1006-00003 · Crestline Packaging Solutions LLC · Diligence/Phase I Reviews

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Derek Huang, General Counsel, Crestline Packaging Solutions LLC Patricia Okonkwo, VP, Environmental Health & Safety, Crestline Packaging Solutions LLC

FROM: Harrison Caldwell, Of Counsel (Environmental & Land Use), Calderwood & Harkness LLP Rafael Dominguez, Associate (Real Estate), Calderwood & Harkness LLP

DATE: September 2, 2022

RE: Phase I Environmental Site Assessment Review — Clarksburg Resin Blending Facility, 1875 Route 50 West, Clarksburg, WV 26301 (Allegheny Chemical Coatings, Inc.)

MATTER NO.: 1006-00003

This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product prepared in anticipation of litigation and in connection with the provision of legal advice. This document is not to be disclosed to any person or entity other than authorized recipients within Crestline Packaging Solutions LLC, Briarwood Capital Partners LP, and their authorized advisors without the prior written consent of Calderwood & Harkness LLP.

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I. EXECUTIVE SUMMARY

Calderwood & Harkness LLP ("C&H") has reviewed the Phase I Environmental Site Assessment ("Phase I ESA") prepared by TerraVerde Environmental Consulting LLC ("TerraVerde") for the Clarksburg Resin Blending Facility (the "Clarksburg Facility" or the "Property") located at 1875 Route 50 West, Clarksburg, Harrison County, West Virginia 26301. The Phase I ESA is dated August 22, 2022, and was prepared by Kevin O'Malley, P.G., Project Manager, under the direction of Dr. Nina Sorensen, P.E., CHMM, Principal-in-Charge. The assessment was conducted in accordance with ASTM E1527-21 (Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process), the current version of the applicable standard practice recognized by the U.S. Environmental Protection Agency ("EPA") for the purposes of establishing the "All Appropriate Inquiries" defense under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq.

This review was prepared in connection with Crestline Packaging Solutions LLC's ("Crestline" or "CPS") proposed acquisition of one hundred percent (100%) of the outstanding common stock of Allegheny Chemical Coatings, Inc. ("ACC" or the "Target") for a proposed purchase price of $94.5 million. As the proposed transaction is structured as a stock acquisition rather than an asset acquisition, Crestline will, upon closing, indirectly succeed to all of ACC's existing environmental liabilities, obligations, and regulatory status as a matter of law. This structural consideration is central to the analysis that follows.

The Phase I ESA identified one Controlled Recognized Environmental Condition ("CREC") and one Recognized Environmental Condition ("REC") at the Property. No Historical Recognized Environmental Conditions ("HRECs") were identified. A summary of these findings is provided below:

• CREC: Residual diesel-range organic ("DRO") contamination remains in soil above West Virginia Department of Environmental Protection ("WV DEP") action levels beneath and around the former location of a 15,000-gallon diesel underground storage tank ("UST"), which was removed in 2012 by a prior tenant. The WV DEP issued a closure letter for this matter in March 2013, subject to institutional controls (a recorded land-use restriction) that restrict future soil disturbance and limit the site to commercial/industrial use.

• REC: Significant staining was observed on the concrete floor in the northeast corner of the warehouse building, in an area used for drum and tote storage of resins and solvents. The staining is dark in color, extends over an area of approximately 200 square feet, and is consistent with a potential release of solvents or resin materials during ACC's drum storage and handling operations. Visible cracks in the concrete floor may have served as migration pathways for contaminants to reach underlying soils.

Based on our review, C&H recommends that a Phase II Environmental Site Assessment (subsurface investigation) be conducted to further evaluate both the CREC and the REC prior to closing. Any such investigation will require landlord consent from Mountainview Properties LLC, the fee owner of the Property, and C&H will prepare a draft consent letter for that purpose. The Phase II investigation will be critical not only for assessing the environmental risk profile of the Clarksburg Facility but also for satisfying the environmental condition precedent in Commonwealth National Bank, N.A.'s commitment letter and for supporting the Pollution Legal Liability ("PLL") insurance application currently under preparation.

The balance of this memorandum sets forth our detailed analysis and recommendations.

II. PURPOSE AND SCOPE OF REVIEW

Purpose

The purpose of this memorandum is to provide Crestline with a legal analysis of TerraVerde's Phase I ESA findings for the Clarksburg Facility in the context of the proposed stock acquisition of ACC. The memorandum is intended to assist Crestline's transaction team, including Briarwood Capital Partners LP as sponsor, in evaluating the environmental risk profile of the Clarksburg Facility, identifying potential environmental liabilities that may affect transaction pricing, structuring, and risk allocation, and formulating appropriate next steps for further investigation and diligence.

Scope

The scope of C&H's review encompasses the following:

(a) Evaluation of the adequacy and compliance of TerraVerde's Phase I ESA with the requirements of ASTM E1527-21, including the completeness of records review, site reconnaissance, interviews, and findings classification;

(b) Legal analysis of the identified CREC and REC and their implications for the proposed transaction, including liability allocation among the parties (Crestline, the Kessler family sellers, ACC, Mountainview Properties LLC as landlord, and the dissolved prior tenant Valley Freight Lines Inc.);

(c) Assessment of the regulatory status of the Property under applicable federal and state environmental laws, including RCRA, CERCLA, the West Virginia Hazardous Waste Management Act, and the West Virginia Underground Storage Tank Act;

(d) Review of the environmental provisions contained in the lease between Mountainview Properties LLC and ACC, with a focus on the allocation of remediation obligations for tenant-caused contamination and pre-existing conditions;

(e) Recommendations regarding Phase II investigation, transaction document provisions, lender requirements, and environmental insurance, including coordination with the broader environmental diligence effort across all four ACC operating facilities.

Relationship to Other Diligence Memoranda

This memorandum is one in a series of four Phase I ESA review memoranda covering all ACC operating facilities: McKeesport, Pennsylvania (Matter No. 1006-00003); Charleroi, Pennsylvania (Matter No. 1006-00003); Clarksburg, West Virginia (this memorandum, Matter No. 1006-00003); and Weirton, West Virginia (Matter No. 1006-00003). The findings and recommendations set forth in this memorandum should be read in conjunction with the Comprehensive Environmental Diligence Summary Memorandum that is currently in preparation and will be circulated to the transaction team upon completion of all four facility-level reviews. That summary memorandum will integrate the environmental findings across all facilities, provide an aggregate estimate of potential environmental liabilities, and set forth C&H's comprehensive recommendations for risk allocation in the Stock Purchase Agreement.

III. PROPERTY DESCRIPTION

A. Property Identification

The Property that is the subject of TerraVerde's Phase I ESA is identified as follows:

The Property is situated along the south side of U.S. Route 50 (Appalachian Highway / West Pike Street) in a commercial/industrial corridor west of the City of Clarksburg. The surrounding area is characterized by a mix of light industrial, commercial, and transportation-related land uses. TerraVerde's Phase I ESA report includes a site location map and aerial photographs depicting the Property and its environs, which are reproduced in Appendix A.

B. Improvements

The principal improvements on the Property consist of the following structures and site features:

• Warehouse/Blending Building: A single-story metal frame building with concrete slab-on-grade floor, encompassing approximately 48,000 square feet. This building serves as the primary operational space for ACC's resin receipt, blending, and redistribution activities. The building includes dedicated areas for raw material storage, blending operations, finished product staging, and drum/tote storage.

• Office Building: An attached office structure of approximately 3,000 square feet, connected to the warehouse building at the northwest corner. The office houses ACC's local administrative and supervisory staff.

• Paved Truck Loading/Unloading Area: A paved asphalt area along the southern property frontage, used for the loading and unloading of bulk and drummed resin materials. This area includes multiple loading docks accessible from the warehouse building.

• Outdoor Drum and Tote Storage Area: An uncovered concrete pad located in the northeast corner of the Property, used for temporary outdoor storage of drums and intermediate bulk containers ("IBCs" or "totes") containing resin materials and solvents. As discussed further in Section V.B below, this area is adjacent to the interior warehouse zone where staining was observed and is relevant to the identified REC.

The Property is served by municipal water and sewer. There is no private well or septic system on the Property, based on TerraVerde's observations and records review.

C. Current Operations

The Clarksburg Facility is used by ACC for resin receipt, blending, and redistribution. Minimal manufacturing activity occurs on-site; the facility's primary function is to receive bulk resin shipments, blend resins to customer specifications, package the blended products into drums and totes, and ship finished products to ACC's customers in the mid-Atlantic and Appalachian regions. The facility operates one shift, five days per week, with approximately 12 full-time employees.

The principal chemicals of concern present at the Clarksburg Facility include:

• Epoxy resins (bisphenol A-based liquid epoxy resins, including ACC product designations EP-2100 and EP-3500);

• Hardeners, including various amine-based curing agents (diethylenetriamine, triethylenetetramine);

• Solvents, including acetone and methyl ethyl ketone ("MEK"), used as cleaning agents and diluents in the blending process.

The facility is classified as a Conditionally Exempt Small Quantity Generator ("CESQG") under the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. § 6901 et seq. The facility's EPA identification number is WVD-054-319-882. TerraVerde's records review did not identify any RCRA violations, enforcement actions, or corrective action orders associated with this EPA ID number.

Air emissions from the facility are regulated under WV DEP Registration Permit R13-3201. The facility is classified as a minor source of air emissions under the West Virginia Air Pollution Control Act, W. Va. Code § 22-5-1 et seq. No compliance issues or violations associated with the air permit were identified in TerraVerde's records review.

D. Ownership and Tenure

The Property is not owned by ACC. It is leased from Mountainview Properties LLC, a West Virginia limited liability company managed by Gerald Boothe, Managing Member. The lease commenced on January 1, 2015, for a fifteen (15)-year term expiring on December 31, 2029. The lease is structured as a triple-net lease, under which ACC, as tenant, is responsible for property taxes, insurance, and maintenance in addition to base rent.

The lease contains environmental provisions that are material to the analysis of the identified CREC and REC. These provisions are analyzed in detail in Section VII of this memorandum. In brief, the lease requires the tenant to remediate contamination caused by the tenant's operations, but it is less clear regarding the allocation of liability for pre-existing environmental conditions that predate ACC's tenancy.

Because the proposed transaction is structured as a stock acquisition, ACC will remain the tenant under the lease following closing. The change in ownership of ACC's stock does not constitute an assignment of the lease, and no landlord consent to the transaction should be required under the lease's assignment provisions (subject to verification by C&H's real estate team, which is conducting a separate review of the lease provisions). However, landlord consent will be required for any Phase II subsurface investigation, as discussed in Section IX.B below.

IV. SITE HISTORY AND PRIOR USE

TerraVerde's Phase I ESA included a historical use review of the Property based on Trelwick fire insurance maps, aerial photographs, city directories, building department records, and regulatory database searches. C&H has reviewed TerraVerde's historical findings, which are summarized below.

A. Pre-ACC Use (1968–2012)

Prior to ACC's occupancy, the Property was operated as a trucking terminal from approximately 1968 to 2012. The Property appears in aerial photographs from 1968 onward as a developed commercial/industrial site with a large warehouse-style building and a paved yard area. Based on TerraVerde's review of city directory listings and West Virginia Secretary of State business filings, the prior tenant was Valley Freight Lines Inc., a West Virginia corporation engaged in regional trucking and freight distribution. Valley Freight Lines Inc. is now a dissolved corporation; its dissolution was recorded with the West Virginia Secretary of State's office in 2014.

During the trucking terminal era, one 15,000-gallon diesel underground storage tank ("UST") was installed on the Property to service Valley Freight Lines' fleet of diesel trucks. The UST was located in the southern portion of the Property, near the truck loading/unloading area. TerraVerde's review of WV DEP Underground Storage Tank Program records confirmed the existence and registration of this UST. No other USTs were identified in the historical records.

The historical use of the Property as a trucking terminal for a period of approximately 44 years is significant from an environmental perspective, as such operations typically involve the storage and dispensing of petroleum products, vehicle maintenance, and associated waste generation. The presence and subsequent removal of the 15,000-gallon diesel UST is the primary legacy environmental issue at the Property and forms the basis for the CREC identified by TerraVerde.

B. UST Removal and Closure (2012–2013)

In 2012, as part of the closure of the trucking terminal operations, Valley Freight Lines Inc. removed the 15,000-gallon diesel UST from the Property. The removal was conducted in accordance with WV DEP Underground Storage Tank Program requirements. The WV DEP assigned Site ID WVUST-2012-04887 to the UST removal and closure case.

During the tank removal process, soil samples were collected from the excavation cavity and surrounding areas. Analytical results revealed the presence of diesel-range organic ("DRO") contamination in soil at concentrations exceeding WV DEP action levels. Specifically, TerraVerde's review of the closure file indicates that DRO concentrations in soil samples from the base and sidewalls of the former UST cavity exceeded the WV DEP Voluntary Remediation Program residential and commercial/industrial direct-contact screening levels applicable at the time of closure.

The WV DEP issued a closure letter for Site ID WVUST-2012-04887 in March 2013. Critically, the closure was not based on a finding that the site had been fully remediated to unrestricted use standards. Rather, the closure was granted with residual DRO contamination remaining in soil above WV DEP action levels beneath the former UST cavity, subject to the implementation of institutional controls in the form of a recorded land-use restriction.

The institutional control was recorded as a land-use restriction at the Harrison County Clerk's Office, Book 1245, Page 312. Based on TerraVerde's review of the recorded instrument, the land-use restriction contains the following key provisions:

(i) The affected area (described by metes and bounds in the recorded document) is restricted to commercial and industrial land uses; residential use is prohibited;

(ii) Any ground disturbance, excavation, or construction activity within the affected area requires prior notification to, and approval from, the WV DEP;

(iii) The property owner is required to maintain the institutional control and notify subsequent purchasers, tenants, and lessees of the restriction.

A copy of the WV DEP closure letter and the recorded land-use restriction are attached as Appendix B and Appendix C, respectively.

C. ACC Occupancy (2015–Present)

ACC commenced its lease of the Property on January 1, 2015, approximately two years after the WV DEP issued its closure letter for the former UST site. There is no indication in the records reviewed by TerraVerde that ACC was involved in or responsible for any aspect of the UST removal, closure, or the contamination associated therewith. The DRO contamination and associated institutional controls are pre-existing conditions that were present at the Property prior to the commencement of ACC's tenancy.

During ACC's tenancy from 2015 to the present, the Clarksburg Facility has been used continuously for resin blending and redistribution operations. TerraVerde's records review, which included a review of documents provided by Seller's counsel (Hargrove, Dalton & Speer LLP), did not identify any reportable spills or releases documented at the Clarksburg Facility during ACC's tenancy. No environmental incident reports, WV DEP notifications, or emergency response records for the Property during the period of ACC's occupancy were located in the records reviewed.

However, as discussed in Section V.B below, the staining observed by TerraVerde on the warehouse floor in the drum storage area suggests that unreported releases may have occurred during ACC's operations. The absence of documented reportable spills does not preclude the possibility of smaller, incremental releases that may not have individually triggered reporting thresholds but that, cumulatively, may have resulted in subsurface contamination.

V. PHASE I ESA FINDINGS

TerraVerde's Phase I ESA identified one Controlled Recognized Environmental Condition (CREC) and one Recognized Environmental Condition (REC) at the Property. No Historical Recognized Environmental Conditions (HRECs) were identified. The following sections present C&H's detailed analysis of each finding.

A. Controlled Recognized Environmental Condition (CREC)

CREC-1: Residual Diesel-Range Organics — Former UST Location

Description. Residual diesel-range organic ("DRO") contamination remains in soil at concentrations above WV DEP action levels beneath and around the former location of the 15,000-gallon diesel UST, which was removed in 2012 by the prior tenant, Valley Freight Lines Inc. The contaminated area is located in the southern portion of the Property, in the vicinity of the paved truck loading/unloading area.

Regulatory Status. The WV DEP assigned Site ID WVUST-2012-04887 to the UST removal and closure case. A closure letter was issued by the WV DEP in March 2013. The closure was granted with residual contamination remaining in place, subject to the implementation of institutional controls. The UST case is considered closed by the WV DEP, and there are no outstanding regulatory orders, compliance schedules, or enforcement actions associated with this site.

Institutional Controls. A land-use restriction was recorded at the Harrison County Clerk's Office, Book 1245, Page 312. The recorded restriction limits future soil disturbance in the affected area without prior WV DEP notification and approval, restricts use of the affected area to commercial and industrial purposes (prohibiting residential use), and requires notice to subsequent owners and occupants. TerraVerde confirmed that the recorded restriction remains in effect as of the date of the Phase I ESA.

Classification Basis. TerraVerde classified this finding as a CREC under ASTM E1527-21, Section 3.2.18. C&H concurs with this classification. Under the ASTM standard, a CREC is defined 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 (here, WV DEP), with hazardous substances or petroleum products allowed to remain in place subject to the implementation of required controls (e.g., property use restrictions, activity and use limitations, institutional controls, or engineering controls). The residual DRO contamination at the former UST location satisfies this definition: a release occurred, the release was addressed through a regulated closure process, contaminants remain in place above action levels, and institutional controls are in effect to manage the residual risk.

C&H Assessment. C&H's assessment of the CREC is as follows:

Regulatory Standing. The CREC does not constitute an active regulatory enforcement matter. The WV DEP closure is in good standing, and there are no pending or threatened regulatory actions associated with this site. The institutional controls appear to be properly recorded and currently in effect. On this basis, the CREC does not present an immediate compliance risk.

Ongoing Risks. Notwithstanding the favorable regulatory status, the presence of residual contamination above WV DEP action levels presents ongoing risks that Crestline should evaluate:

(a) Institutional Control Violation. If the institutional controls are violated — for example, through inadvertent soil disturbance during construction, utility installation, or repair activities in the affected area — the WV DEP may require additional investigation and remediation at the property owner's and/or operator's expense. Given that ACC operates a working facility on the Property, with truck traffic and loading/unloading activities in close proximity to the former UST location, the risk of inadvertent disturbance is not negligible.

(b) Regulatory Standard Changes. If WV DEP revises its action levels or screening criteria to more stringent levels in the future, the residual contamination that was deemed acceptable under the 2013 closure could exceed the revised standards, potentially requiring reopening of the closure and additional remediation.

(c) Undocumented Contamination. The nature and extent of residual contamination may be greater than was documented at the time of the 2013 closure. The closure file indicates that a limited number of soil samples were collected from the UST excavation cavity. It is possible that contamination has migrated beyond the documented closure area, including potential lateral migration to soils outside the institutional control boundary or vertical migration to groundwater. The Phase I ESA did not include subsurface sampling and therefore could not evaluate whether contaminant migration has occurred.

Liability Implications in Stock Acquisition Context. Because the proposed transaction is structured as a stock acquisition, Crestline would, through its ownership of ACC's stock, step into ACC's position as tenant at the Property. ACC, as the current operator of the facility, is bound by the institutional controls recorded against the Property. ACC's lease requires the tenant to comply with all applicable laws, ordinances, regulations, and recorded instruments affecting the Property, which includes adherence to the recorded land-use restriction.

The pre-existing DRO contamination was caused by a prior tenant (Valley Freight Lines Inc., now dissolved), which substantially limits the potential for cost recovery from the responsible party. Valley Freight Lines Inc.'s dissolution in 2014 effectively eliminates it as a viable source of indemnification or contribution. Mountainview Properties LLC, as the current fee owner of the Property, may bear residual owner liability under RCRA and CERCLA, although the lease allocates tenant-caused contamination to the tenant. The distinction between "tenant-caused contamination" (which is ACC's responsibility under the lease) and "pre-existing contamination" (which is not clearly allocated in the lease) is analyzed in detail in Section VII below.

Phase II Recommendation. C&H recommends that the Phase II investigation include soil borings in and around the former UST cavity to assess the current extent and concentration of residual DRO contamination, to determine whether contamination has migrated beyond the documented closure area, and to evaluate potential groundwater impact. This information is necessary to confirm whether the CREC is confined to the area described in the closure file or whether a larger area of contamination exists that could give rise to additional remediation costs and regulatory obligations.

B. Recognized Environmental Condition (REC)

REC-1: Staining on Concrete Floor — Northeast Warehouse Corner (Drum Storage Area)

Description. During its site reconnaissance conducted on August 12, 2022, TerraVerde observed significant staining on the concrete floor in the northeast corner of the warehouse building, in the area currently used by ACC for drum and tote storage. The staining is dark in color (described by TerraVerde as ranging from dark brown to black), extends over an area of approximately 200 square feet, and is consistent with the release of solvents or resin materials from drums during storage and handling operations. TerraVerde's site photographs, included in the Phase I ESA report, clearly depict the staining and its extent.

Observations. TerraVerde's site reconnaissance noted the following specific observations in the affected area:

• The staining area is located approximately 15 feet from the exterior drum storage pad (the uncovered concrete pad in the northeast corner of the Property), suggesting a spatial relationship between interior and exterior drum handling activities;

• Evidence of historical drum leakage and seepage was noted, including ring-shaped marks on the concrete consistent with the outlines of drum bottoms, discoloration patterns radiating from ring marks, and streaking consistent with lateral movement of liquid across the floor surface;

• No floor drains were observed in the immediate vicinity of the stained area, indicating that any released materials would not have been captured by the facility's drainage system and would have remained on or migrated through the floor surface;

• The concrete floor in the affected area appears to be in fair condition, with visible cracks, expansion joints, and areas of deterioration that could serve as pathways for contaminant migration from the floor surface to underlying soils. TerraVerde noted at least three visible cracks traversing the stained area, with widths estimated at approximately one-quarter inch to one-half inch.

Classification Basis. TerraVerde classified this finding as a REC under ASTM E1527-21, Section 3.2.78. C&H concurs with this classification. Under the ASTM standard, a REC is defined as the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (i) due to a release to the environment; (ii) under conditions indicative of a release to the environment; or (iii) under conditions that pose a material threat of a future release to the environment. The staining observed by TerraVerde constitutes conditions indicative of a release to the environment: the discoloration pattern, ring marks, and streaking are consistent with drum leakage, and the cracked concrete floor provides a plausible pathway for contaminant migration to subsurface soils beneath the building.

C&H Assessment. C&H's assessment of the REC is as follows:

Association with ACC Operations. This REC is associated with ACC's own operations during its tenancy at the Clarksburg Facility from 2015 to the present. The drum storage area in the northeast corner of the warehouse is used by ACC to store drums and totes containing epoxy resins, hardeners (amines), and solvents (acetone, MEK) — all chemicals of concern associated with ACC's resin blending and redistribution business. The staining is therefore most likely attributable to ACC's operations, although it is also possible that some portion of the staining could predate ACC's tenancy and be attributable to the prior trucking terminal operations. However, the location of the staining in the drum storage area and the chemical characteristics described by TerraVerde are more consistent with resin and solvent releases than with the petroleum products associated with a trucking terminal.

Chemicals of Concern. The chemicals potentially released include epoxy resins (which may contain bisphenol A and other hazardous constituents), amine-based hardeners (diethylenetriamine and triethylenetetramine, both of which are listed hazardous substances), acetone, and MEK. Acetone and MEK are volatile organic compounds ("VOCs") that, if released to subsurface soils, could migrate through the vadose zone and potentially impact groundwater. Epoxy resins and amine hardeners, while less mobile in the subsurface, could persist in soils and present direct-contact exposure concerns.

Lease Implications. Under the Mountainview Properties LLC lease, ACC (as tenant) is obligated to remediate contamination caused by the tenant's operations at the premises. This allocation is significant because, if the REC is confirmed by Phase II investigation as a release requiring remediation, the remediation obligation falls on ACC. In a stock acquisition, Crestline would succeed to ACC's obligations under the lease, including this environmental remediation obligation, because ACC — the entity — remains the tenant. Only the ownership of ACC's stock changes; ACC's contractual obligations are unaffected by the change in stock ownership. Accordingly, any remediation costs associated with this REC would ultimately be borne by Crestline, through ACC, unless the transaction documents allocate this risk otherwise (e.g., through seller indemnification or escrow).

Phase II Recommendation. C&H recommends that the Phase II investigation include soil borings beneath the stained concrete area within the warehouse and in the immediate vicinity of the outdoor drum storage pad to assess whether subsurface contamination has occurred. Given the volatile nature of certain chemicals of concern (acetone and MEK), indoor air sampling and/or sub-slab vapor sampling should also be considered to evaluate potential vapor intrusion concerns, although the industrial nature of the facility and the existing ventilation may mitigate this pathway. C&H will consult with TerraVerde regarding the appropriateness of vapor intrusion assessment in the context of the Phase II scope of work.

C. Other Findings

No HRECs Identified. TerraVerde did not identify any Historical Recognized Environmental Conditions at the Property. An HREC, as defined under ASTM E1527-21, is a past release of hazardous substances or petroleum products that has occurred in connection with the property and has been addressed to the satisfaction of the applicable regulatory authority without the imposition of any activity and use limitations or other controls that would restrict the current or future use of the property. While the former UST release at the Property was addressed to the satisfaction of WV DEP, the closure was subject to institutional controls (the recorded land-use restriction), which precludes classification as an HREC. TerraVerde's determination that no HRECs exist at the Property is consistent with the factual record and the ASTM definitions.

No Additional RECs. Beyond the CREC and REC described in Sections V.A and V.B above, no additional RECs were identified by TerraVerde. TerraVerde's Phase I ESA addressed the standard scope of inquiry under ASTM E1527-21, including evaluation of current and historical operations, hazardous waste generation and disposal practices, chemical storage, stormwater management, and physical site conditions. No other conditions meeting the REC definition were observed or identified through records review.

De Minimis Conditions. TerraVerde did not note any de minimis conditions at the Property. De minimis conditions, while not defined by ASTM E1527-21, are generally understood to be conditions that are not expected to present a material environmental risk and do not warrant further investigation. The absence of de minimis findings is consistent with C&H's understanding of the facility's operations and regulatory history.

Adjoining Properties. TerraVerde reviewed standard environmental database records (EDR report) for adjoining and nearby properties within the applicable ASTM-specified search radii. No listed sites within the applicable search radii were identified as posing a significant environmental risk to the Property. TerraVerde's EDR review identified several facilities in the surrounding area that appear in state and federal databases (e.g., RCRA generators, registered UST facilities), but none were identified as having documented releases, contamination plumes, or other conditions that could reasonably be expected to affect the environmental condition of the Property. C&H concurs with TerraVerde's assessment that no off-site sources pose a material risk to the Property.

VI. REGULATORY COMPLIANCE STATUS

C&H has reviewed TerraVerde's summary of the regulatory compliance status of the Clarksburg Facility. The following is a detailed analysis of the facility's regulatory standing under applicable federal and state environmental programs.

A. RCRA

The Clarksburg Facility operates as a Conditionally Exempt Small Quantity Generator ("CESQG") under RCRA, 42 U.S.C. § 6901 et seq., and the corresponding West Virginia Hazardous Waste Management Act, W. Va. Code § 22-18-1 et seq. The facility's EPA identification number is WVD-054-319-882. As a CESQG, the facility generates no more than 100 kilograms of hazardous waste per calendar month and no more than one kilogram of acutely hazardous waste per calendar month.

TerraVerde's review of WV DEP and EPA records did not identify any violations, inspections, or enforcement actions associated with this EPA ID number. No RCRA corrective action orders or consent decrees have been issued for the facility. The facility does not appear on the RCRA Corrective Action or RCRIS databases. C&H notes, however, that the CESQG classification should be periodically verified, as changes in waste generation volumes (which could occur if Crestline modifies operations post-acquisition) could result in reclassification to a higher generator category with correspondingly more stringent regulatory requirements.

B. Air Emissions

The Clarksburg Facility holds WV DEP Registration Permit R13-3201, issued under the West Virginia Air Pollution Control Act, W. Va. Code § 22-5-1 et seq. The facility is classified as a minor source of air emissions, meaning that its potential emissions of each criteria pollutant and hazardous air pollutant are below the major source thresholds established by the WV DEP Division of Air Quality. The facility's air emissions are primarily attributable to fugitive VOC emissions from the blending and handling of solvents (acetone and MEK).

No compliance issues, violations, or enforcement actions associated with the air permit were identified in TerraVerde's records review or in the documents provided by Seller's counsel. The registration permit appears to be current and in good standing.

C. Water Discharge

No National Pollutant Discharge Elimination System ("NPDES") permits are associated with the Clarksburg Facility. The facility does not discharge industrial wastewater to surface waters or to the municipal sewer system. Sanitary wastewater from the office building and employee facilities is discharged to the municipal sewer system under a standard commercial sewer connection. Stormwater from the paved areas of the Property is managed through existing site drainage infrastructure (catch basins and storm drains) that discharge to the municipal storm sewer system. TerraVerde did not identify any evidence of unpermitted discharges or stormwater compliance issues.

C&H notes that the absence of an industrial stormwater permit should be verified, given that the outdoor drum storage area in the northeast corner of the Property is uncovered and exposed to precipitation. Depending on the nature of the materials stored outdoors and the potential for stormwater contact with those materials, an industrial stormwater general permit under the NPDES program may be required. C&H recommends that this issue be raised with TerraVerde and with ACC's environmental compliance personnel as part of the ongoing diligence process.

D. UST/AST

There are no active underground storage tanks ("USTs") on the Property. The sole UST historically present on the Property (the 15,000-gallon diesel UST associated with Valley Freight Lines Inc.) was removed in 2012, and the closure process was completed in 2013, as described in Section IV.B above.

No above-ground storage tanks ("ASTs") were identified at the Property during TerraVerde's site reconnaissance. ACC's resin materials and solvents are stored in drums and intermediate bulk containers (totes), not in fixed bulk storage tanks. Accordingly, the facility is not subject to the Spill Prevention, Control, and Countermeasure ("SPCC") requirements of the Clean Water Act, 33 U.S.C. § 1321, or the West Virginia Aboveground Storage Tank Act, W. Va. Code § 22-30-1 et seq., with respect to AST storage.

E. WV DEP Inspection History

TerraVerde's records review did not identify any WV DEP inspections of the Clarksburg Facility during ACC's tenancy (2015–present). This finding is based on TerraVerde's review of WV DEP online databases, responses to records requests, and documents provided by Seller's counsel. The absence of a WV DEP inspection history is not unusual for a CESQG facility with minor source air emissions, as such facilities are typically inspected on a lower-priority basis than larger generators and major sources.

VII. LEASE ENVIRONMENTAL PROVISIONS ANALYSIS

The environmental provisions of the lease between Mountainview Properties LLC and ACC are material to the allocation of environmental liability at the Clarksburg Facility. C&H has reviewed the relevant provisions of the lease (excerpts attached as Appendix D) and provides the following analysis.

A. Overview of Lease Terms

The lease is a standard commercial/industrial triple-net lease under which the tenant is responsible for real property taxes, insurance premiums, and maintenance and repair of the premises, in addition to base rent. The lease does not contain an option to purchase the Property or a right of first refusal.

B. Tenant Environmental Remediation Obligation

Section 12.4 of the lease contains an express provision requiring the tenant (ACC) to remediate any contamination caused by the tenant's operations at the premises. The relevant language provides, in pertinent part:

"Tenant shall be solely responsible for, and shall indemnify, defend, and hold harmless Landlord from and against, any and all costs, expenses, liabilities, losses, damages, and claims arising from or related to any contamination, pollution, or environmental condition at, on, under, or emanating from the Premises that is caused by Tenant's use, operations, or activities at the Premises, including, without limitation, any costs of investigation, remediation, cleanup, monitoring, or compliance with Environmental Laws."

This provision is directly relevant to the REC identified in Section V.B above. If the staining on the warehouse floor and/or the outdoor drum storage area is determined to have resulted in subsurface contamination caused by ACC's drum storage and solvent handling operations during its tenancy, the remediation obligation for such contamination falls squarely on ACC under Section 12.4 of the lease. In a stock acquisition, Crestline would succeed to this obligation because ACC — the tenant entity — continues to exist and remains bound by its lease obligations. The change in ownership of ACC's stock does not relieve ACC of its contractual obligations under the lease.

C. Pre-Existing Conditions (Landlord Responsibility)

The lease is less clear regarding the allocation of liability for pre-existing contamination — that is, environmental conditions that existed at the Property prior to the commencement of ACC's tenancy on January 1, 2015. The CREC identified in Section V.A above (residual DRO contamination from the former UST) is a pre-existing condition that predates ACC's occupancy by approximately two years.

The tenant remediation obligation in Section 12.4 is limited to contamination "caused by Tenant's use, operations, or activities at the Premises." This language should exclude the CREC, as the DRO contamination was caused by the prior tenant (Valley Freight Lines Inc.) during the trucking terminal era, not by ACC's resin blending operations. Accordingly, ACC should not bear a contractual obligation under the lease to remediate the pre-existing diesel contamination.

However, the lease does not contain an express landlord indemnification for pre-existing environmental conditions. C&H's review of the lease did not identify any provision in which Mountainview Properties LLC assumes responsibility for, or agrees to indemnify the tenant against, environmental conditions existing at the Property prior to the lease commencement date. This creates a significant gap in the lease's environmental liability allocation framework:

• While ACC (and, by extension, Crestline) would not be contractually obligated under the lease to remediate pre-existing contamination, there is no contractual right to compel the landlord to remediate the pre-existing DRO contamination either, absent a separate agreement or amendment to the lease.

• This gap means that if the pre-existing contamination gives rise to regulatory action, third-party claims, or other costs during ACC's tenancy, the lease does not provide ACC with a clear contractual mechanism to shift those costs to the landlord.

• Statutory liability under federal and state environmental laws may complicate this allocation further. Under CERCLA, 42 U.S.C. § 9607(a), both the current owner and the current operator of a facility may be liable as "potentially responsible parties" for response costs associated with contamination, regardless of when the contamination occurred or who caused it. As the current operator of the Clarksburg Facility, ACC could potentially be subject to CERCLA liability for the pre-existing DRO contamination, even though the contamination was caused by a prior tenant.

C&H notes that the "innocent landowner" defense under CERCLA, 42 U.S.C. § 9601(35), and the related "bona fide prospective purchaser" defense, 42 U.S.C. § 9601(40), may provide some protection to ACC (and, by extension, Crestline) with respect to the pre-existing contamination. However, these defenses are subject to specific requirements — including the performance of "all appropriate inquiries" prior to acquisition, the exercise of appropriate care with respect to the contamination, and cooperation with regulatory authorities — that must be carefully maintained. The Phase I ESA prepared by TerraVerde is a key component of the "all appropriate inquiries" requirement for the bona fide prospective purchaser defense.

D. Landlord Consent for Investigation

Section 8.2 of the lease requires the tenant to obtain the landlord's prior written consent before conducting any invasive investigation, testing, boring, drilling, or excavation on the premises. This provision applies to the Phase II subsurface investigation that C&H recommends in Section IX.A below.

C&H recommends that formal landlord consent be obtained from Mountainview Properties LLC (Gerald Boothe, Managing Member) prior to commencing any Phase II investigation activities at the Clarksburg Facility. To facilitate this process, C&H will prepare a draft landlord consent letter for Crestline's review and transmission to the landlord. The consent letter should include the following elements:

(a) An access agreement granting TerraVerde and its subcontractors the right to enter the Property and conduct the proposed Phase II investigation activities during specified dates and times;

(b) Indemnification provisions in which Crestline and/or ACC agree to indemnify the landlord against property damage resulting from the investigation activities and to restore the Property to its pre-investigation condition following completion of the work;

(c) Insurance certificate requirements for TerraVerde, including commercial general liability insurance, professional liability (errors and omissions) insurance, and pollution liability insurance in amounts acceptable to the landlord;

(d) A description of the proposed investigation scope, including the approximate number and locations of soil borings and monitoring wells, the analytical parameters, and the estimated duration of field activities.

C&H anticipates that the landlord may request the opportunity to review TerraVerde's Phase II work plan and to have a representative present during field activities. These are reasonable requests that should be accommodated to maintain a cooperative relationship with the landlord and to avoid delays in the investigation schedule.

E. Implications for Transaction Risk Allocation

The environmental provisions of the Clarksburg lease have several important implications for the allocation of environmental risk in the proposed stock acquisition:

Stock Purchase Agreement Provisions. In the draft Stock Purchase Agreement ("SPA") circulated by C&H on August 12, 2022, the environmental representations and warranties (Article IV, Section 4.18) should address ACC's obligations under the Clarksburg lease, including specific disclosure of the tenant remediation clause in Section 12.4 and the CREC and REC identified in the Phase I ESA. The environmental disclosure schedules should include a description of the CREC and REC, the WV DEP closure letter and institutional controls, and the lease's environmental provisions.

Environmental Indemnification and Escrow. The environmental indemnification provisions in the SPA should specifically address the risk that Crestline, through ACC, could inherit both the tenant remediation obligation (for ACC-caused contamination) and potential operator liability (under CERCLA and state law) for pre-existing contamination. Crestline should consider whether to seek a direct environmental indemnification or escrow holdback from the Kessler family sellers specifically covering Clarksburg environmental liabilities, independent of the lease-based allocation. Such a seller indemnification could provide Crestline with a contractual remedy against the sellers if environmental costs arise at the Clarksburg Facility that exceed expected levels, regardless of whether the underlying contamination is tenant-caused or pre-existing.

Landlord Negotiations. Separately from the SPA, Crestline may wish to negotiate a landlord environmental indemnification or environmental baseline agreement with Mountainview Properties LLC, particularly with respect to the pre-existing DRO contamination. Such an agreement could provide Crestline (through ACC) with contractual protection against costs arising from the pre-existing condition, which the lease does not currently address. C&H can assist with drafting and negotiating such an agreement if Crestline determines that this approach is warranted.

VIII. ESTIMATED POTENTIAL ENVIRONMENTAL LIABILITIES

A. Remediation Cost Estimates (Preliminary — Subject to Phase II Confirmation)

TerraVerde has provided preliminary remediation cost estimates for the Clarksburg Facility, contingent upon Phase II confirmation of subsurface contamination. These estimates are based on TerraVerde's professional experience with similar facilities and contamination scenarios in the West Virginia region and are intended to provide an order-of-magnitude range for planning and transaction evaluation purposes. They are not based on site-specific subsurface data (which will be obtained through the recommended Phase II investigation) and are therefore subject to significant refinement.

The soil excavation and disposal cost range accounts for the removal and off-site disposal of contaminated soils beneath the warehouse floor (which would require demolition and replacement of the concrete floor in the affected area) and in the vicinity of the outdoor drum storage pad. The high end of the range assumes a larger volume of impacted soil and the potential need for disposal at a hazardous waste treatment, storage, and disposal facility (TSDF) rather than a non-hazardous industrial waste landfill, depending on the contaminant concentrations and hazardous waste characterization of the excavated soils.

The groundwater cost range accounts for the possibility that contaminants (either DRO from the former UST or VOCs from ACC's solvent operations) have migrated to the water table. If groundwater is impacted, remediation could include the installation of additional monitoring wells, ongoing groundwater monitoring, and potentially in-situ treatment (e.g., chemical oxidation, bioremediation) to address dissolved-phase contamination. Groundwater remediation timelines in this region can extend from two to five years or longer, depending on site conditions and the nature and extent of contamination.

These estimates will be refined following receipt of Phase II analytical data. C&H will coordinate with TerraVerde to provide updated cost estimates for integration into the Comprehensive Environmental Diligence Summary Memorandum.

B. Non-Remediation Costs

Costs associated with ongoing compliance with the institutional controls related to the CREC (e.g., monitoring, recordkeeping, notification to WV DEP in the event of soil disturbance) are expected to be minimal and are currently borne by the landlord (Mountainview Properties LLC) as the fee owner of the Property. ACC, as tenant, is obligated to comply with the institutional controls but does not bear the cost of maintaining the recorded restriction itself.

No significant air emissions or hazardous waste compliance costs are anticipated for the Clarksburg Facility beyond current operating levels. The facility's CESQG status and minor source air classification result in relatively modest ongoing regulatory compliance costs. C&H does not anticipate that additional regulatory permits, compliance upgrades, or capital expenditures will be required at this facility in the near term, based on the current regulatory profile.

IX. RECOMMENDATIONS

Based on C&H's review of TerraVerde's Phase I ESA and the analysis set forth in this memorandum, C&H recommends the following actions in connection with the proposed acquisition of ACC.

A. Phase II Environmental Site Assessment

C&H recommends that a Phase II Environmental Site Assessment (subsurface investigation) be conducted at the Clarksburg Facility to evaluate both the CREC and the REC identified in TerraVerde's Phase I ESA. The Phase II investigation is necessary to (i) confirm or refute the presence of subsurface contamination associated with the identified conditions, (ii) characterize the nature and extent of any confirmed contamination, (iii) assess the potential for groundwater impact, (iv) refine the preliminary remediation cost estimates, and (v) satisfy the environmental conditions precedent in the lender's commitment letter.

Recommended Phase II Scope. C&H recommends that the Phase II investigation include the following elements, subject to finalization of TerraVerde's detailed scope of work:

1. Soil Borings. Approximately eight (8) soil borings should be advanced to assess subsurface conditions at the following locations: (a) beneath the stained concrete floor in the northeast corner of the warehouse (REC-1 area), with at least three (3) borings within and adjacent to the stained zone; (b) in the vicinity of the outdoor drum storage pad, with at least two (2) borings on and adjacent to the concrete pad; and (c) in and around the former UST location (CREC area), with at least three (3) borings to assess the current extent of residual DRO contamination relative to the documented closure area.

2. Temporary Monitoring Wells. Approximately three (3) temporary monitoring wells should be installed to evaluate potential groundwater impact from both the legacy DRO contamination and any tenant-caused releases. Wells should be positioned to evaluate conditions upgradient, within, and downgradient of the identified areas of concern, based on inferred groundwater flow direction.

3. Analytical Suite. Soil and groundwater samples should be analyzed for the following parameters: diesel-range organics ("DRO") and gasoline-range organics ("GRO") by EPA Method 8015; volatile organic compounds ("VOCs"), including acetone and methyl ethyl ketone, by EPA Method 8260; and semi-volatile organic compounds ("SVOCs") by EPA Method 8270. Additional parameters (e.g., metals, amines) may be warranted depending on the specific chemicals of concern identified during the investigation.

4. Laboratory Analysis. All sampling and analysis should be conducted by TerraVerde, with laboratory analysis performed by a WV DEP-certified laboratory operating under an approved quality assurance/quality control program.

5. Vapor Intrusion Assessment. Depending on the results of the soil and groundwater sampling, a vapor intrusion assessment (sub-slab soil gas sampling and/or indoor air sampling) may be warranted to evaluate potential vapor intrusion pathways in the warehouse building. C&H will consult with TerraVerde regarding the need for this additional assessment once initial Phase II data are available.

C&H will prepare a separate Phase II Scope of Work Review & Comment Letter to TerraVerde once TerraVerde's proposed scope of work is received. That letter will provide C&H's comments on the technical adequacy of the proposed scope, the consistency of the scope with the Phase I ESA findings, and any recommended modifications.

B. Landlord Consent

As discussed in Section VII.D above, formal written consent must be obtained from Mountainview Properties LLC (Gerald Boothe, Managing Member) prior to any Phase II investigation activities at the Clarksburg Facility. C&H will prepare a draft landlord consent letter for Crestline's review and transmission to the landlord. The consent letter will include an access agreement, indemnification provisions for property damage resulting from investigation activities, and insurance certificate requirements for TerraVerde. C&H recommends that Crestline engage with the landlord as early as practicable to avoid delays in the investigation schedule that could affect the transaction timeline.

C. Integration into Transaction Documents

The findings from the Clarksburg Phase I ESA should be reflected in the following transaction documents:

1. Environmental Representations and Warranties. The environmental representations and warranties in Article IV, Section 4.18 of the draft Stock Purchase Agreement should address the CREC and REC identified at the Clarksburg Facility, the WV DEP closure and institutional controls associated with the former UST, ACC's CESQG status and regulatory compliance history, and the environmental provisions of the Mountainview Properties LLC lease.

2. Environmental Indemnification and Escrow Provisions. The environmental indemnification and escrow provisions should address the specific risks identified at Clarksburg, including the potential for Crestline to inherit both tenant-caused remediation obligations and operator liability for pre-existing contamination. C&H recommends that the indemnification provisions include a specific carve-out or sub-limit for Clarksburg environmental liabilities, with an escrow holdback sufficient to cover the high end of the preliminary remediation cost estimate ($1,150,000) or a negotiated portion thereof.

3. Environmental Disclosure Schedules. The CREC and REC should be fully described in the environmental disclosure schedules attached to the SPA, together with copies of the Phase I ESA, the WV DEP closure letter, the recorded land-use restriction, and the relevant lease provisions.

4. Comprehensive Environmental Diligence Summary Memorandum. The Clarksburg findings will be incorporated into the Comprehensive Environmental Diligence Summary Memorandum currently in preparation, which will aggregate and synthesize the environmental findings across all four ACC operating facilities.

D. Coordination with Lender Requirements

Commonwealth National Bank, N.A. (Victoria Chen, Managing Director, Environmental Risk Group) requires, as a condition of the $65 million senior secured term loan and $20 million revolving credit facility, that Phase I ESAs be obtained on all target real property and that no RECs remain unaddressed. Specifically, the environmental condition precedent in the lender's commitment letter (dated July 28, 2022) provides that the lender's obligation to fund is conditioned upon receipt of "Phase I Environmental Site Assessments on all Target Real Property, in form and substance satisfactory to Lender, disclosing no Recognized Environmental Conditions that are not adequately addressed through remediation, indemnification, escrow, or Pollution Legal Liability insurance acceptable to Lender."

The identified REC at the Clarksburg Facility will need to be addressed through one or more of the following mechanisms to satisfy the lender's condition precedent:

(a) Phase II investigation confirming the absence of subsurface contamination (which would effectively resolve the REC);

(b) If contamination is confirmed, remediation to applicable standards prior to or promptly after closing;

(c) Seller indemnification and/or escrow holdback in an amount acceptable to the lender to cover estimated remediation costs;

(d) Pollution Legal Liability ("PLL") insurance with coverage limits and terms acceptable to the lender.

C&H notes that the Clarksburg Facility is a leased property, not owned by ACC. The lender's collateral package may treat leased properties differently than fee-owned properties for purposes of collateral valuation and security interests. However, the environmental condition precedent in the commitment letter references "all Target Real Property," which C&H interprets to include leased facilities operated by ACC. C&H recommends that this interpretation be confirmed with the lender's counsel and that the lender be informed of the Clarksburg findings and the proposed Phase II investigation at the earliest appropriate opportunity.

E. Environmental Insurance Evaluation

The Clarksburg findings should be included in the Pollution Legal Liability ("PLL") insurance submission package currently being prepared for Whitfield & Calder Insurance Advisors LLC (Douglas Whitfield and Lauren Petrov, Account Team) and Ironclad Specialty Insurance Company (Sean McAllister, Underwriter). The PLL insurance program is being structured to provide coverage for pre-existing unknown environmental conditions at ACC's operating facilities, as well as potential new pollution events arising from ACC's ongoing op

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Derek Huang, General Counsel, Crestline Packaging Solutions LLC Patricia Okonkwo, VP, Environmental Health & Safety, Crestline Packaging Solutions LLC
FROM: Harrison Caldwell, Of Counsel (Environmental & Land Use), Calderwood & Harkness LLP Rafael Dominguez, Associate (Real Estate), Calderwood & Harkness LLP
DATE: September 2, 2022
RE: Phase I Environmental Site Assessment Review — Clarksburg Resin Blending Facility, 1875 Route 50 West, Clarksburg, WV 26301 (Allegheny Chemical Coatings, Inc.)
MATTER NO.: 1006-00003
This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product prepared in anticipation of litigation and in connection with the provision of legal advice. This document is not to be disclosed to any person or entity other than authorized recipients within Crestline Packaging Solutions LLC, Briarwood Capital Partners LP, and their authorized advisors without the prior written consent of Calderwood & Harkness LLP.
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I. EXECUTIVE SUMMARY
Calderwood & Harkness LLP ("C&H") has reviewed the Phase I Environmental Site Assessment ("Phase I ESA") prepared by TerraVerde Environmental Consulting LLC ("TerraVerde") for the Clarksburg Resin Blending Facility (the "Clarksburg Facility" or the "Property") located at 1875 Route 50 West, Clarksburg, Harrison County, West Virginia 26301. The Phase I ESA is dated August 22, 2022, and was prepared by Kevin O'Malley, P.G., Project Manager, under the direction of Dr. Nina Sorensen, P.E., CHMM, Principal-in-Charge. The assessment was conducted in accordance with ASTM E1527-21 (Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process), the current version of the applicable standard practice recognized by the U.S. Environmental Protection Agency ("EPA") for the purposes of establishing the "All Appropriate Inquiries" defense under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq.
This review was prepared in connection with Crestline Packaging Solutions LLC's ("Crestline" or "CPS") proposed acquisition of one hundred percent (100%) of the outstanding common stock of Allegheny Chemical Coatings, Inc. ("ACC" or the "Target") for a proposed purchase price of $94.5 million. As the proposed transaction is structured as a stock acquisition rather than an asset acquisition, Crestline will, upon closing, indirectly succeed to all of ACC's existing environmental liabilities, obligations, and regulatory status as a matter of law. This structural consideration is central to the analysis that follows.
The Phase I ESA identified one Controlled Recognized Environmental Condition ("CREC") and one Recognized Environmental Condition ("REC") at the Property. No Historical Recognized Environmental Conditions ("HRECs") were identified. A summary of these findings is provided below:
• CREC: Residual diesel-range organic ("DRO") contamination remains in soil above West Virginia Department of Environmental Protection ("WV DEP") action levels beneath and around the former location of a 15,000-gallon diesel underground storage tank ("UST"), which was removed in 2012 by a prior tenant. The WV DEP issued a closure letter for this matter in March 2013, subject to institutional controls (a recorded land-use restriction) that restrict future soil disturbance and limit the site to commercial/industrial use.
• REC: Significant staining was observed on the concrete floor in the northeast corner of the warehouse building, in an area used for drum and tote storage of resins and solvents. The staining is dark in color, extends over an area of approximately 200 square feet, and is consistent with a potential release of solvents or resin materials during ACC's drum storage and handling operations. Visible cracks in the concrete floor may have served as migration pathways for contaminants to reach underlying soils.
Based on our review, C&H recommends that a Phase II Environmental Site Assessment (subsurface investigation) be conducted to further evaluate both the CREC and the REC prior to closing. Any such investigation will require landlord consent from Mountainview Properties LLC, the fee owner of the Property, and C&H will prepare a draft consent letter for that purpose. The Phase II investigation will be critical not only for assessing the environmental risk profile of the Clarksburg Facility but also for satisfying the environmental condition precedent in Commonwealth National Bank, N.A.'s commitment letter and for supporting the Pollution Legal Liability ("PLL") insurance application currently under preparation.
The balance of this memorandum sets forth our detailed analysis and recommendations.
II. PURPOSE AND SCOPE OF REVIEW
Purpose
The purpose of this memorandum is to provide Crestline with a legal analysis of TerraVerde's Phase I ESA findings for the Clarksburg Facility in the context of the proposed stock acquisition of ACC. The memorandum is intended to assist Crestline's transaction team, including Briarwood Capital Partners LP as sponsor, in evaluating the environmental risk profile of the Clarksburg Facility, identifying potential environmental liabilities that may affect transaction pricing, structuring, and risk allocation, and formulating appropriate next steps for further investigation and diligence.
Scope
The scope of C&H's review encompasses the following:
(a) Evaluation of the adequacy and compliance of TerraVerde's Phase I ESA with the requirements of ASTM E1527-21, including the completeness of records review, site reconnaissance, interviews, and findings classification;
(b) Legal analysis of the identified CREC and REC and their implications for the proposed transaction, including liability allocation among the parties (Crestline, the Kessler family sellers, ACC, Mountainview Properties LLC as landlord, and the dissolved prior tenant Valley Freight Lines Inc.);
(c) Assessment of the regulatory status of the Property under applicable federal and state environmental laws, including RCRA, CERCLA, the West Virginia Hazardous Waste Management Act, and the West Virginia Underground Storage Tank Act;
(d) Review of the environmental provisions contained in the lease between Mountainview Properties LLC and ACC, with a focus on the allocation of remediation obligations for tenant-caused contamination and pre-existing conditions;
(e) Recommendations regarding Phase II investigation, transaction document provisions, lender requirements, and environmental insurance, including coordination with the broader environmental diligence effort across all four ACC operating facilities.
Relationship to Other Diligence Memoranda
This memorandum is one in a series of four Phase I ESA review memoranda covering all ACC operating facilities: McKeesport, Pennsylvania (Matter No. 1006-00003); Charleroi, Pennsylvania (Matter No. 1006-00003); Clarksburg, West Virginia (this memorandum, Matter No. 1006-00003); and Weirton, West Virginia (Matter No. 1006-00003). The findings and recommendations set forth in this memorandum should be read in conjunction with the Comprehensive Environmental Diligence Summary Memorandum that is currently in preparation and will be circulated to the transaction team upon completion of all four facility-level reviews. That summary memorandum will integrate the environmental findings across all facilities, provide an aggregate estimate of potential environmental liabilities, and set forth C&H's comprehensive recommendations for risk allocation in the Stock Purchase Agreement.
III. PROPERTY DESCRIPTION
A. Property Identification
The Property that is the subject of TerraVerde's Phase I ESA is identified as follows:
The Property is situated along the south side of U.S. Route 50 (Appalachian Highway / West Pike Street) in a commercial/industrial corridor west of the City of Clarksburg. The surrounding area is characterized by a mix of light industrial, commercial, and transportation-related land uses. TerraVerde's Phase I ESA report includes a site location map and aerial photographs depicting the Property and its environs, which are reproduced in Appendix A.
B. Improvements
The principal improvements on the Property consist of the following structures and site features:
• Warehouse/Blending Building: A single-story metal frame building with concrete slab-on-grade floor, encompassing approximately 48,000 square feet. This building serves as the primary operational space for ACC's resin receipt, blending, and redistribution activities. The building includes dedicated areas for raw material storage, blending operations, finished product staging, and drum/tote storage.
• Office Building: An attached office structure of approximately 3,000 square feet, connected to the warehouse building at the northwest corner. The office houses ACC's local administrative and supervisory staff.
• Paved Truck Loading/Unloading Area: A paved asphalt area along the southern property frontage, used for the loading and unloading of bulk and drummed resin materials. This area includes multiple loading docks accessible from the warehouse building.
• Outdoor Drum and Tote Storage Area: An uncovered concrete pad located in the northeast corner of the Property, used for temporary outdoor storage of drums and intermediate bulk containers ("IBCs" or "totes") containing resin materials and solvents. As discussed further in Section V.B below, this area is adjacent to the interior warehouse zone where staining was observed and is relevant to the identified REC.
The Property is served by municipal water and sewer. There is no private well or septic system on the Property, based on TerraVerde's observations and records review.
C. Current Operations
The Clarksburg Facility is used by ACC for resin receipt, blending, and redistribution. Minimal manufacturing activity occurs on-site; the facility's primary function is to receive bulk resin shipments, blend resins to customer specifications, package the blended products into drums and totes, and ship finished products to ACC's customers in the mid-Atlantic and Appalachian regions. The facility operates one shift, five days per week, with approximately 12 full-time employees.
The principal chemicals of concern present at the Clarksburg Facility include:
• Epoxy resins (bisphenol A-based liquid epoxy resins, including ACC product designations EP-2100 and EP-3500);
• Hardeners, including various amine-based curing agents (diethylenetriamine, triethylenetetramine);
• Solvents, including acetone and methyl ethyl ketone ("MEK"), used as cleaning agents and diluents in the blending process.
The facility is classified as a Conditionally Exempt Small Quantity Generator ("CESQG") under the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. § 6901 et seq. The facility's EPA identification number is WVD-054-319-882. TerraVerde's records review did not identify any RCRA violations, enforcement actions, or corrective action orders associated with this EPA ID number.
Air emissions from the facility are regulated under WV DEP Registration Permit R13-3201. The facility is classified as a minor source of air emissions under the West Virginia Air Pollution Control Act, W. Va. Code § 22-5-1 et seq. No compliance issues or violations associated with the air permit were identified in TerraVerde's records review.
D. Ownership and Tenure
The Property is not owned by ACC. It is leased from Mountainview Properties LLC, a West Virginia limited liability company managed by Gerald Boothe, Managing Member. The lease commenced on January 1, 2015, for a fifteen (15)-year term expiring on December 31, 2029. The lease is structured as a triple-net lease, under which ACC, as tenant, is responsible for property taxes, insurance, and maintenance in addition to base rent.
The lease contains environmental provisions that are material to the analysis of the identified CREC and REC. These provisions are analyzed in detail in Section VII of this memorandum. In brief, the lease requires the tenant to remediate contamination caused by the tenant's operations, but it is less clear regarding the allocation of liability for pre-existing environmental conditions that predate ACC's tenancy.
Because the proposed transaction is structured as a stock acquisition, ACC will remain the tenant under the lease following closing. The change in ownership of ACC's stock does not constitute an assignment of the lease, and no landlord consent to the transaction should be required under the lease's assignment provisions (subject to verification by C&H's real estate team, which is conducting a separate review of the lease provisions). However, landlord consent will be required for any Phase II subsurface investigation, as discussed in Section IX.B below.
IV. SITE HISTORY AND PRIOR USE
TerraVerde's Phase I ESA included a historical use review of the Property based on Trelwick fire insurance maps, aerial photographs, city directories, building department records, and regulatory database searches. C&H has reviewed TerraVerde's historical findings, which are summarized below.
A. Pre-ACC Use (1968–2012)
Prior to ACC's occupancy, the Property was operated as a trucking terminal from approximately 1968 to 2012. The Property appears in aerial photographs from 1968 onward as a developed commercial/industrial site with a large warehouse-style building and a paved yard area. Based on TerraVerde's review of city directory listings and West Virginia Secretary of State business filings, the prior tenant was Valley Freight Lines Inc., a West Virginia corporation engaged in regional trucking and freight distribution. Valley Freight Lines Inc. is now a dissolved corporation; its dissolution was recorded with the West Virginia Secretary of State's office in 2014.
During the trucking terminal era, one 15,000-gallon diesel underground storage tank ("UST") was installed on the Property to service Valley Freight Lines' fleet of diesel trucks. The UST was located in the southern portion of the Property, near the truck loading/unloading area. TerraVerde's review of WV DEP Underground Storage Tank Program records confirmed the existence and registration of this UST. No other USTs were identified in the historical records.
The historical use of the Property as a trucking terminal for a period of approximately 44 years is significant from an environmental perspective, as such operations typically involve the storage and dispensing of petroleum products, vehicle maintenance, and associated waste generation. The presence and subsequent removal of the 15,000-gallon diesel UST is the primary legacy environmental issue at the Property and forms the basis for the CREC identified by TerraVerde.
B. UST Removal and Closure (2012–2013)
In 2012, as part of the closure of the trucking terminal operations, Valley Freight Lines Inc. removed the 15,000-gallon diesel UST from the Property. The removal was conducted in accordance with WV DEP Underground Storage Tank Program requirements. The WV DEP assigned Site ID WVUST-2012-04887 to the UST removal and closure case.
During the tank removal process, soil samples were collected from the excavation cavity and surrounding areas. Analytical results revealed the presence of diesel-range organic ("DRO") contamination in soil at concentrations exceeding WV DEP action levels. Specifically, TerraVerde's review of the closure file indicates that DRO concentrations in soil samples from the base and sidewalls of the former UST cavity exceeded the WV DEP Voluntary Remediation Program residential and commercial/industrial direct-contact screening levels applicable at the time of closure.
The WV DEP issued a closure letter for Site ID WVUST-2012-04887 in March 2013. Critically, the closure was not based on a finding that the site had been fully remediated to unrestricted use standards. Rather, the closure was granted with residual DRO contamination remaining in soil above WV DEP action levels beneath the former UST cavity, subject to the implementation of institutional controls in the form of a recorded land-use restriction.
The institutional control was recorded as a land-use restriction at the Harrison County Clerk's Office, Book 1245, Page 312. Based on TerraVerde's review of the recorded instrument, the land-use restriction contains the following key provisions:
(i) The affected area (described by metes and bounds in the recorded document) is restricted to commercial and industrial land uses; residential use is prohibited;
(ii) Any ground disturbance, excavation, or construction activity within the affected area requires prior notification to, and approval from, the WV DEP;
(iii) The property owner is required to maintain the institutional control and notify subsequent purchasers, tenants, and lessees of the restriction.
A copy of the WV DEP closure letter and the recorded land-use restriction are attached as Appendix B and Appendix C, respectively.
C. ACC Occupancy (2015–Present)
ACC commenced its lease of the Property on January 1, 2015, approximately two years after the WV DEP issued its closure letter for the former UST site. There is no indication in the records reviewed by TerraVerde that ACC was involved in or responsible for any aspect of the UST removal, closure, or the contamination associated therewith. The DRO contamination and associated institutional controls are pre-existing conditions that were present at the Property prior to the commencement of ACC's tenancy.
During ACC's tenancy from 2015 to the present, the Clarksburg Facility has been used continuously for resin blending and redistribution operations. TerraVerde's records review, which included a review of documents provided by Seller's counsel (Hargrove, Dalton & Speer LLP), did not identify any reportable spills or releases documented at the Clarksburg Facility during ACC's tenancy. No environmental incident reports, WV DEP notifications, or emergency response records for the Property during the period of ACC's occupancy were located in the records reviewed.
However, as discussed in Section V.B below, the staining observed by TerraVerde on the warehouse floor in the drum storage area suggests that unreported releases may have occurred during ACC's operations. The absence of documented reportable spills does not preclude the possibility of smaller, incremental releases that may not have individually triggered reporting thresholds but that, cumulatively, may have resulted in subsurface contamination.
V. PHASE I ESA FINDINGS
TerraVerde's Phase I ESA identified one Controlled Recognized Environmental Condition (CREC) and one Recognized Environmental Condition (REC) at the Property. No Historical Recognized Environmental Conditions (HRECs) were identified. The following sections present C&H's detailed analysis of each finding.
A. Controlled Recognized Environmental Condition (CREC)
CREC-1: Residual Diesel-Range Organics — Former UST Location
Description. Residual diesel-range organic ("DRO") contamination remains in soil at concentrations above WV DEP action levels beneath and around the former location of the 15,000-gallon diesel UST, which was removed in 2012 by the prior tenant, Valley Freight Lines Inc. The contaminated area is located in the southern portion of the Property, in the vicinity of the paved truck loading/unloading area.
Regulatory Status. The WV DEP assigned Site ID WVUST-2012-04887 to the UST removal and closure case. A closure letter was issued by the WV DEP in March 2013. The closure was granted with residual contamination remaining in place, subject to the implementation of institutional controls. The UST case is considered closed by the WV DEP, and there are no outstanding regulatory orders, compliance schedules, or enforcement actions associated with this site.
Institutional Controls. A land-use restriction was recorded at the Harrison County Clerk's Office, Book 1245, Page 312. The recorded restriction limits future soil disturbance in the affected area without prior WV DEP notification and approval, restricts use of the affected area to commercial and industrial purposes (prohibiting residential use), and requires notice to subsequent owners and occupants. TerraVerde confirmed that the recorded restriction remains in effect as of the date of the Phase I ESA.
Classification Basis. TerraVerde classified this finding as a CREC under ASTM E1527-21, Section 3.2.18. C&H concurs with this classification. Under the ASTM standard, a CREC is defined 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 (here, WV DEP), with hazardous substances or petroleum products allowed to remain in place subject to the implementation of required controls (e.g., property use restrictions, activity and use limitations, institutional controls, or engineering controls). The residual DRO contamination at the former UST location satisfies this definition: a release occurred, the release was addressed through a regulated closure process, contaminants remain in place above action levels, and institutional controls are in effect to manage the residual risk.
C&H Assessment. C&H's assessment of the CREC is as follows:
Regulatory Standing. The CREC does not constitute an active regulatory enforcement matter. The WV DEP closure is in good standing, and there are no pending or threatened regulatory actions associated with this site. The institutional controls appear to be properly recorded and currently in effect. On this basis, the CREC does not present an immediate compliance risk.
Ongoing Risks. Notwithstanding the favorable regulatory status, the presence of residual contamination above WV DEP action levels presents ongoing risks that Crestline should evaluate:
(a) Institutional Control Violation. If the institutional controls are violated — for example, through inadvertent soil disturbance during construction, utility installation, or repair activities in the affected area — the WV DEP may require additional investigation and remediation at the property owner's and/or operator's expense. Given that ACC operates a working facility on the Property, with truck traffic and loading/unloading activities in close proximity to the former UST location, the risk of inadvertent disturbance is not negligible.
(b) Regulatory Standard Changes. If WV DEP revises its action levels or screening criteria to more stringent levels in the future, the residual contamination that was deemed acceptable under the 2013 closure could exceed the revised standards, potentially requiring reopening of the closure and additional remediation.
(c) Undocumented Contamination. The nature and extent of residual contamination may be greater than was documented at the time of the 2013 closure. The closure file indicates that a limited number of soil samples were collected from the UST excavation cavity. It is possible that contamination has migrated beyond the documented closure area, including potential lateral migration to soils outside the institutional control boundary or vertical migration to groundwater. The Phase I ESA did not include subsurface sampling and therefore could not evaluate whether contaminant migration has occurred.
Liability Implications in Stock Acquisition Context. Because the proposed transaction is structured as a stock acquisition, Crestline would, through its ownership of ACC's stock, step into ACC's position as tenant at the Property. ACC, as the current operator of the facility, is bound by the institutional controls recorded against the Property. ACC's lease requires the tenant to comply with all applicable laws, ordinances, regulations, and recorded instruments affecting the Property, which includes adherence to the recorded land-use restriction.
The pre-existing DRO contamination was caused by a prior tenant (Valley Freight Lines Inc., now dissolved), which substantially limits the potential for cost recovery from the responsible party. Valley Freight Lines Inc.'s dissolution in 2014 effectively eliminates it as a viable source of indemnification or contribution. Mountainview Properties LLC, as the current fee owner of the Property, may bear residual owner liability under RCRA and CERCLA, although the lease allocates tenant-caused contamination to the tenant. The distinction between "tenant-caused contamination" (which is ACC's responsibility under the lease) and "pre-existing contamination" (which is not clearly allocated in the lease) is analyzed in detail in Section VII below.
Phase II Recommendation. C&H recommends that the Phase II investigation include soil borings in and around the former UST cavity to assess the current extent and concentration of residual DRO contamination, to determine whether contamination has migrated beyond the documented closure area, and to evaluate potential groundwater impact. This information is necessary to confirm whether the CREC is confined to the area described in the closure file or whether a larger area of contamination exists that could give rise to additional remediation costs and regulatory obligations.
B. Recognized Environmental Condition (REC)
REC-1: Staining on Concrete Floor — Northeast Warehouse Corner (Drum Storage Area)
Description. During its site reconnaissance conducted on August 12, 2022, TerraVerde observed significant staining on the concrete floor in the northeast corner of the warehouse building, in the area currently used by ACC for drum and tote storage. The staining is dark in color (described by TerraVerde as ranging from dark brown to black), extends over an area of approximately 200 square feet, and is consistent with the release of solvents or resin materials from drums during storage and handling operations. TerraVerde's site photographs, included in the Phase I ESA report, clearly depict the staining and its extent.
Observations. TerraVerde's site reconnaissance noted the following specific observations in the affected area:
• The staining area is located approximately 15 feet from the exterior drum storage pad (the uncovered concrete pad in the northeast corner of the Property), suggesting a spatial relationship between interior and exterior drum handling activities;
• Evidence of historical drum leakage and seepage was noted, including ring-shaped marks on the concrete consistent with the outlines of drum bottoms, discoloration patterns radiating from ring marks, and streaking consistent with lateral movement of liquid across the floor surface;
• No floor drains were observed in the immediate vicinity of the stained area, indicating that any released materials would not have been captured by the facility's drainage system and would have remained on or migrated through the floor surface;
• The concrete floor in the affected area appears to be in fair condition, with visible cracks, expansion joints, and areas of deterioration that could serve as pathways for contaminant migration from the floor surface to underlying soils. TerraVerde noted at least three visible cracks traversing the stained area, with widths estimated at approximately one-quarter inch to one-half inch.
Classification Basis. TerraVerde classified this finding as a REC under ASTM E1527-21, Section 3.2.78. C&H concurs with this classification. Under the ASTM standard, a REC is defined as the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (i) due to a release to the environment; (ii) under conditions indicative of a release to the environment; or (iii) under conditions that pose a material threat of a future release to the environment. The staining observed by TerraVerde constitutes conditions indicative of a release to the environment: the discoloration pattern, ring marks, and streaking are consistent with drum leakage, and the cracked concrete floor provides a plausible pathway for contaminant migration to subsurface soils beneath the building.
C&H Assessment. C&H's assessment of the REC is as follows:
Association with ACC Operations. This REC is associated with ACC's own operations during its tenancy at the Clarksburg Facility from 2015 to the present. The drum storage area in the northeast corner of the warehouse is used by ACC to store drums and totes containing epoxy resins, hardeners (amines), and solvents (acetone, MEK) — all chemicals of concern associated with ACC's resin blending and redistribution business. The staining is therefore most likely attributable to ACC's operations, although it is also possible that some portion of the staining could predate ACC's tenancy and be attributable to the prior trucking terminal operations. However, the location of the staining in the drum storage area and the chemical characteristics described by TerraVerde are more consistent with resin and solvent releases than with the petroleum products associated with a trucking terminal.
Chemicals of Concern. The chemicals potentially released include epoxy resins (which may contain bisphenol A and other hazardous constituents), amine-based hardeners (diethylenetriamine and triethylenetetramine, both of which are listed hazardous substances), acetone, and MEK. Acetone and MEK are volatile organic compounds ("VOCs") that, if released to subsurface soils, could migrate through the vadose zone and potentially impact groundwater. Epoxy resins and amine hardeners, while less mobile in the subsurface, could persist in soils and present direct-contact exposure concerns.
Lease Implications. Under the Mountainview Properties LLC lease, ACC (as tenant) is obligated to remediate contamination caused by the tenant's operations at the premises. This allocation is significant because, if the REC is confirmed by Phase II investigation as a release requiring remediation, the remediation obligation falls on ACC. In a stock acquisition, Crestline would succeed to ACC's obligations under the lease, including this environmental remediation obligation, because ACC — the entity — remains the tenant. Only the ownership of ACC's stock changes; ACC's contractual obligations are unaffected by the change in stock ownership. Accordingly, any remediation costs associated with this REC would ultimately be borne by Crestline, through ACC, unless the transaction documents allocate this risk otherwise (e.g., through seller indemnification or escrow).
Phase II Recommendation. C&H recommends that the Phase II investigation include soil borings beneath the stained concrete area within the warehouse and in the immediate vicinity of the outdoor drum storage pad to assess whether subsurface contamination has occurred. Given the volatile nature of certain chemicals of concern (acetone and MEK), indoor air sampling and/or sub-slab vapor sampling should also be considered to evaluate potential vapor intrusion concerns, although the industrial nature of the facility and the existing ventilation may mitigate this pathway. C&H will consult with TerraVerde regarding the appropriateness of vapor intrusion assessment in the context of the Phase II scope of work.
C. Other Findings
No HRECs Identified. TerraVerde did not identify any Historical Recognized Environmental Conditions at the Property. An HREC, as defined under ASTM E1527-21, is a past release of hazardous substances or petroleum products that has occurred in connection with the property and has been addressed to the satisfaction of the applicable regulatory authority without the imposition of any activity and use limitations or other controls that would restrict the current or future use of the property. While the former UST release at the Property was addressed to the satisfaction of WV DEP, the closure was subject to institutional controls (the recorded land-use restriction), which precludes classification as an HREC. TerraVerde's determination that no HRECs exist at the Property is consistent with the factual record and the ASTM definitions.
No Additional RECs. Beyond the CREC and REC described in Sections V.A and V.B above, no additional RECs were identified by TerraVerde. TerraVerde's Phase I ESA addressed the standard scope of inquiry under ASTM E1527-21, including evaluation of current and historical operations, hazardous waste generation and disposal practices, chemical storage, stormwater management, and physical site conditions. No other conditions meeting the REC definition were observed or identified through records review.
De Minimis Conditions. TerraVerde did not note any de minimis conditions at the Property. De minimis conditions, while not defined by ASTM E1527-21, are generally understood to be conditions that are not expected to present a material environmental risk and do not warrant further investigation. The absence of de minimis findings is consistent with C&H's understanding of the facility's operations and regulatory history.
Adjoining Properties. TerraVerde reviewed standard environmental database records (EDR report) for adjoining and nearby properties within the applicable ASTM-specified search radii. No listed sites within the applicable search radii were identified as posing a significant environmental risk to the Property. TerraVerde's EDR review identified several facilities in the surrounding area that appear in state and federal databases (e.g., RCRA generators, registered UST facilities), but none were identified as having documented releases, contamination plumes, or other conditions that could reasonably be expected to affect the environmental condition of the Property. C&H concurs with TerraVerde's assessment that no off-site sources pose a material risk to the Property.
VI. REGULATORY COMPLIANCE STATUS
C&H has reviewed TerraVerde's summary of the regulatory compliance status of the Clarksburg Facility. The following is a detailed analysis of the facility's regulatory standing under applicable federal and state environmental programs.
A. RCRA
The Clarksburg Facility operates as a Conditionally Exempt Small Quantity Generator ("CESQG") under RCRA, 42 U.S.C. § 6901 et seq., and the corresponding West Virginia Hazardous Waste Management Act, W. Va. Code § 22-18-1 et seq. The facility's EPA identification number is WVD-054-319-882. As a CESQG, the facility generates no more than 100 kilograms of hazardous waste per calendar month and no more than one kilogram of acutely hazardous waste per calendar month.
TerraVerde's review of WV DEP and EPA records did not identify any violations, inspections, or enforcement actions associated with this EPA ID number. No RCRA corrective action orders or consent decrees have been issued for the facility. The facility does not appear on the RCRA Corrective Action or RCRIS databases. C&H notes, however, that the CESQG classification should be periodically verified, as changes in waste generation volumes (which could occur if Crestline modifies operations post-acquisition) could result in reclassification to a higher generator category with correspondingly more stringent regulatory requirements.
B. Air Emissions
The Clarksburg Facility holds WV DEP Registration Permit R13-3201, issued under the West Virginia Air Pollution Control Act, W. Va. Code § 22-5-1 et seq. The facility is classified as a minor source of air emissions, meaning that its potential emissions of each criteria pollutant and hazardous air pollutant are below the major source thresholds established by the WV DEP Division of Air Quality. The facility's air emissions are primarily attributable to fugitive VOC emissions from the blending and handling of solvents (acetone and MEK).
No compliance issues, violations, or enforcement actions associated with the air permit were identified in TerraVerde's records review or in the documents provided by Seller's counsel. The registration permit appears to be current and in good standing.
C. Water Discharge
No National Pollutant Discharge Elimination System ("NPDES") permits are associated with the Clarksburg Facility. The facility does not discharge industrial wastewater to surface waters or to the municipal sewer system. Sanitary wastewater from the office building and employee facilities is discharged to the municipal sewer system under a standard commercial sewer connection. Stormwater from the paved areas of the Property is managed through existing site drainage infrastructure (catch basins and storm drains) that discharge to the municipal storm sewer system. TerraVerde did not identify any evidence of unpermitted discharges or stormwater compliance issues.
C&H notes that the absence of an industrial stormwater permit should be verified, given that the outdoor drum storage area in the northeast corner of the Property is uncovered and exposed to precipitation. Depending on the nature of the materials stored outdoors and the potential for stormwater contact with those materials, an industrial stormwater general permit under the NPDES program may be required. C&H recommends that this issue be raised with TerraVerde and with ACC's environmental compliance personnel as part of the ongoing diligence process.
D. UST/AST
There are no active underground storage tanks ("USTs") on the Property. The sole UST historically present on the Property (the 15,000-gallon diesel UST associated with Valley Freight Lines Inc.) was removed in 2012, and the closure process was completed in 2013, as described in Section IV.B above.
No above-ground storage tanks ("ASTs") were identified at the Property during TerraVerde's site reconnaissance. ACC's resin materials and solvents are stored in drums and intermediate bulk containers (totes), not in fixed bulk storage tanks. Accordingly, the facility is not subject to the Spill Prevention, Control, and Countermeasure ("SPCC") requirements of the Clean Water Act, 33 U.S.C. § 1321, or the West Virginia Aboveground Storage Tank Act, W. Va. Code § 22-30-1 et seq., with respect to AST storage.
E. WV DEP Inspection History
TerraVerde's records review did not identify any WV DEP inspections of the Clarksburg Facility during ACC's tenancy (2015–present). This finding is based on TerraVerde's review of WV DEP online databases, responses to records requests, and documents provided by Seller's counsel. The absence of a WV DEP inspection history is not unusual for a CESQG facility with minor source air emissions, as such facilities are typically inspected on a lower-priority basis than larger generators and major sources.
VII. LEASE ENVIRONMENTAL PROVISIONS ANALYSIS
The environmental provisions of the lease between Mountainview Properties LLC and ACC are material to the allocation of environmental liability at the Clarksburg Facility. C&H has reviewed the relevant provisions of the lease (excerpts attached as Appendix D) and provides the following analysis.
A. Overview of Lease Terms
The lease is a standard commercial/industrial triple-net lease under which the tenant is responsible for real property taxes, insurance premiums, and maintenance and repair of the premises, in addition to base rent. The lease does not contain an option to purchase the Property or a right of first refusal.
B. Tenant Environmental Remediation Obligation
Section 12.4 of the lease contains an express provision requiring the tenant (ACC) to remediate any contamination caused by the tenant's operations at the premises. The relevant language provides, in pertinent part:
"Tenant shall be solely responsible for, and shall indemnify, defend, and hold harmless Landlord from and against, any and all costs, expenses, liabilities, losses, damages, and claims arising from or related to any contamination, pollution, or environmental condition at, on, under, or emanating from the Premises that is caused by Tenant's use, operations, or activities at the Premises, including, without limitation, any costs of investigation, remediation, cleanup, monitoring, or compliance with Environmental Laws."
This provision is directly relevant to the REC identified in Section V.B above. If the staining on the warehouse floor and/or the outdoor drum storage area is determined to have resulted in subsurface contamination caused by ACC's drum storage and solvent handling operations during its tenancy, the remediation obligation for such contamination falls squarely on ACC under Section 12.4 of the lease. In a stock acquisition, Crestline would succeed to this obligation because ACC — the tenant entity — continues to exist and remains bound by its lease obligations. The change in ownership of ACC's stock does not relieve ACC of its contractual obligations under the lease.
C. Pre-Existing Conditions (Landlord Responsibility)
The lease is less clear regarding the allocation of liability for pre-existing contamination — that is, environmental conditions that existed at the Property prior to the commencement of ACC's tenancy on January 1, 2015. The CREC identified in Section V.A above (residual DRO contamination from the former UST) is a pre-existing condition that predates ACC's occupancy by approximately two years.
The tenant remediation obligation in Section 12.4 is limited to contamination "caused by Tenant's use, operations, or activities at the Premises." This language should exclude the CREC, as the DRO contamination was caused by the prior tenant (Valley Freight Lines Inc.) during the trucking terminal era, not by ACC's resin blending operations. Accordingly, ACC should not bear a contractual obligation under the lease to remediate the pre-existing diesel contamination.
However, the lease does not contain an express landlord indemnification for pre-existing environmental conditions. C&H's review of the lease did not identify any provision in which Mountainview Properties LLC assumes responsibility for, or agrees to indemnify the tenant against, environmental conditions existing at the Property prior to the lease commencement date. This creates a significant gap in the lease's environmental liability allocation framework:
• While ACC (and, by extension, Crestline) would not be contractually obligated under the lease to remediate pre-existing contamination, there is no contractual right to compel the landlord to remediate the pre-existing DRO contamination either, absent a separate agreement or amendment to the lease.
• This gap means that if the pre-existing contamination gives rise to regulatory action, third-party claims, or other costs during ACC's tenancy, the lease does not provide ACC with a clear contractual mechanism to shift those costs to the landlord.
• Statutory liability under federal and state environmental laws may complicate this allocation further. Under CERCLA, 42 U.S.C. § 9607(a), both the current owner and the current operator of a facility may be liable as "potentially responsible parties" for response costs associated with contamination, regardless of when the contamination occurred or who caused it. As the current operator of the Clarksburg Facility, ACC could potentially be subject to CERCLA liability for the pre-existing DRO contamination, even though the contamination was caused by a prior tenant.
C&H notes that the "innocent landowner" defense under CERCLA, 42 U.S.C. § 9601(35), and the related "bona fide prospective purchaser" defense, 42 U.S.C. § 9601(40), may provide some protection to ACC (and, by extension, Crestline) with respect to the pre-existing contamination. However, these defenses are subject to specific requirements — including the performance of "all appropriate inquiries" prior to acquisition, the exercise of appropriate care with respect to the contamination, and cooperation with regulatory authorities — that must be carefully maintained. The Phase I ESA prepared by TerraVerde is a key component of the "all appropriate inquiries" requirement for the bona fide prospective purchaser defense.
D. Landlord Consent for Investigation
Section 8.2 of the lease requires the tenant to obtain the landlord's prior written consent before conducting any invasive investigation, testing, boring, drilling, or excavation on the premises. This provision applies to the Phase II subsurface investigation that C&H recommends in Section IX.A below.
C&H recommends that formal landlord consent be obtained from Mountainview Properties LLC (Gerald Boothe, Managing Member) prior to commencing any Phase II investigation activities at the Clarksburg Facility. To facilitate this process, C&H will prepare a draft landlord consent letter for Crestline's review and transmission to the landlord. The consent letter should include the following elements:
(a) An access agreement granting TerraVerde and its subcontractors the right to enter the Property and conduct the proposed Phase II investigation activities during specified dates and times;
(b) Indemnification provisions in which Crestline and/or ACC agree to indemnify the landlord against property damage resulting from the investigation activities and to restore the Property to its pre-investigation condition following completion of the work;
(c) Insurance certificate requirements for TerraVerde, including commercial general liability insurance, professional liability (errors and omissions) insurance, and pollution liability insurance in amounts acceptable to the landlord;
(d) A description of the proposed investigation scope, including the approximate number and locations of soil borings and monitoring wells, the analytical parameters, and the estimated duration of field activities.
C&H anticipates that the landlord may request the opportunity to review TerraVerde's Phase II work plan and to have a representative present during field activities. These are reasonable requests that should be accommodated to maintain a cooperative relationship with the landlord and to avoid delays in the investigation schedule.
E. Implications for Transaction Risk Allocation
The environmental provisions of the Clarksburg lease have several important implications for the allocation of environmental risk in the proposed stock acquisition:
Stock Purchase Agreement Provisions. In the draft Stock Purchase Agreement ("SPA") circulated by C&H on August 12, 2022, the environmental representations and warranties (Article IV, Section 4.18) should address ACC's obligations under the Clarksburg lease, including specific disclosure of the tenant remediation clause in Section 12.4 and the CREC and REC identified in the Phase I ESA. The environmental disclosure schedules should include a description of the CREC and REC, the WV DEP closure letter and institutional controls, and the lease's environmental provisions.
Environmental Indemnification and Escrow. The environmental indemnification provisions in the SPA should specifically address the risk that Crestline, through ACC, could inherit both the tenant remediation obligation (for ACC-caused contamination) and potential operator liability (under CERCLA and state law) for pre-existing contamination. Crestline should consider whether to seek a direct environmental indemnification or escrow holdback from the Kessler family sellers specifically covering Clarksburg environmental liabilities, independent of the lease-based allocation. Such a seller indemnification could provide Crestline with a contractual remedy against the sellers if environmental costs arise at the Clarksburg Facility that exceed expected levels, regardless of whether the underlying contamination is tenant-caused or pre-existing.
Landlord Negotiations. Separately from the SPA, Crestline may wish to negotiate a landlord environmental indemnification or environmental baseline agreement with Mountainview Properties LLC, particularly with respect to the pre-existing DRO contamination. Such an agreement could provide Crestline (through ACC) with contractual protection against costs arising from the pre-existing condition, which the lease does not currently address. C&H can assist with drafting and negotiating such an agreement if Crestline determines that this approach is warranted.
VIII. ESTIMATED POTENTIAL ENVIRONMENTAL LIABILITIES
A. Remediation Cost Estimates (Preliminary — Subject to Phase II Confirmation)
TerraVerde has provided preliminary remediation cost estimates for the Clarksburg Facility, contingent upon Phase II confirmation of subsurface contamination. These estimates are based on TerraVerde's professional experience with similar facilities and contamination scenarios in the West Virginia region and are intended to provide an order-of-magnitude range for planning and transaction evaluation purposes. They are not based on site-specific subsurface data (which will be obtained through the recommended Phase II investigation) and are therefore subject to significant refinement.
The soil excavation and disposal cost range accounts for the removal and off-site disposal of contaminated soils beneath the warehouse floor (which would require demolition and replacement of the concrete floor in the affected area) and in the vicinity of the outdoor drum storage pad. The high end of the range assumes a larger volume of impacted soil and the potential need for disposal at a hazardous waste treatment, storage, and disposal facility (TSDF) rather than a non-hazardous industrial waste landfill, depending on the contaminant concentrations and hazardous waste characterization of the excavated soils.
The groundwater cost range accounts for the possibility that contaminants (either DRO from the former UST or VOCs from ACC's solvent operations) have migrated to the water table. If groundwater is impacted, remediation could include the installation of additional monitoring wells, ongoing groundwater monitoring, and potentially in-situ treatment (e.g., chemical oxidation, bioremediation) to address dissolved-phase contamination. Groundwater remediation timelines in this region can extend from two to five years or longer, depending on site conditions and the nature and extent of contamination.
These estimates will be refined following receipt of Phase II analytical data. C&H will coordinate with TerraVerde to provide updated cost estimates for integration into the Comprehensive Environmental Diligence Summary Memorandum.
B. Non-Remediation Costs
Costs associated with ongoing compliance with the institutional controls related to the CREC (e.g., monitoring, recordkeeping, notification to WV DEP in the event of soil disturbance) are expected to be minimal and are currently borne by the landlord (Mountainview Properties LLC) as the fee owner of the Property. ACC, as tenant, is obligated to comply with the institutional controls but does not bear the cost of maintaining the recorded restriction itself.
No significant air emissions or hazardous waste compliance costs are anticipated for the Clarksburg Facility beyond current operating levels. The facility's CESQG status and minor source air classification result in relatively modest ongoing regulatory compliance costs. C&H does not anticipate that additional regulatory permits, compliance upgrades, or capital expenditures will be required at this facility in the near term, based on the current regulatory profile.
IX. RECOMMENDATIONS
Based on C&H's review of TerraVerde's Phase I ESA and the analysis set forth in this memorandum, C&H recommends the following actions in connection with the proposed acquisition of ACC.
A. Phase II Environmental Site Assessment
C&H recommends that a Phase II Environmental Site Assessment (subsurface investigation) be conducted at the Clarksburg Facility to evaluate both the CREC and the REC identified in TerraVerde's Phase I ESA. The Phase II investigation is necessary to (i) confirm or refute the presence of subsurface contamination associated with the identified conditions, (ii) characterize the nature and extent of any confirmed contamination, (iii) assess the potential for groundwater impact, (iv) refine the preliminary remediation cost estimates, and (v) satisfy the environmental conditions precedent in the lender's commitment letter.
Recommended Phase II Scope. C&H recommends that the Phase II investigation include the following elements, subject to finalization of TerraVerde's detailed scope of work:
1. Soil Borings. Approximately eight (8) soil borings should be advanced to assess subsurface conditions at the following locations: (a) beneath the stained concrete floor in the northeast corner of the warehouse (REC-1 area), with at least three (3) borings within and adjacent to the stained zone; (b) in the vicinity of the outdoor drum storage pad, with at least two (2) borings on and adjacent to the concrete pad; and (c) in and around the former UST location (CREC area), with at least three (3) borings to assess the current extent of residual DRO contamination relative to the documented closure area.
2. Temporary Monitoring Wells. Approximately three (3) temporary monitoring wells should be installed to evaluate potential groundwater impact from both the legacy DRO contamination and any tenant-caused releases. Wells should be positioned to evaluate conditions upgradient, within, and downgradient of the identified areas of concern, based on inferred groundwater flow direction.
3. Analytical Suite. Soil and groundwater samples should be analyzed for the following parameters: diesel-range organics ("DRO") and gasoline-range organics ("GRO") by EPA Method 8015; volatile organic compounds ("VOCs"), including acetone and methyl ethyl ketone, by EPA Method 8260; and semi-volatile organic compounds ("SVOCs") by EPA Method 8270. Additional parameters (e.g., metals, amines) may be warranted depending on the specific chemicals of concern identified during the investigation.
4. Laboratory Analysis. All sampling and analysis should be conducted by TerraVerde, with laboratory analysis performed by a WV DEP-certified laboratory operating under an approved quality assurance/quality control program.
5. Vapor Intrusion Assessment. Depending on the results of the soil and groundwater sampling, a vapor intrusion assessment (sub-slab soil gas sampling and/or indoor air sampling) may be warranted to evaluate potential vapor intrusion pathways in the warehouse building. C&H will consult with TerraVerde regarding the need for this additional assessment once initial Phase II data are available.
C&H will prepare a separate Phase II Scope of Work Review & Comment Letter to TerraVerde once TerraVerde's proposed scope of work is received. That letter will provide C&H's comments on the technical adequacy of the proposed scope, the consistency of the scope with the Phase I ESA findings, and any recommended modifications.
B. Landlord Consent
As discussed in Section VII.D above, formal written consent must be obtained from Mountainview Properties LLC (Gerald Boothe, Managing Member) prior to any Phase II investigation activities at the Clarksburg Facility. C&H will prepare a draft landlord consent letter for Crestline's review and transmission to the landlord. The consent letter will include an access agreement, indemnification provisions for property damage resulting from investigation activities, and insurance certificate requirements for TerraVerde. C&H recommends that Crestline engage with the landlord as early as practicable to avoid delays in the investigation schedule that could affect the transaction timeline.
C. Integration into Transaction Documents
The findings from the Clarksburg Phase I ESA should be reflected in the following transaction documents:
1. Environmental Representations and Warranties. The environmental representations and warranties in Article IV, Section 4.18 of the draft Stock Purchase Agreement should address the CREC and REC identified at the Clarksburg Facility, the WV DEP closure and institutional controls associated with the former UST, ACC's CESQG status and regulatory compliance history, and the environmental provisions of the Mountainview Properties LLC lease.
2. Environmental Indemnification and Escrow Provisions. The environmental indemnification and escrow provisions should address the specific risks identified at Clarksburg, including the potential for Crestline to inherit both tenant-caused remediation obligations and operator liability for pre-existing contamination. C&H recommends that the indemnification provisions include a specific carve-out or sub-limit for Clarksburg environmental liabilities, with an escrow holdback sufficient to cover the high end of the preliminary remediation cost estimate ($1,150,000) or a negotiated portion thereof.
3. Environmental Disclosure Schedules. The CREC and REC should be fully described in the environmental disclosure schedules attached to the SPA, together with copies of the Phase I ESA, the WV DEP closure letter, the recorded land-use restriction, and the relevant lease provisions.
4. Comprehensive Environmental Diligence Summary Memorandum. The Clarksburg findings will be incorporated into the Comprehensive Environmental Diligence Summary Memorandum currently in preparation, which will aggregate and synthesize the environmental findings across all four ACC operating facilities.
D. Coordination with Lender Requirements
Commonwealth National Bank, N.A. (Victoria Chen, Managing Director, Environmental Risk Group) requires, as a condition of the $65 million senior secured term loan and $20 million revolving credit facility, that Phase I ESAs be obtained on all target real property and that no RECs remain unaddressed. Specifically, the environmental condition precedent in the lender's commitment letter (dated July 28, 2022) provides that the lender's obligation to fund is conditioned upon receipt of "Phase I Environmental Site Assessments on all Target Real Property, in form and substance satisfactory to Lender, disclosing no Recognized Environmental Conditions that are not adequately addressed through remediation, indemnification, escrow, or Pollution Legal Liability insurance acceptable to Lender."
The identified REC at the Clarksburg Facility will need to be addressed through one or more of the following mechanisms to satisfy the lender's condition precedent:
(a) Phase II investigation confirming the absence of subsurface contamination (which would effectively resolve the REC);
(b) If contamination is confirmed, remediation to applicable standards prior to or promptly after closing;
(c) Seller indemnification and/or escrow holdback in an amount acceptable to the lender to cover estimated remediation costs;
(d) Pollution Legal Liability ("PLL") insurance with coverage limits and terms acceptable to the lender.
C&H notes that the Clarksburg Facility is a leased property, not owned by ACC. The lender's collateral package may treat leased properties differently than fee-owned properties for purposes of collateral valuation and security interests. However, the environmental condition precedent in the commitment letter references "all Target Real Property," which C&H interprets to include leased facilities operated by ACC. C&H recommends that this interpretation be confirmed with the lender's counsel and that the lender be informed of the Clarksburg findings and the proposed Phase II investigation at the earliest appropriate opportunity.
E. Environmental Insurance Evaluation
The Clarksburg findings should be included in the Pollution Legal Liability ("PLL") insurance submission package currently being prepared for Whitfield & Calder Insurance Advisors LLC (Douglas Whitfield and Lauren Petrov, Account Team) and Ironclad Specialty Insurance Company (Sean McAllister, Underwriter). The PLL insurance program is being structured to provide coverage for pre-existing unknown environmental conditions at ACC's operating facilities, as well as potential new pollution events arising from ACC's ongoing op