procedural event (such as regulatory notification or lease expiration). The provision does not expressly require discovery or notice as a precondition to the obligation, suggesting that the obligation arises upon the occurrence of the contamination itself, regardless of when it is discovered. However, the practical effect is that the obligation will typically be triggered by the discovery of contamination through environmental investigation, regulatory action, or visual observation.
Standard of Remediation. The Lease requires the Tenant to remediate "to the satisfaction of all applicable governmental authorities having jurisdiction and in compliance with all applicable Environmental Laws." This language does not specify a particular remediation standard (e.g., WV DEP residential or non-residential cleanup standards, background levels, or risk-based corrective action levels). Instead, it defers to the applicable regulatory standard as determined by the regulatory authority with jurisdiction. Under the current WV DEP regulatory framework, the applicable remediation standards for the Clarksburg Facility would be the WV DEP's Voluntary Remediation Program ("VRP") standards or, if the matter is referred to the WV DEP for enforcement, the standards applicable under the West Virginia Hazardous Waste Management Act and implementing regulations. We note that remediation to non-residential (commercial/industrial) standards, which would be appropriate for the Clarksburg Facility given its current and reasonably anticipated future use, is generally less costly than remediation to residential standards.
Timing. The Lease requires the Tenant to "promptly investigate, remediate, and clean up" tenant-caused contamination. The word "promptly" imposes a duty of reasonable diligence but does not establish a fixed timeline. The Lease does not expressly require that remediation be completed during the Lease term, nor does it expressly permit the Tenant to continue remediation activities after lease expiration. This ambiguity is significant: if tenant-caused contamination is discovered late in the Lease term, the Tenant may not have sufficient time to complete remediation before the Lease expires on December 31, 2029. In that event, questions would arise regarding the Tenant's right of access to the Property after lease expiration to complete remediation activities, the Tenant's obligation to restore the Property to pre-contamination conditions at the time of surrender, and the Landlord's rights and remedies with respect to any ongoing contamination at lease expiration.
Scope Limitation. The remediation obligation under Section 9.4 is expressly limited to contamination "caused by or result[ing] from the Tenant's operations, use, or occupancy of the Premises during the Term." This is a critical limitation. By its terms, the provision does not impose remediation obligations on the Tenant for contamination that existed prior to the commencement of the Lease on January 1, 2015, or for contamination caused by parties other than the Tenant. As discussed in greater detail in Section IV below, this limitation is central to the allocation of liability for the pre-existing DRO contamination attributable to Valley Freight's former trucking operations.
C. Hazardous Materials Use and Storage Provisions
Section 9.3 of the Lease governs the Tenant's use and storage of hazardous materials on the Premises. The Lease defines "Hazardous Materials" in Section 1.18 broadly to include "any substance, material, or waste that is classified, listed, designated, or regulated as hazardous, toxic, radioactive, or dangerous under any Environmental Law, including without limitation petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, and mold."
The Lease permits the Tenant to use, store, and handle Hazardous Materials on the Premises "in quantities reasonably necessary for the conduct of the Tenant's business operations at the Premises, provided that such use, storage, and handling is in compliance with all applicable Environmental Laws and in accordance with the permitted use of the Premises." The Lease does not impose specific volumetric restrictions on the quantity of hazardous materials that may be stored on-site, nor does it enumerate specific categories of hazardous materials that are prohibited. However, the Lease requires that the Tenant's use of hazardous materials be "reasonably necessary" for the Tenant's operations, which would preclude speculative or excessive stockpiling of hazardous materials unrelated to the Tenant's resin blending and redistribution operations.
Reporting Obligations. Section 9.3(b) requires the Tenant to provide the Landlord with written notice within five (5) business days of: (i) any release, spill, or discharge of Hazardous Materials on, at, or from the Premises; (ii) any enforcement action, investigation, or inquiry by any governmental authority relating to Hazardous Materials at the Premises; and (iii) any claim, demand, or action brought by any third party against the Tenant relating to Hazardous Materials at the Premises. The Tenant is also required, upon the Landlord's written request, to provide the Landlord with a list of Hazardous Materials stored on the Premises, including quantities and storage locations.
Assessment of Current Operations. ACC's operations at the Clarksburg Facility involve the receipt, blending, and redistribution of epoxy resins, hardeners (amines), and solvents (acetone and MEK). These materials are classified as Hazardous Materials under the Lease definition. The quantities stored on-site are consistent with the facility's CESQG status under RCRA, and the operations fall within the "reasonably necessary" standard articulated in Section 9.3 of the Lease. We have not identified any basis for concluding that ACC's current operations violate the Lease's hazardous materials use and storage provisions.
Drum Storage and Phase I REC. The TerraVerde Phase I ESA dated August 22, 2022 identified staining on the concrete floor in the northeast corner of the warehouse, in the area where ACC stores drums of resin and solvent products. TerraVerde classified this staining as a Recognized Environmental Condition ("REC") under ASTM E1527-21, indicating the presence of a condition that may involve a release of hazardous substances to the subsurface. If subsequent investigation (i.e., the Phase II investigation) confirms that the staining is associated with a release of hazardous materials to the soil or groundwater beneath the warehouse floor, such contamination would likely be classified as tenant-caused contamination arising from ACC's operations, thereby triggering ACC's remediation obligation under Section 9.4 of the Lease. This is a material risk for Crestline, as it would inherit ACC's remediation obligation through the stock purchase.
D. Environmental Indemnification
Section 9.5 of the Lease contains an environmental indemnification provision running from the Tenant to the Landlord. The relevant language provides, in pertinent part:
"The Tenant shall indemnify, defend, and hold harmless the Landlord and its members, managers, officers, agents, and employees from and against any and all claims, actions, losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and costs of remediation) arising from or related to: (a) the Tenant's use, storage, generation, treatment, transportation, release, or disposal of Hazardous Materials on, at, or from the Premises; (b) any violation of Environmental Laws by the Tenant; or (c) any breach by the Tenant of its obligations under this Article 9."
Scope of Indemnification. The indemnification is broadly drafted and covers "claims, actions, losses, damages, liabilities, costs, and expenses," including specifically attorneys' fees and remediation costs. The indemnification is not expressly capped, nor does it exclude consequential damages, diminution in property value, or natural resource damages. As a practical matter, the inclusion of "costs of remediation" in the indemnification scope means that if the Landlord incurs remediation costs attributable to tenant-caused contamination (for example, if the Landlord undertakes remediation after the Tenant fails to do so), the Landlord may seek indemnification from the Tenant for those costs.
Survival. Section 9.5 provides that the Tenant's indemnification obligation "shall survive the expiration or earlier termination of this Lease." This survival provision is significant because it means that ACC's indemnification obligation will continue indefinitely after the Lease expires on December 31, 2029, and will not be extinguished merely because the Lease term has ended. As the owner of ACC, Crestline would bear the economic burden of this surviving indemnification obligation.
Absence of Reciprocal Indemnification. Critically, the Lease does not contain a reciprocal environmental indemnification provision running from the Landlord to the Tenant for pre-existing conditions. This is a significant gap. Under the current Lease provisions, the Landlord is not obligated to indemnify the Tenant for any claims, losses, or costs arising from pre-existing contamination at the Property, including the legacy DRO contamination from Valley Freight's operations. If the Tenant (ACC/Crestline) incurs costs or faces third-party claims arising from pre-existing contamination, the Tenant would have no contractual right to seek indemnification from the Landlord under the Lease. The Tenant's recourse would be limited to common-law claims (e.g., fraud, misrepresentation, breach of implied warranty of habitability, if applicable) or statutory contribution claims under CERCLA or the West Virginia Hazardous Waste Management Act.
E. Environmental Insurance Requirements
The Lease does not contain a specific provision requiring the Tenant to maintain environmental impairment liability ("EIL") or pollution legal liability ("PLL") insurance. The Lease's insurance requirements, set forth in Section 8.1, require the Tenant to maintain commercial general liability insurance, property insurance, workers' compensation insurance, and business automobile liability insurance, but do not reference environmental or pollution-related coverage.
Current Status. ACC does not currently maintain a PLL policy covering the Clarksburg Facility. As previously reported to the deal team, Ironclad Specialty Insurance Company has provided a non-binding indication of interest for a PLL policy with the following key terms: $15 million aggregate limit, $10 million per-occurrence limit, ten (10) year policy term, annual premium of $187,500, and a self-insured retention of $250,000. However, underwriting is currently paused pending completion of the Phase II investigations at the Clarksburg Facility and other ACC facilities. We understand that Whitfield & Calder Insurance Advisors LLC (Douglas Whitfield and Lauren Petrov) is managing the PLL placement process on behalf of Crestline.
Implications. Although the Lease does not require the Tenant to maintain PLL insurance, Crestline should independently evaluate the desirability of obtaining PLL coverage for the Clarksburg Facility as a risk management measure. PLL insurance could provide coverage for remediation costs, third-party bodily injury and property damage claims, legal defense costs, and business interruption losses arising from environmental contamination at the Clarksburg Facility. The availability and terms of such coverage, including any exclusions for pre-existing conditions, will be determined through the underwriting process once the Phase II results are available.
F. Landlord Access and Investigation Rights
Section 10.2 of the Lease grants the Landlord the right to enter the Premises upon reasonable notice during business hours for purposes of inspection, repair, and maintenance. Section 9.6 of the Lease specifically addresses environmental inspections and provides that:
"The Landlord shall have the right, at the Landlord's cost and expense (unless such investigation reveals contamination caused by the Tenant, in which case the cost shall be borne by the Tenant), to conduct environmental assessments, inspections, and investigations of the Premises at any time during the Term, upon not less than ten (10) business days' prior written notice to the Tenant, if the Landlord has reasonable grounds to believe that Hazardous Materials have been released on, at, or from the Premises in violation of Environmental Laws or this Lease."
This provision grants the Landlord a conditional right to conduct environmental assessments at the Tenant's cost if the investigation reveals tenant-caused contamination. The cost-shifting mechanism provides the Landlord with an economic incentive to investigate suspected contamination, while protecting the Tenant from bearing the cost of investigations that do not reveal tenant-caused conditions.
Tenant-Initiated Investigations. The Lease does not contain an express provision granting the Tenant the right to conduct environmental investigations of the Premises. This creates an ambiguity: while the Tenant has the obligation to remediate tenant-caused contamination (Section 9.4), the Tenant lacks an express contractual right to access the subsurface (e.g., through soil borings and monitoring well installations) to investigate potential contamination. In practice, this means that the Tenant must obtain the Landlord's consent before conducting subsurface investigations — a process that has already been undertaken in connection with the Phase II investigation, as discussed in Section V below. The absence of an express right to investigate underscores the importance of securing Landlord cooperation in the environmental due diligence process and in any future investigation or remediation activities.
G. Surrender and End-of-Lease Obligations
Section 15.1 of the Lease requires the Tenant, upon the expiration or earlier termination of the Lease, to surrender the Premises to the Landlord "in substantially the same condition as existed at the commencement of the Term, reasonable wear and tear excepted, and free of any contamination caused by the Tenant or the Tenant's agents, employees, contractors, invitees, or licensees." This provision imposes two related but distinct obligations: (1) a general obligation to return the premises in substantially the same physical condition as at lease commencement, and (2) a specific obligation to return the premises free of tenant-caused contamination.
Baseline Environmental Condition. The reference to the condition of the premises "at the commencement of the Term" raises a critical issue: was a baseline environmental assessment conducted at or before the lease commencement date of January 1, 2015? Based on our review of the Lease, the documents produced by ACC in connection with the Transaction, and our discussions with ACC's management, no baseline environmental assessment was conducted at the commencement of the Lease. This is a significant omission. The absence of a baseline assessment means that there is no contemporaneous documentation of the environmental condition of the Property as of January 1, 2015. As a practical matter, this makes it substantially more difficult to distinguish between contamination that existed at lease commencement (attributable to Valley Freight's operations and/or the residual DRO from the UST closure) and contamination caused by ACC's operations during the Lease term.
The significance of this gap is amplified by the site's history. As discussed in Section IV below, the Property was the subject of a UST closure that left residual DRO contamination in the soil, and institutional controls were recorded against the Property in 2013 — approximately two years before ACC's lease commenced. Without a baseline assessment, it will be difficult, at lease expiration, to demonstrate the precise environmental condition of the Property as of January 1, 2015, and to allocate responsibility for any contamination discovered at that time as between the Landlord (pre-existing conditions) and the Tenant (tenant-caused contamination).
Environmental Closure Requirements. The Lease does not contain a specific "environmental closure" provision requiring the Tenant to obtain a no-further-action ("NFA") determination or regulatory closure letter from the WV DEP as a condition of lease expiration. The surrender provision in Section 15.1 requires the Tenant to deliver the premises free of tenant-caused contamination, but it does not specify the standard by which "free of contamination" is to be determined. In practice, this ambiguity could lead to disputes between the Landlord and the Tenant at lease expiration regarding the scope and standard of required remediation.
IV. Allocation of Liability for Pre-Existing Conditions
A. Site History and Pre-Existing Contamination
The Property has a well-documented history of environmental contamination predating ACC's tenancy. The key facts are as follows:
Prior Use. The Property was operated as a trucking terminal from approximately 1968 to 2012 by Valley Freight Lines Inc. ("Valley Freight"), a West Virginia corporation that is now dissolved. Valley Freight's operations included the storage and dispensing of diesel fuel, which was supplied from an on-site underground storage tank.
UST Removal and Closure. In 2012, Valley Freight removed one 15,000-gallon diesel UST from the Property. The UST removal was conducted under the supervision of the WV DEP and was assigned WV DEP Site ID WVUST-2012-04887. During the UST removal, soil sampling confirmed the presence of DRO in soil above WV DEP action levels in the area beneath and immediately surrounding the former UST cavity. Contaminated soil was excavated to the extent practicable, but residual DRO contamination remained in the soil at concentrations above WV DEP action levels due to the presence of building foundations and utility infrastructure that precluded further excavation.
WV DEP Closure. The WV DEP issued a closure letter for the site in March 2013, acknowledging that the UST had been properly closed and removed, and that residual DRO contamination remained in the soil above WV DEP action levels. The closure was conditioned on the implementation of institutional controls (land-use restrictions) to ensure that the residual contamination would not pose a risk to human health or the environment under the property's anticipated commercial/industrial use.
Institutional Controls. Institutional controls in the form of a land-use restriction were recorded at the Harrison County Clerk's Office, Book 1245, Page 312. The recorded instrument restricts the use of the Property to commercial or industrial purposes and prohibits certain activities, including the use of groundwater from on-site wells for drinking water purposes, the disturbance of soils in the area of the former UST cavity without prior WV DEP approval, and the construction of residential structures on the Property.
Timeline. ACC commenced its lease on January 1, 2015 — approximately two years after the WV DEP issued the closure letter and the institutional controls were recorded. ACC was therefore aware, or should have been aware, of the pre-existing DRO contamination and institutional controls at the time of lease commencement. However, the Lease does not reference the prior contamination or the institutional controls, and no baseline environmental assessment was conducted.
B. Lease Provisions Regarding Pre-Existing Contamination
The Lease does not expressly allocate responsibility for pre-existing contamination. There is no provision stating that the Landlord bears liability for contamination existing prior to lease commencement, nor is there a provision allocating such liability to the Tenant. The Lease is entirely silent on this point.
The Tenant's remediation obligation under Section 9.4 is, by its terms, limited to contamination "caused by or result[ing] from the Tenant's operations, use, or occupancy of the Premises during the Term." By negative inference, contamination that was not caused by the Tenant's operations — including the legacy DRO contamination attributable to Valley Freight — should not fall within the Tenant's remediation obligation. Under this reading, pre-existing contamination would remain the responsibility of the Landlord, as the property owner and the party that acquired the Property with knowledge of the residual contamination and institutional controls.
However, this negative inference is not a substitute for an express allocation of liability, and several sources of ambiguity may undermine this analysis in practice:
(a) Commingling or Exacerbation. If ACC's operations have contributed to or exacerbated the pre-existing DRO contamination — for example, if ACC's solvents (acetone or MEK) have migrated to the same subsurface area as the legacy DRO — the resulting commingled contamination may be difficult to attribute to either the Tenant or the prior occupant. In that event, the Landlord might argue that the Tenant's remediation obligation under Section 9.4 extends to the entirety of the commingled plume, while the Tenant would argue that its obligation is limited to the incremental contamination attributable to its operations. This dispute would be fact-intensive and would likely require expert analysis (e.g., forensic chemistry, contaminant fingerprinting) to resolve.
(b) Absence of Baseline Assessment. As discussed in Section III.G above, no baseline environmental assessment was conducted at lease commencement. The absence of a baseline makes it difficult to establish the environmental condition of the Property as of January 1, 2015, and therefore difficult to prove whether particular contamination is pre-existing or tenant-caused. This evidentiary gap benefits the Landlord, who may argue that any contamination discovered during or after ACC's tenancy is attributable to ACC's operations and therefore subject to the Tenant's remediation obligation.
(c) Default Rules Under West Virginia Law. In the absence of express lease provisions, the allocation of environmental liability between landlord and tenant is governed by common-law principles and the applicable statutory framework. Under West Virginia common law, a landlord who leases property with knowledge of a defect or hazardous condition may be liable for damages to the tenant or third parties arising from that condition, particularly if the landlord failed to disclose the condition. West Virginia's Hazardous Waste Management Act (W. Va. Code §§ 22-18-1 et seq.) and the federal CERCLA impose liability on property owners and operators for contamination, regardless of fault. As the fee owner of the Property, Mountainview is a potentially responsible party ("PRP") under both state and federal law for pre-existing contamination, and cannot disclaim this liability through a lease provision that is silent on the issue. However, as between the Landlord and the Tenant, the absence of an express contractual allocation means that any dispute would be resolved through litigation, with the attendant costs, uncertainties, and delays.
Risk for Crestline. In a stock purchase, Crestline inherits ACC's contractual position under the Lease, including the ambiguities described above. If pre-existing contamination is discovered or requires remediation during the remaining Lease term or at lease expiration, Crestline (through ACC) may face claims from the Landlord that the contamination is tenant-caused and therefore subject to ACC's remediation and indemnification obligations. Conversely, if ACC/Crestline seeks to attribute contamination to pre-existing conditions, the absence of a baseline assessment will make this argument more difficult to sustain. The recommended lease amendment and baseline assessment (discussed in Section VII below) are intended to address these risks.
C. Institutional Controls Compliance
The institutional controls recorded against the Property impose land-use restrictions that run with the land and are binding on all successors and assigns of the property owner. The controls restrict the use of the Property to commercial or industrial purposes, prohibit the use of groundwater for drinking water, and restrict soil disturbance in the area of the former UST cavity without prior WV DEP approval.
The Lease is silent on the allocation of institutional controls compliance responsibilities between the Landlord and the Tenant. Under the general framework of West Virginia environmental law, the obligation to maintain compliance with institutional controls typically rests with the property owner, as the controls are recorded against the property and run with the land in favor of the regulatory authority. However, the Tenant, as the occupant of the Property, has practical compliance obligations — most notably, the obligation to refrain from activities that would violate the institutional controls, such as disturbing soils in the restricted area, using on-site groundwater for drinking water, or converting the Property to residential use.
Crestline, as successor owner of ACC, must ensure that ACC's operations at the Clarksburg Facility do not violate the institutional controls. This is of particular importance if Crestline contemplates any facility modifications or expansions post-acquisition (such as construction of additional storage or blending capacity, installation of new foundations, or modification of utility infrastructure in the area of the former UST cavity). Any such activities could trigger the institutional controls' restrictions on soil disturbance and could require prior approval from the WV DEP.
Additionally, failure to maintain the institutional controls could result in the WV DEP reopening the WVUST-2012-04887 case and requiring additional investigation, remediation, or corrective action at the Property. If such a reopening occurs, the question of who bears the cost of the additional investigation or remediation — the Landlord (as property owner and the party on whose behalf the institutional controls were recorded) or the Tenant (as the party whose activities may have triggered the violation) — would be resolved under the Lease's environmental provisions, which, as noted, are silent on this issue.
D. Phase I ESA CREC Classification
TerraVerde's Phase I ESA dated August 22, 2022 classified the residual DRO contamination with institutional controls as a Controlled Recognized Environmental Condition ("CREC") under ASTM E1527-21. A CREC is defined by ASTM as a recognized environmental condition resulting from a past release of hazardous substances or petroleum products that has been addressed to the satisfaction of the applicable regulatory authority, subject to the implementation of required engineering and/or institutional controls. A CREC is distinguished from both a REC (which indicates a condition that has not been addressed) and a Historical REC ("HREC") (which indicates a condition that has been addressed to the satisfaction of the regulatory authority without conditions).
A CREC classification is not a "clean" finding. It signifies that contamination exists at the Property, that the contamination has been managed to the satisfaction of the regulatory authority, and that ongoing controls are in place to ensure that the contamination does not pose an unacceptable risk. However, the CREC classification also signifies that if the institutional controls are not maintained — or if conditions change such that the assumptions underlying the closure are no longer valid — the regulatory authority may reopen the case and require additional action. Accordingly, the CREC classification represents an ongoing environmental risk that Crestline should monitor throughout the remaining Lease term and beyond.
V. Landlord Consent for Phase II Investigation
A. Lease Requirements
As discussed in Section III.F above, the Lease does not contain an express provision granting the Tenant the right to conduct subsurface environmental investigations on the Premises. The Tenant's remediation obligation under Section 9.4 implies a right to investigate, but the absence of an express investigation right means that the Tenant must obtain the Landlord's consent before conducting soil borings, installing monitoring wells, or otherwise disturbing the subsurface.
The Lease's general provisions regarding alterations and improvements (Section 11.1) require the Tenant to obtain the Landlord's prior written consent before making any "alterations, additions, improvements, or modifications" to the Premises. While subsurface environmental investigations are not "alterations" in the traditional sense, the installation of soil borings and monitoring wells involves physical disturbance of the Property and could be interpreted as falling within the scope of Section 11.1. Accordingly, we determined that obtaining Landlord consent prior to the Phase II investigation was both legally prudent and practically necessary to maintain a cooperative relationship with Gerald Boothe.
The Lease does not prescribe a specific process or form for obtaining Landlord consent for environmental investigations. In the absence of a specified process, we prepared a standalone consent letter incorporating customary terms for landlord consent to environmental investigation activities.
B. Consent Obtained from Mountainview Properties LLC
Calderwood & Harkness prepared and transmitted a landlord consent letter to Mountainview Properties LLC (attention: Gerald Boothe, Managing Member) requesting consent for TerraVerde Environmental Consulting LLC to conduct a Phase II subsurface investigation at the Clarksburg Facility. The consent letter included the following key terms:
(a) Scope of Investigation. The consent letter described the proposed scope of the Phase II investigation, including the number and approximate locations of soil borings and temporary monitoring wells, the sampling methodology, and the anticipated duration of field activities.
(b) Access Agreement. The consent letter included an access agreement granting TerraVerde and its subcontractors the right to enter the Premises during business hours for the purpose of conducting the Phase II investigation, subject to reasonable coordination with the Tenant's operations.
(c) Indemnification. The consent letter included an indemnification provision under which ACC agreed to indemnify Mountainview for any property damage arising from the investigation activities, excluding damage resulting from the discovery of pre-existing contamination.
(d) Insurance. The consent letter required TerraVerde to provide Mountainview with certificates of insurance evidencing commercial general liability insurance (minimum $1 million per occurrence / $2 million aggregate), professional liability (errors and omissions) insurance (minimum $1 million per occurrence / $2 million aggregate), and workers' compensation insurance, with Mountainview named as an additional insured on the commercial general liability policy.
(e) Restoration. The consent letter required ACC and TerraVerde to restore all soil borings and monitoring well installations upon completion of the investigation, including patching any concrete floors, capping any borings, and properly abandoning any temporary monitoring wells in accordance with WV DEP requirements.
Gerald Boothe, as Managing Member of Mountainview, executed the consent letter and returned it to Calderwood & Harkness. Consent was obtained prior to the commencement of the Phase II investigation on October 3, 2022.
Conditions and Limitations Imposed by Gerald Boothe. In granting consent, Gerald Boothe imposed two additional conditions not included in the original consent letter: (1) he required that all Phase II investigation results be shared with Mountainview within ten (10) business days of receipt by ACC or TerraVerde, and (2) he required that no soil borings or monitoring wells be installed within ten (10) feet of the building foundation without his prior approval. The first condition has significant implications, as discussed in Section V.C below. The second condition was accommodated by TerraVerde in the revised investigation plan without material impact on the scope or objectives of the Phase II investigation.
C. Implications of Sharing Investigation Results
Gerald Boothe's requirement that Phase II investigation results be shared with Mountainview within ten (10) business days of receipt creates both procedural and strategic implications for ACC/Crestline.
If Results Reveal Tenant-Caused Contamination. If the Phase II results demonstrate that ACC's drum storage operations have caused a release of solvents, resins, or other hazardous materials to the soil or groundwater beneath the warehouse, sharing those results with Mountainview would provide the Landlord with direct evidence of tenant-caused contamination. The Landlord could use this information to: (i) demand immediate remediation under Section 9.4 of the Lease; (ii) assert a claim for indemnification under Section 9.5; (iii) declare a default under the Lease if the Tenant fails to promptly remediate; or (iv) reserve its rights to terminate the Lease or refuse consent to the renewal option if the contamination constitutes a material breach.
If Results Reveal Exacerbation of Pre-Existing Conditions. If the Phase II results indicate that ACC's operations have exacerbated the legacy DRO contamination (e.g., through migration of solvents to the same subsurface zone), sharing those results could create a complex dispute over the allocation of remediation responsibility. The Landlord might argue that the Tenant is responsible for the entire commingled plume, while the Tenant would argue that its responsibility is limited to the incremental contamination attributable to its operations.
If Results Reveal Only Pre-Existing Conditions. If the Phase II results indicate that the contamination detected is limited to the legacy DRO associated with Valley Freight's operations and not attributable to ACC's activities, sharing the results with the Landlord could be favorable to the Tenant's position, as it would support the argument that the contamination is pre-existing and therefore the Landlord's responsibility.
Phase II Investigation Status. The Phase II investigation commenced on October 3, 2022, and was completed on October 7, 2022. A total of eight (8) soil borings and three (3) temporary monitoring wells were installed at the Clarksburg Facility. Soil and groundwater samples were collected and submitted to Keystone Analytical Laboratories Inc. in Monroeville, Pennsylvania for analysis. Analytical results were expected by October 28, 2022, but had not been received as of the date of this memorandum's last update. Due to the pause in the Transaction, the results have not yet been reviewed. This analysis will need to be updated once the Phase II analytical results are available, as the results will materially affect the assessment of environmental risk at the Clarksburg Facility and the allocation of remediation responsibility under the Lease.
VI. Implications for Crestline as Successor Tenant
A. Stock Purchase Structure and Assumption of Lease Obligations
As discussed in Section II.D above, the Transaction is structured as a stock purchase in which Crestline will acquire 100% of ACC's outstanding common stock. Under this structure, ACC will remain the legal tenant entity under the Lease. The acquisition of ACC's stock by Crestline does not extinguish, modify, or discharge any of ACC's obligations under the Lease. To the contrary, all of ACC's contractual rights and obligations under the Lease — including its environmental compliance obligations (Section 9.1), remediation obligations (Section 9.4), indemnification obligations (Section 9.5), and surrender obligations (Section 15.1) — continue in full force and effect following the closing of the Transaction.
Unlike an asset purchase, in which the acquiror typically negotiates a new lease or an assignment and assumption agreement with modified terms, a stock purchase affords Crestline no opportunity to renegotiate the terms of the Lease with the Landlord. Crestline steps into ACC's shoes and inherits the Lease as-is, with all of its provisions, ambiguities, and gaps. Unless Crestline separately negotiates a lease amendment or environmental side letter with Mountainview Properties LLC, the current Lease provisions — including the ambiguous allocation of pre-existing contamination liability, the absence of a baseline environmental assessment, and the silence on institutional controls compliance — will govern Crestline's environmental risk exposure at the Clarksburg Facility for the remainder of the Lease term and beyond (to the extent of surviving obligations).
B. Successor Liability Risks
Under West Virginia law, a successor entity that acquires the stock of a corporation generally does not assume new liabilities solely by virtue of the stock acquisition; rather, the acquired corporation (here, ACC) retains its existing liabilities, and the acquiror (here, Crestline) bears economic exposure to those liabilities through its ownership of the acquired entity. Because ACC is not changing its legal identity — it will continue to exist as a Pennsylvania corporation and will remain the named Tenant under the Lease — the successor liability analysis is relatively straightforward.
However, Crestline should be aware that any contamination caused by ACC's operations at the Clarksburg Facility during the period from lease commencement (January 1, 2015) through the closing of the Transaction becomes Crestline's responsibility as the owner of ACC. Crestline cannot disclaim responsibility for ACC's historical operations at Clarksburg, and the Sellers should not be permitted to take the position that pre-closing environmental liabilities are extinguished by the Transaction. To the contrary, the environmental indemnification provisions in the Stock Purchase Agreement should expressly require the Sellers to indemnify Crestline for environmental liabilities arising from ACC's operations prior to closing, including any liabilities under the Lease's environmental provisions. This point is discussed further in Section VII.C below.
In addition, Crestline should be aware that as the new owner of ACC, it could potentially face direct environmental liability under CERCLA and the West Virginia Hazardous Waste Management Act as an "operator" of the Clarksburg Facility, if Crestline exercises sufficient control over ACC's operations to be deemed an operator under the applicable standards. While this risk is generally manageable through appropriate corporate governance practices (e.g., maintaining ACC as a separate corporate entity, avoiding direct involvement in ACC's day-to-day environmental compliance decisions), it is a consideration that Crestline's management should keep in mind.
C. Remaining Lease Term Considerations
The Lease expires on December 31, 2029, leaving approximately seven (7) years and one (1) month in the Lease term as of the originally targeted closing date. This remaining term is relevant to the environmental analysis in several respects.
End-of-Lease Environmental Obligations. ACC's obligation to surrender the premises free of tenant-caused contamination (Section 15.1) will fall to Crestline/ACC at lease expiration. If Phase II results reveal tenant-caused contamination requiring remediation, the remediation timeline must be planned and executed within the remaining Lease term to ensure compliance with the surrender obligation. Environmental remediation projects, particularly those involving soil excavation and groundwater treatment, frequently extend over multi-year periods. A seven-year runway is generally adequate for moderate-scale remediation (such as the soil excavation and disposal scenario estimated by TerraVerde), but may be insufficient for complex remediation involving groundwater treatment, monitored natural attenuation, or institutional control implementation.
TerraVerde Preliminary Cost Estimates. TerraVerde has provided preliminary remediation cost estimates for the Clarksburg Facility, contingent on Phase II results confirming the presence of contamination requiring remediation. The estimates are as follows:
These cost estimates are preliminary and subject to revision based on the Phase II analytical results, the extent and concentration of contamination, the applicable remediation standards, and the selected remediation approach. However, they provide a reasonable order-of-magnitude estimate for planning and financial modeling purposes. These costs would be borne by ACC/Crestline if the contamination is determined to be tenant-caused, and should be reflected in Crestline's transaction financial model and in the sizing of the environmental escrow under the Stock Purchase Agreement.
D. Operational Continuity and Environmental Compliance
Crestline must maintain ACC's existing environmental compliance posture at the Clarksburg Facility following the closing of the Transaction. This includes maintaining the following:
• WV DEP Registration Permit R13-3201 (minor source, air quality);
• EPA Identification Number WVD-054-319-882 (CESQG status under RCRA);
• Compliance with all applicable federal, state, and local environmental laws, as required by Section 9.1 of the Lease; and
• Compliance with the institutional controls recorded against the Property.
Any change in ACC's operations at the Clarksburg Facility post-acquisition — such as increased blending volumes, the introduction of different chemical inputs, or the expansion of storage capacity — could alter the facility's regulatory profile and trigger additional permitting requirements. For example, if increased throughput causes ACC's hazardous waste generation to exceed the CESQG threshold (currently 100 kilograms per month under RCRA), the facility would be reclassified as a Small Quantity Generator ("SQG") or Large Quantity Generator ("LQG"), which would impose more stringent regulatory requirements, including additional recordkeeping, training, emergency planning, and waste management obligations.
Crestline should evaluate whether the Clarksburg Facility's role in the combined entity's supply chain would change post-acquisition. The stated acquisition rationale includes the vertical integration of specialty coatings supply, with estimated annual procurement cost savings of $12 million to $15 million. If the integration plan contemplates increased production or blending activity at the Clarksburg Facility to serve Crestline's broader customer base, Crestline should assess the environmental regulatory implications of such changes before implementation. We recommend that Crestline's integration planning team consult with Patricia Okonk

MEMORANDUM

MATTER NO.: 1006-00003

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