phase-ii-results-analysis-mckeesport.docx

1006-00003 · Crestline Packaging Solutions LLC · Diligence/Phase II Analysis

phase-ii-results-analysis-mckeesport.docx DOCUMENT M&A / Corporate

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MEMORANDUM

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

FROM: Harrison Caldwell, Of Counsel, Calderwood & Harkness LLP Grace Nakamura, Associate, Calderwood & Harkness LLP

DATE: October 14, 2022

RE: Phase II Environmental Site Assessment — Analytical Results Analysis McKeesport Main Plant, 2200 Iron Works Boulevard, McKeesport, PA 15132 (Allegheny County, Parcel ID: 0383-M-00125-0000-00)

MATTER NO.: 1006-00003

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I. Purpose and Scope

The purpose of this memorandum is to provide a detailed legal and technical analysis of the Phase II Environmental Site Assessment ("Phase II ESA") analytical results for the McKeesport Main Plant (the "Facility" or the "Site"), the headquarters and primary manufacturing facility of Allegheny Chemical Coatings, Inc. ("ACC" or the "Target"). This analysis is prepared in connection with the proposed acquisition by Crestline Packaging Solutions LLC ("Crestline" or "CPS") of one hundred percent (100%) of the outstanding common stock of ACC at a proposed purchase price of Ninety-Four Million Five Hundred Thousand Dollars ($94,500,000) (the "Transaction"). The Transaction is currently structured as a stock purchase, and accordingly, all existing liabilities of ACC — including environmental liabilities associated with the McKeesport Main Plant and ACC's other facilities — will transfer to Crestline upon closing.

This memorandum reviews the Phase II analytical data received from TerraVerde Environmental Consulting LLC ("TerraVerde") on October 10, 2022, following completion of subsurface investigation activities at the Site. Specifically, this memorandum: (a) presents and interprets the analytical results for soil, groundwater, and sub-slab soil gas samples collected during the Phase II investigation; (b) compares those results against applicable cleanup standards established under the Pennsylvania Land Recycling and Environmental Remediation Standards Act, 35 P.S. §§ 6026.101–6026.908 ("Act 2"), including the Statewide Health Standards set forth in 25 Pa. Code Chapter 250, as well as the Pennsylvania Department of Environmental Protection ("PA DEP") vapor intrusion screening levels; (c) identifies exceedances of those standards and evaluates their legal and commercial significance in the context of the proposed Transaction; and (d) provides recommendations for next steps in the environmental diligence process and for risk allocation in the Transaction documentation.

This memorandum should be read in conjunction with the following related work product, which together comprise Calderwood & Harkness's environmental diligence analysis for the McKeesport Main Plant:

(i) The Phase I ESA Review Memorandum — McKeesport Main Plant, dated August 29, 2022, which reviewed TerraVerde's Phase I Environmental Site Assessment dated August 15, 2022 and identified two Recognized Environmental Conditions ("RECs") and one Historical Recognized Environmental Condition ("HREC") at the Site;

(ii) The Phase II Scope of Work Review & Comment Letter to TerraVerde, dated September 2, 2022, which approved TerraVerde's proposed Phase II sampling plan with certain modifications, including the addition of sub-slab soil gas sampling beneath Building C; and

(iii) The Vapor Intrusion Risk Assessment Memorandum, currently under preparation and to be delivered under separate cover, which addresses in comprehensive detail the sub-slab soil gas findings at Building C, the associated health and safety implications, and recommended mitigation measures.

The Calderwood & Harkness engagement team responsible for the environmental diligence workstream on this matter consists of the following personnel: Beatrice Holloway (Responsible Partner, M&A Practice Group), James Prentice (Billing Partner, M&A Practice Group), Harrison Caldwell (Of Counsel, Environmental & Land Use Practice Group), Grace Nakamura (Lead Associate, Real Estate Practice Group), Rafael Dominguez (Working Associate, Real Estate Practice Group), and Simone Estrada (Paralegal). Questions regarding this memorandum should be directed to Harrison Caldwell or Grace Nakamura in the first instance.

II. Executive Summary

TerraVerde's Phase II investigation at the McKeesport Main Plant has confirmed the presence of subsurface contamination associated with both of the Recognized Environmental Conditions identified in the Phase I ESA. The analytical results reveal exceedances of applicable regulatory standards in groundwater and sub-slab soil gas, as well as soil contamination that, while below non-residential standards under current use, exceeds the more stringent residential Statewide Health Standards. Taken together, these findings establish that the McKeesport facility has confirmed environmental contamination that will require remediation or active risk management under Act 2 and that this contamination presents a material liability for Crestline as the prospective acquiror in a stock purchase transaction.

The key findings requiring the attention of Crestline's management and deal team are summarized below:

Groundwater. Toluene was detected in groundwater at monitoring well MW-3, located in the former underground storage tank ("UST") field area associated with REC-1, at a concentration of 1,420 micrograms per liter ("µg/L"). This result exceeds the applicable PA Act 2 Statewide Health Standard of 1,000 µg/L for toluene in groundwater (used-aquifer, non-residential), representing a 42% exceedance over the regulatory threshold. Total xylenes were also detected at MW-3 at a concentration of 8,200 µg/L, which is below the applicable standard of 10,000 µg/L but within 18% of the threshold, warranting continued monitoring. All other monitoring wells showed analyte concentrations below applicable standards.

Soil. Tetrachloroethylene ("PCE") was detected in soil at boring SB-7, also located in the former UST field area, at a concentration of 3.8 milligrams per kilogram ("mg/kg"). This result exceeds the residential Statewide Health Standard of 2.4 mg/kg (a 58% exceedance) but is well below the non-residential Statewide Health Standard of 14 mg/kg. Additionally, lead was detected in soil at boring SB-14, located near the eastern boundary drum storage area associated with REC-2, at a concentration of 680 mg/kg. This result exceeds the residential Statewide Health Standard of 450 mg/kg (a 51% exceedance) but falls below the non-residential standard of 1,000 mg/kg. Under the facility's current industrial/commercial use, neither the PCE nor the lead soil result constitutes a regulatory exceedance; however, both represent conditions that could require remediation under a change-of-use scenario and that have implications for deal risk allocation.

Sub-Slab Soil Gas (Vapor Intrusion). Trichloroethylene ("TCE") was detected beneath Building C at sub-slab soil gas sampling point SSG-2 at a concentration of 42 micrograms per cubic meter ("µg/m³"), which exceeds the PA DEP vapor intrusion screening level of 21 µg/m³ by 100% (i.e., the detected concentration is double the screening level). This finding confirms an active vapor intrusion pathway from subsurface contamination into Building C, the facility's primary mixing and blending area, and presents the most acute worker health and safety concern identified in the Phase II investigation. This finding is analyzed in greater detail in the separate Vapor Intrusion Risk Assessment Memorandum currently under preparation.

These findings carry significant implications for the proposed Transaction. As a stock purchase, Crestline will acquire ACC as an entity and will step into all of ACC's existing environmental liabilities, obligations, and regulatory commitments. The confirmed toluene exceedance in groundwater will require remedial action under Act 2, and the vapor intrusion condition at Building C may require immediate mitigation and worker notification. TerraVerde has been requested to prepare a preliminary remediation cost estimate, which is expected to be delivered on or about October 18, 2022. Based on initial discussions with TerraVerde's project team, the anticipated cost range for groundwater treatment, vapor intrusion mitigation, and associated regulatory work is approximately $1.2 million to $2.8 million, exclusive of professional consulting fees and ongoing monitoring costs.

We recommend that Crestline's management and deal team review these findings carefully and schedule a conference call at the earliest convenience to discuss the implications for purchase price adjustment, environmental escrow and indemnification provisions, lender communication, and environmental insurance coverage.

III. Background

A. Facility Description

The McKeesport Main Plant is located at 2200 Iron Works Boulevard, McKeesport, Pennsylvania 15132, in Allegheny County (Parcel ID: 0383-M-00125-0000-00). The Site comprises approximately 14.3 acres and includes approximately 185,000 square feet of manufacturing space distributed across several interconnected buildings (identified in facility records as Buildings A through E) and approximately 12,000 square feet of office and administrative space contained in a two-story building on the northern portion of the parcel. The facility is situated in an area characterized by mixed industrial and commercial land use, consistent with McKeesport's historical role as a center of steel and metals manufacturing in the Monongahela River valley.

ACC utilizes the McKeesport Main Plant as its headquarters and primary manufacturing facility for the production of solvent-based and epoxy coating systems. The facility's principal operations include the mixing, blending, and filling of chemical coating products, which involve the regular use and handling of volatile organic compounds ("VOCs") — including toluene, xylene, methyl ethyl ketone ("MEK"), and ethylbenzene — as solvents and diluents in the coating formulations. Additionally, certain legacy pigment operations at the facility involved the use of heavy metals, including chromium and lead, in coating formulations, though ACC has represented that lead-based pigments have been phased out of production since approximately 2005.

The McKeesport Main Plant is owned in fee simple by ACC, which acquired the property in 1987 as described below. ACC holds an EPA Identification Number of PAD-098-721-445 and is classified as a Large Quantity Generator ("LQG") of hazardous waste under the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901–6992k, and the corresponding Pennsylvania regulations at 25 Pa. Code Chapter 262. The facility maintains active permits for air emissions under the Allegheny County Health Department Air Quality Program and for stormwater discharge under the National Pollutant Discharge Elimination System ("NPDES") program.

B. Environmental History

The environmental history of the McKeesport Main Plant is relevant to interpreting the Phase II analytical results, as the Site has been the subject of prior industrial operations and environmental investigation. The key milestones in the Site's environmental history are summarized below.

Pre-1987 Operations. Prior to ACC's acquisition of the facility, the Site was operated as a steel fabrication facility by Keystone Metalworks, a company that is now defunct and that ceased operations in approximately 1986. Keystone Metalworks' operations at the Site are reported to have included metal cutting, welding, grinding, and finishing operations, as well as parts degreasing using chlorinated solvents. The pre-1987 operations are significant because the presence of PCE in soil at boring SB-7 (discussed in Section V.B.1 below) may be attributable to degreasing operations conducted by Keystone Metalworks, rather than to ACC's coating manufacturing activities. Records relating to Keystone Metalworks' environmental practices at the Site are limited, as the company was dissolved prior to the enactment of many modern environmental regulatory requirements.

1987: ACC Acquisition. ACC was incorporated in 1987 and acquired the McKeesport facility from Keystone Metalworks in the same year. The terms of the acquisition, including any environmental representations, warranties, or indemnification provisions, have not been made available to Calderwood & Harkness as part of the due diligence process. We have requested these documents from Seller's counsel (Hargrove, Dalton & Speer LLP) but have not received them as of the date of this memorandum.

1993: UST Removal. In 1993, three 10,000-gallon underground storage tanks were removed from the former UST field area, located in the central-western portion of the Site near what is now the Building C mixing area. These USTs are understood to have contained heating oil and/or diesel fuel used in connection with the prior steel fabrication operations and subsequently by ACC. The UST removal was conducted pursuant to applicable Pennsylvania UST regulations (25 Pa. Code Chapter 245). Soil sampling conducted at the time of removal detected petroleum hydrocarbons in the tank excavation area.

1994: Act 2 Filing. Following the 1993 UST removal, ACC filed a Notice of Intent to Remediate ("NIR") with PA DEP under Act 2, initiating a remediation process to address petroleum hydrocarbon contamination in soils associated with the UST releases.

May 2001: No Further Action Letter. On May 14, 2001, PA DEP issued a No Further Action ("NFA") letter to ACC under the Statewide Health Standard for soils in connection with the 1994 Act 2 filing. The NFA letter confirmed that soils in the former UST field area had been remediated to levels meeting the applicable Statewide Health Standards for the identified petroleum constituents. Importantly, the 2001 NFA letter addressed soils only; it did not address groundwater conditions at the Site, and there is no indication in the records available to us that groundwater was sampled or evaluated as part of the 2001 Act 2 remediation. This distinction is critical in light of the toluene exceedance now detected in groundwater at monitoring well MW-3 in the same general area. The 2001 NFA letter was identified as a Historical Recognized Environmental Condition ("HREC-1") in TerraVerde's Phase I ESA.

1987–Present: Coating Manufacturing Operations. ACC has operated coatings manufacturing at the McKeesport Main Plant continuously since 1987, involving the regular use, storage, and handling of VOCs and other chemicals as described above. ACC maintains records of annual hazardous waste generation and disposal as required under RCRA and Pennsylvania regulations.

C. Phase I ESA Findings (TerraVerde, August 15, 2022)

TerraVerde's Phase I Environmental Site Assessment of the McKeesport Main Plant, dated August 15, 2022 and conducted in general accordance with ASTM Standard Practice E1527-21, identified two Recognized Environmental Conditions and one Historical Recognized Environmental Condition. These findings were analyzed in detail in Calderwood & Harkness's Phase I ESA Review Memorandum dated August 29, 2022. The Phase I findings are summarized below, as they form the basis for the Phase II investigation scope:

REC-1: Potential Vapor Intrusion Pathway — Building C / Former UST Field Area. TerraVerde's Phase I investigation identified elevated VOC readings in indoor air near the Building C mixing area, based on photoionization detector ("PID") screening conducted during the site reconnaissance. TerraVerde concluded that a potential vapor intrusion pathway exists from residual subsurface contamination beneath the former UST field area into the occupied portions of Building C. The proximity of Building C to the area of the 1993 UST removal, combined with the indoor air PID readings, supported the identification of this condition as a REC warranting Phase II investigation.

REC-2: Eastern Boundary — Staining and Stressed Vegetation / Drum Storage Area. TerraVerde observed staining on the pavement surface and stressed or absent vegetation along the eastern property boundary, adjacent to an unlined stormwater drainage channel. This area is proximate to an outdoor drum storage area where ACC stores both virgin and waste materials in drums prior to pickup by licensed waste haulers. TerraVerde concluded that the observed conditions were consistent with potential releases of chemicals from the drum storage area to soil and/or the adjacent drainage channel, constituting a REC.

HREC-1: 1994 Act 2 UST Release — 2001 NFA Letter. The 1994 Act 2 filing and subsequent 2001 NFA letter were identified as a Historical Recognized Environmental Condition, reflecting a past release that had been addressed to the satisfaction of PA DEP and for which no further action was required. TerraVerde noted that the HREC designation was based on the assumption that site conditions had not materially changed since the issuance of the NFA letter.

The Phase I ESA recommended that a Phase II subsurface investigation be conducted to evaluate both RECs through direct sampling of soil, groundwater, and (at Calderwood & Harkness's request) sub-slab soil gas.

D. Phase II Investigation Scope

The Phase II Environmental Site Assessment commenced on September 12, 2022, pursuant to a scope of work prepared by TerraVerde and reviewed and approved by Calderwood & Harkness in our Phase II Scope of Work Review & Comment Letter dated September 2, 2022. The investigation was designed to evaluate subsurface conditions associated with both RECs identified in the Phase I ESA and to characterize the nature and extent of any contamination present. The scope of the investigation included the following elements:

Soil Borings. A total of eighteen (18) soil borings, designated SB-1 through SB-18, were advanced across the Site using direct-push technology (Geoprobe). Boring locations were concentrated in two primary areas of concern: (a) the former UST field area in the central-western portion of the Site, corresponding to REC-1 (borings SB-1 through SB-10), and (b) the eastern boundary drum storage area and adjacent drainage channel, corresponding to REC-2 (borings SB-11 through SB-18). Soil samples were collected from multiple depth intervals at each boring location, generally at 2-foot intervals from ground surface to the maximum boring depth of approximately 15 feet below ground surface ("bgs"). Samples exhibiting the highest PID readings or visual/olfactory evidence of contamination at each boring location were selected for laboratory analysis.

Monitoring Wells. Six (6) temporary monitoring wells, designated MW-1 through MW-6, were installed to evaluate shallow groundwater quality at and around the Site. MW-1 and MW-2 were positioned upgradient and cross-gradient of the former UST field area, respectively, to establish background groundwater quality. MW-3 was installed within the former UST field area, in the vicinity of the 1993 UST excavation. MW-4 through MW-6 were installed along the eastern boundary near the drum storage area and drainage channel. Groundwater samples were collected from each well following well development and stabilization of water quality parameters, in accordance with standard low-flow purging protocols.

Sub-Slab Soil Gas Sampling. At Calderwood & Harkness's specific request — a modification to TerraVerde's original scope of work, which did not include vapor intrusion assessment — sub-slab soil gas samples were collected from three (3) sampling points, designated SSG-1 through SSG-3, installed through the concrete floor slab of Building C. These sampling points were positioned to evaluate the potential vapor intrusion pathway from the former UST field area into the occupied mixing and blending area of Building C, as identified in REC-1. The addition of sub-slab soil gas sampling to the investigation scope proved to be a critical decision, as discussed in Section V.C below.

All soil and groundwater sampling activities were completed by September 26, 2022. Samples were submitted to Keystone Analytical Laboratories Inc. ("Keystone Labs"), located in Monroeville, Pennsylvania, a PA DEP-accredited laboratory, for analysis. The analytical suite included the following methods:

• Volatile Organic Compounds ("VOCs") — EPA Method 8260B

• Semi-Volatile Organic Compounds ("SVOCs") — EPA Method 8270D

• RCRA 8 Metals — EPA Methods 6010C (ICP-OES) and 7471B (mercury by cold vapor)

• Diesel-Range Organics ("DRO") and Gasoline-Range Organics ("GRO") — EPA Method 8015

• Sub-Slab Soil Gas — EPA Method TO-15 (VOCs in air by GC/MS)

Laboratory analytical results were received by TerraVerde from Keystone Labs and transmitted to Calderwood & Harkness on October 10, 2022. The complete analytical data tables are attached hereto as Attachment A. A site plan showing the locations of all borings, monitoring wells, and sub-slab soil gas sampling points is attached as Attachment B.

IV. Applicable Regulatory Standards

A. Pennsylvania Act 2 — Land Recycling and Environmental Remediation Standards Act

The Pennsylvania Land Recycling and Environmental Remediation Standards Act, commonly known as "Act 2," was enacted in 1995 (35 P.S. §§ 6026.101–6026.908) to establish a comprehensive framework for the investigation and remediation of contaminated sites in the Commonwealth. Act 2 replaced the prior patchwork of cleanup requirements with a unified program that provides three alternative cleanup standards, each of which may be used to demonstrate attainment of environmental quality sufficient to obtain a release of liability from PA DEP:

(1) Background Standard (25 Pa. Code §§ 250.201–250.211): Requires remediation to naturally occurring concentrations of contaminants. This standard is most commonly used for metals or other naturally occurring substances and may be established through statistical comparison to background sampling data.

(2) Statewide Health Standard (25 Pa. Code §§ 250.301–250.311): A risk-based standard that establishes numeric concentration limits for individual contaminants in soil, groundwater, and other media, based on human health risk calculations using standardized exposure assumptions. The Statewide Health Standards are published in the Medium-Specific Concentrations ("MSCs") tables at 25 Pa. Code Chapter 250, Appendix A, Tables 1 through 6. The MSCs are set separately for two land use categories: (a) residential, which applies to residential properties and properties where a deed restriction or environmental covenant limiting use to non-residential purposes is not in place; and (b) non-residential, which applies to industrial, commercial, and other non-residential properties where appropriate land use restrictions are recorded. The Statewide Health Standard is the most commonly used cleanup standard under Act 2 and was the standard applied in the 2001 NFA letter for the McKeesport facility.

(3) Site-Specific Standard (25 Pa. Code §§ 250.401–250.411): Allows the use of a site-specific risk assessment to establish cleanup levels tailored to the particular conditions and exposure pathways at a given site. This standard provides the greatest flexibility but requires a more extensive and costly risk evaluation process and typically involves greater regulatory scrutiny.

For purposes of this memorandum, the Phase II analytical results are compared against the Statewide Health Standard values set forth in 25 Pa. Code Chapter 250, as these represent the most commonly applied and readily determinable cleanup benchmarks and are consistent with the standard applied in the prior Act 2 remediation at the Site. Both residential and non-residential MSC values are presented where applicable, given that the McKeesport facility is currently used for industrial/commercial purposes (supporting comparison to non-residential standards) but a future change in use — whether by Crestline or a subsequent owner — could trigger the application of the more stringent residential standards.

It is important to note that in a stock purchase transaction, Crestline will step into ACC's shoes as the owner and operator of the McKeesport facility. As such, Crestline could potentially be obligated to remediate under Act 2 if PA DEP initiates enforcement action, if contamination migrates off-site and triggers third-party claims, or if Crestline elects to voluntarily remediate as part of a property redevelopment or other strategic initiative. Additionally, under Section 501 of Act 2 (35 P.S. § 6026.501), any person who undertakes remediation of contamination at a site may seek and obtain a release of liability from PA DEP upon demonstrating attainment of one of the three cleanup standards.

B. Applicable Statewide Health Standard Values (Key Analytes)

The following table sets forth the Statewide Health Standard values (Medium-Specific Concentrations) applicable to the key analytes detected during the Phase II investigation. These values are drawn from the MSC tables at 25 Pa. Code Chapter 250, Appendix A, and represent the concentration thresholds above which remedial action is required to achieve attainment of the Statewide Health Standard. A complete compilation of applicable MSCs for all analytes included in the Phase II analytical program is attached hereto as Attachment C.

It should be noted that the groundwater MSC values for toluene and xylenes are based on the "used aquifer" designation. The aquifer underlying the McKeesport facility is classified as a used aquifer for Act 2 purposes, which is the more protective classification. If the aquifer were classified as a "non-use aquifer," higher MSC values would apply; however, there is no basis in the available information to support such a reclassification, and PA DEP's default presumption is that all aquifers are used aquifers absent demonstration to the contrary.

C. Vapor Intrusion Guidance

The PA DEP's Land Recycling Program Technical Guidance Manual includes specific guidance on the evaluation and mitigation of vapor intrusion, originally published in October 2004 and subsequently updated. This guidance establishes screening levels for volatile organic compounds in sub-slab soil gas that serve as the initial benchmarks for evaluating whether a vapor intrusion pathway presents an unacceptable risk to building occupants. The guidance applies wherever volatile contaminants are detected in subsurface media — including soil, groundwater, or soil gas — beneath or near occupied buildings.

For trichloroethylene, the PA DEP vapor intrusion screening level for sub-slab soil gas is 21 µg/m³. This value is derived from health-based risk calculations that account for the attenuation of VOC vapors as they migrate from the subsurface through the building foundation and into the indoor air environment, using a standard attenuation factor. An exceedance of the sub-slab soil gas screening level does not, in and of itself, establish that indoor air concentrations pose an unacceptable health risk; rather, it triggers a requirement for further evaluation, which may include indoor air sampling, modeling of vapor attenuation, or immediate mitigation. However, as a practical matter, PA DEP strongly recommends — and in many cases requires — the installation of engineering controls such as a sub-slab depressurization system ("SSDS") when sub-slab soil gas concentrations exceed the screening levels, particularly for carcinogenic compounds such as TCE.

The vapor intrusion findings at Building C are discussed further in Section V.C below and are the subject of a comprehensive analysis in the separate Vapor Intrusion Risk Assessment Memorandum.

V. Analytical Results — Detailed Findings

This section presents a detailed discussion of the Phase II analytical results, organized by medium (groundwater, soil, and sub-slab soil gas). The complete analytical data tables provided by TerraVerde are included as Attachment A; the discussion below highlights the results of greatest significance for purposes of the Transaction.

A. Groundwater Results

1. Monitoring Well MW-3 (Former UST Field Area — REC-1)

Monitoring well MW-3 is located in the central-western portion of the Site within the footprint of the former UST field area where three 10,000-gallon USTs were removed in 1993. This well was installed to evaluate whether residual contamination from the historic UST releases had migrated to the shallow groundwater system. MW-3 was screened across the water table interval at approximately 8 to 13 feet below ground surface, consistent with the depth to groundwater observed across the Site.

Toluene. Toluene was detected in the groundwater sample collected from MW-3 at a concentration of 1,420 µg/L. The applicable Statewide Health Standard for toluene in groundwater (used-aquifer, non-residential) is 1,000 µg/L. The detected concentration therefore exceeds the applicable standard by 420 µg/L, representing a 42% exceedance (1,420 ÷ 1,000 = 1.42 times the standard).

This is a confirmed exceedance of the PA Act 2 Statewide Health Standard and will require remedial action under Act 2. The presence of toluene in groundwater at concentrations above the MSC establishes that the shallow aquifer beneath the former UST field area is contaminated and that the contamination has not been adequately addressed by prior remedial activities at the Site.

The significance of this finding is heightened by several factors. First, MW-3 is located in the immediate vicinity of the former UST field where the three 10,000-gallon USTs were removed in 1993. Toluene is a constituent of petroleum fuels and is consistent with a release from the former USTs. This finding suggests that residual contamination from the UST releases was not fully addressed by the remediation that culminated in the 2001 NFA letter. Second, the 2001 NFA letter addressed soils only under the Statewide Health Standard. There is no indication in the available records that groundwater was sampled, characterized, or remediated as part of the prior Act 2 filing. It is possible that toluene contamination was present in groundwater at the time of the 2001 NFA letter but was not evaluated, or that contamination has migrated from residual soil sources to the groundwater since that time. In either event, the NFA letter does not provide protection against liability for the groundwater condition now identified.

Third, the HREC-1 designation assigned to the 2001 NFA letter in the Phase I ESA was based on the assumption that the prior Act 2 remediation had adequately addressed all contamination associated with the UST releases. The Phase II groundwater results effectively call into question the completeness of the prior cleanup. In our view, these results may warrant reclassifying the HREC back to an active environmental condition — a conclusion that is consistent with ASTM E1527-21 guidance providing that a Historical REC may be reclassified if new information indicates that the prior remediation was incomplete or that conditions have materially changed since the issuance of regulatory closure.

Xylene (total). Total xylenes were detected in the MW-3 groundwater sample at a concentration of 8,200 µg/L. The applicable Statewide Health Standard for xylene (total) in groundwater (used-aquifer, non-residential) is 10,000 µg/L. The detected concentration is below the applicable standard, representing 82% of the threshold value. Accordingly, the xylene result does not constitute a regulatory exceedance at this time.

However, the proximity of the xylene concentration to the applicable standard — within 18% of the MSC — warrants attention and continued monitoring. Seasonal fluctuations in groundwater levels and flow conditions can cause contaminant concentrations to vary over time, and it is not uncommon for analyte concentrations to fluctuate by more than 18% between sampling events. Additionally, if additional releases were to occur from the former UST area or from ongoing operations, the xylene concentration at MW-3 could rise above the applicable standard. We recommend that any supplemental groundwater sampling program include MW-3 to confirm whether the xylene concentration is stable, increasing, or decreasing over time.

Other VOCs at MW-3. Methyl ethyl ketone ("MEK") and ethylbenzene were also detected in the groundwater sample from MW-3, but at concentrations well below their respective Statewide Health Standards. These detections are consistent with the petroleum hydrocarbon profile expected in the vicinity of the former UST releases and do not represent regulatory concerns at current concentrations. Full analytical results for MW-3 are presented in Attachment A, Table 2.

2. Other Monitoring Wells (MW-1, MW-2, MW-4, MW-5, MW-6)

All monitoring wells other than MW-3 showed analyte concentrations below applicable Statewide Health Standards for all parameters tested. The results from these wells provide useful context for understanding the distribution and extent of contamination at the Site.

MW-1 and MW-2 (Upgradient/Cross-Gradient — Background). MW-1 and MW-2 were installed in upgradient and cross-gradient positions relative to the former UST field area, respectively, for the purpose of establishing background groundwater quality. VOCs were detected at trace levels only in both wells, generally at or near the method detection limits, consistent with ambient background conditions. The absence of significant VOC detections in these wells supports the conclusion that the toluene contamination observed at MW-3 is attributable to a localized source in the former UST field area rather than to a regional groundwater quality condition.

MW-4 through MW-6 (Eastern Boundary / Drum Storage Area — REC-2). MW-4, MW-5, and MW-6 were installed along the eastern boundary of the Site to evaluate whether releases from the outdoor drum storage area or the adjacent unlined stormwater drainage channel had impacted shallow groundwater quality. Diesel-range organics ("DRO") were detected at MW-5 at low concentrations below applicable action levels, which may be attributable to minor surface releases from drum handling activities. No VOC exceedances were identified at any of these three wells, and metals concentrations in groundwater were below applicable standards.

The groundwater results from the eastern boundary wells are encouraging in that they suggest the conditions associated with REC-2 have not resulted in significant groundwater contamination. However, the soil results from this area (discussed in Section V.B.2 below) indicate that surface and near-surface soil impacts are present.

In summary, the groundwater contamination identified during the Phase II investigation appears to be localized in the former UST field area in the vicinity of MW-3. This localization is favorable from a remediation standpoint, as it suggests that the toluene plume may be of limited extent. However, the lateral and vertical extent of the groundwater plume has not been fully delineated by the current well network, and supplemental investigation may be warranted to characterize the plume boundaries and assess the direction and rate of groundwater flow.

B. Soil Results

1. Boring SB-7 (Former UST Field Area — REC-1)

Soil boring SB-7 is located in the former UST field area, approximately 40 feet east of monitoring well MW-3 and within the footprint of the former UST excavation. Soil samples were collected from SB-7 at depth intervals of 0–2 feet, 4–6 feet, 8–10 feet, and 12–14 feet below ground surface. The sample from the 8–10 foot interval exhibited the highest PID readings during field screening and was submitted for laboratory analysis along with the shallowest sample.

Tetrachloroethylene (PCE). PCE was detected in the 8–10 foot soil sample from SB-7 at a concentration of 3.8 mg/kg. The applicable Statewide Health Standards for PCE in soil are:

• Residential MSC: 2.4 mg/kg — The detected concentration of 3.8 mg/kg exceeds the residential standard (3.8 ÷ 2.4 = 1.58 times the standard, a 58% exceedance).

• Non-Residential MSC: 14 mg/kg — The detected concentration of 3.8 mg/kg is below the non-residential standard (3.8 ÷ 14 = 0.27, representing only 27% of the standard).

Under the facility's current industrial/commercial use, the PCE soil result at SB-7 does not constitute a regulatory exceedance of the applicable non-residential Statewide Health Standard. However, this finding is a material concern for several reasons that warrant careful consideration in the context of the Transaction.

First, if the property were ever to change use to residential — whether by Crestline, a subsequent purchaser, or through municipal rezoning — the PCE concentration at SB-7 would exceed the applicable residential standard, and remediation would be required to achieve attainment. Under Act 2, the use of non-residential MSCs is contingent upon maintaining appropriate activity and use limitations on the property; if such limitations lapse or are not properly maintained, the more stringent residential standards would apply by default.

Second, PCE is a chlorinated solvent classified as a "likely" human carcinogen by the U.S. Environmental Protection Agency and as a Group 1 carcinogen by the International Agency for Research on Cancer. Its presence in the former UST area is notable because PCE is not a chemical typically associated with petroleum fuel storage or UST releases. The detection of PCE at SB-7 suggests either: (a) a co-mingled contamination condition in which PCE from a separate source has mixed with the petroleum contamination from the former USTs, or (b) a separate, distinct release of PCE in the same general area. The most likely source of PCE at the Site is the pre-1987 steel fabrication operations conducted by Keystone Metalworks, which reportedly included parts degreasing using chlorinated solvents. Degreasing operations commonly employed PCE (also known as perchloroethylene or "perc") as a cleaning agent, and releases of PCE from degreasing equipment are one of the most common sources of chlorinated solvent contamination at industrial sites.

Third, and perhaps most significantly, PCE can undergo sequential reductive dechlorination in the subsurface environment, degrading through a well-documented pathway: PCE → trichloroethylene (TCE) → cis-1,2-dichloroethylene (cis-1,2-DCE) → vinyl chloride → ethylene. The detection of TCE in the sub-slab soil gas beneath Building C (discussed in Section V.C below) may represent a degradation product of the PCE detected in soil at SB-7, suggesting an ongoing geochemical process that is generating TCE vapors from the PCE source mass. This potential degradation pathway is a significant concern because it means that the PCE contamination in soil is not merely a static condition but may be actively contributing to the vapor intrusion problem in Building C. Moreover, vinyl chloride — the penultimate degradation product of PCE — is a known human carcinogen with very low regulatory screening levels, and its potential presence in the degradation chain warrants evaluation.

2. Boring SB-14 (Eastern Boundary — REC-2)

Soil boring SB-14 is located near the eastern property boundary, approximately 25 feet from the outdoor drum storage area and approximately 15 feet from the unlined stormwater drainage channel identified in the Phase I ESA as part of REC-2. Soil samples were collected from SB-14 at depth intervals of 0–2 feet, 4–6 feet, and 8–10 feet below ground surface. The shallowest sample (0–2 feet) was selected for metals analysis based on the observed surface staining and stressed vegetation in the area.

Lead. Lead was detected in the 0–2 foot soil sample from SB-14 at a concentration of 680 mg/kg. The applicable Statewide Health Standards for lead in soil are:

• Residential MSC: 450 mg/kg — The detected concentration of 680 mg/kg exceeds the residential standard (680 ÷ 450 = 1.51 times the standard, a 51% exceedance).

• Non-Residential MSC: 1,000 mg/kg — The detected concentration of 680 mg/kg is below the non-residential standard (680 ÷ 1,000 = 0.68, representing 68% of the standard).

As with the PCE result at SB-7, the lead soil result at SB-14 does not constitute a regulatory exceedance under the current non-residential land use at the McKeesport facility. However, the exceedance of the residential standard is noted, and the result carries implications for property use restrictions and potential future liability.

The presence of elevated lead in surface soil at SB-14 is consistent with several potential sources, including: (a) ACC's historical pigment operations, which involved the use of lead-based pigments in coating formulations until approximately 2005, with associated drum handling and storage in the eastern boundary area; (b) the legacy steel fabrication operations conducted by Keystone Metalworks, which may have involved the use of lead-containing paints, coatings, or materials; and (c) potential deposition from the stormwater drainage channel, which may have concentrated metals from surface runoff across the industrial areas of the Site.

The proximity of SB-14 to the unlined stormwater drainage channel is of particular concern because the drainage channel provides a potential migration pathway for lead-contaminated soil or sediment to move off-site. The stressed and absent vegetation observed along the eastern boundary during the Phase I reconnaissance may be attributable, at least in part, to elevated lead concentrations in the shallow soil, as lead is toxic to plant life at the concentrations detected.

3. Other Soil Borings (SB-1 through SB-18, Excluding SB-7 and SB-14)

The remaining sixteen soil borings (SB-1 through SB-6, SB-8 through SB-13, and SB-15 through SB-18) showed analyte concentrations below both residential and non-residential Statewide Health Standards for all parameters tested, including VOCs, SVOCs, RCRA 8 metals, DRO, and GRO.

Low-level detections of toluene and xylene were observed in soil samples from borings SB-5 and SB-8, both of which are located in proximity to the former UST field area. These detections are consistent with the expected distribution of residual petroleum contamination in the vicinity of the former USTs but are well below applicable MSC values and do not represent regulatory concerns.

No significant metals exceedances were identified at any soil boring location other than SB-14. Specifically, lead concentrations at all other soil boring locations were below both residential and non-residential Statewide Health Standards, indicating that the elevated lead condition is localized in the vicinity of the eastern boundary drum storage area.

C. Sub-Slab Soil Gas Results (Building C — REC-1 / Vapor Intrusion Evaluation)

Sub-slab soil gas sampling was conducted at three sampling points (SSG-1, SSG-2, and SSG-3) installed through the concrete floor slab of Building C. Building C is the facility's primary mixing and blending building, where VOC-containing coating products are manufactured. The building is occupied by ACC production workers during operating hours. The sub-slab sampling points were positioned to evaluate the potential vapor intrusion pathway identified in REC-1, with SSG-2 located directly beneath the main mixing area and SSG-1 and SSG-3 positioned at the northern and southern ends of the building, respectively. As noted above, the inclusion of sub-slab soil gas sampling in the Phase II investigation scope was specifically requested by Calderwood & Harkness in our September 2, 2022 scope of work review letter; TerraVerde's original proposed scope of work did not include this testing.

SSG-2 — Trichloroethylene (TCE): 42 µg/m³. TCE was detected at sub-slab sampling point SSG-2 at a concentration of 42 µg/m³, directly beneath the Building C mixing area. The applicable PA DEP vapor intrusion screening level for TCE in sub-slab soil gas is 21 µg/m³. The detected concentration therefore exceeds the screening level by 100% — that is, the TCE concentration beneath Building C is exactly double the regulatory screening threshold (42 ÷ 21 = 2.0 times the screening level).

This finding is the most significant and most acute environmental concern identified in the Phase II investigation. The exceedance confirms that an active vapor intrusion pathway exists from subsurface contamination into Building C. TCE vapors are migrating upward through the subsurface, accumulating beneath the building's concrete floor slab, and — in the absence of engineering controls — likely entering the indoor air space of the building where workers are present. TCE is a volatile chlorinated solvent classified as a known human carcinogen by the U.S. Environmental Protection Agency and the International Agency for Research on Cancer. Chronic exposure to TCE vapors is associated with increased risks of kidney cancer, liver cancer, and non-Hodgkin lymphoma, as well as adverse effects on the central nervous system, liver, kidneys, and immune system.

The source of the TCE in sub-slab soil gas is likely related to the PCE contamination detected in soil at nearby boring SB-7. As discussed in Section V.B.1 above, PCE undergoes sequential reductive dechlorination in the subsurface, with TCE being the first daughter product in the degradation chain. The detection of TCE in the vapor phase beneath Building C, in proximity to the PCE soil contamination at SB-7, is consistent with a degradation pathway in which PCE in the soil and/or groundwater is being transformed to TCE by naturally occurring microbial processes, and the resulting TCE vapors are migrating through the vadose zone and accumulating beneath the building slab.

SSG-1 — TCE: 8 µg/m³. TCE was detected at SSG-1, located at the northern end of Building C, at a concentration of 8 µg/m³. This result is below the PA DEP screening level of 21 µg/m³ and does not represent a regulatory exceedance. However, the detection of TCE at this location indicates that the vapor intrusion pathway extends beyond the immediate area of SSG-2, albeit at lower concentrations.

SSG-3 — TCE: 14 µg/m³. TCE was detected at SSG-3, located at the southern end of Building C, at a concentration of 14 µg/m³. While this result is also below the screening level of 21 µg/m³, it is trending toward the regulatory threshold — representing approximately 67% of the screening level. The elevated concentration at SSG-3 suggests that the vapor intrusion plume may be migrating southward beneath Building C. If TCE concentrations continue to increase at this location, SSG-3 could exceed the screening level in the future, potentially necessitating mitigation measures across a broader portion of Building C.

The pattern of TCE concentrations across the three sub-slab sampling points — highest at SSG-2 (42 µg/m³) in the center of the building, intermediate at SSG-3 (14 µg/m³) at the southern end, and lowest at SSG-1 (8 µg/m³) at the northern end — is consistent with a subsurface source located in the central-western portion of the Site (the former UST field area), with vapor migration occurring laterally and upward beneath the Building C slab.

It bears emphasis that the Calderwood & Harkness team's proactive request to include sub-slab soil gas sampling in the Phase II scope of work was critical in identifying this vapor intrusion concern. Had TerraVerde's original scope been followed without modification, the TCE vapor intrusion pathway would not have been evaluated during the Phase II investigation, and this significant health and safety concern would have gone undetected — potentially until after closing of the Transaction. This underscores the importance of legal review of environmental consultant scopes of work in the M&A diligence context.

A comprehensive analysis of the vapor intrusion findings, including evaluation of potential exposure pathways, worker health risk assessment, regulatory obligations, and recommended mitigation measures, is being prepared in the separate Vapor Intrusion Risk Assessment Memorandum and will be delivered to the client under separate cover.

VI. Legal Analysis and Implications

A. Act 2 Obligations

The toluene exceedance in groundwater at monitoring well MW-3 (1,420 µg/L versus the Statewide Health Standard of 1,000 µg/L) represents a confirmed exceedance of the applicable cleanup standard under Act 2. This exceedance establishes that groundwater beneath the McKeesport facility is contaminated at levels that exceed the health-based thresholds established by PA DEP for the protection of human health and the environment. Under Act 2, this condition will require remedial action to achieve attainment of an applicable cleanup standard, followed by submission of a demonstration of attainment to PA DEP in order to obtain a new relief of liability.

Although the PCE concentration in soil at SB-7 (3.8 mg/kg) and the lead concentration in soil at SB-14 (680 mg/kg) do not exceed the non-residential Statewide Health Standards under the facility's current industrial/commercial use, they do exceed the residential Statewide Health Standards. These conditions represent environmental liabilities that could require remediation under several scenarios: (a) a change of use of the property from non-residential to residential; (b) a determination by PA DEP that the non-residential use classification is not appropriate or that the property does not qualify for the non-residential standard; (c) a voluntary decision by Crestline to remediate to residential standards in order to maximize the property's future reuse flexibility and value; or (d) an off-site migration of contamination to a residential area, which could trigger regulatory action and third-party claims. Furthermore, the use of non-residential MSCs under Act 2 requires the recording of an environmental covenant or deed restriction pursuant to the Uniform Environmental Covenants Act ("UECA"), 27 Pa. C.S. §§ 6501–6517, which imposes ongoing obligations to maintain the covenant and to restrict future uses of the property.

With respect to the 2001 NFA letter, the new Phase II groundwater findings may constitute "changed conditions" or "new information" that could prompt PA DEP to reconsider the adequacy of the prior Act 2 remediation. As noted in Section III.B above, the NFA letter addressed soils only, and the groundwater conditions now documented at MW-3 were not part of the prior evaluation. PA DEP has the authority under Act 2, Section 505 (35 P.S. § 6026.505), to reopen a remediation case and require further investigation or remediation if new information indicates that the previously issued relief of liability was based on inaccurate or incomplete information, or if conditions at the site have materially changed since the issuance of the NFA letter. Given that the toluene groundwater exceedance is located in the same area as the prior UST remediation and involves a petroleum constituent associated with the original UST releases, PA DEP could reasonably conclude that the prior cleanup did not adequately address all contamination and require ACC (or its successor) to conduct additional remediation.

The remediation options available under Act 2 for the identified contamination include the following:

(a) Achieving the Statewide Health Standard Through Active Remediation. This approach would involve implementing remediation technologies — such as pump-and-treat systems or in-situ chemical oxidation ("ISCO") for groundwater, and excavation and off-site disposal for localized soil contamination — to reduce contaminant concentrations to levels at or below the applicable MSC values. This is the most straightforward approach and provides the broadest relief of liability.

(b) Demonstrating Attainment of the Non-Residential Statewide Health Standard Combined with Engineering or Institutional Controls. Under this approach, the remediating party would demonstrate that contaminant concentrations meet the non-residential MSC values and would implement engineering controls (e.g., a cap, liner, or treatment system) and/or institutional controls (e.g., a recorded environmental covenant restricting future use to non-residential purposes) to manage residual contamination and prevent exposure. This approach is less costly but imposes ongoing obligations and restricts the property's future use.

(c) Developing a Site-Specific Standard Through Risk Assessment. This option involves conducting a site-specific risk assessment to establish cleanup levels tailored to the particular conditions and exposure pathways at the McKeesport facility. A Site-Specific Standard may allow higher contaminant concentrations to remain in place if the risk assessment demonstrates that they do not pose an unacceptable risk under the specific conditions of the Site. This approach provides the greatest flexibility but is more time-consuming and expensive to develop and requires more extensive regulatory review and approval.

Any remediation under Act 2 requires the filing of a Notice of Intent to Remediate ("NIR") with PA DEP, which notifies the agency and the public that contamination has been identified and that the responsible party intends to undertake remediation. The NIR must also be published in the Pennsylvania Bulletin and in a local newspaper. Upon completion of remediation and demonstration of attainment of the selected cleanup standard, the remediating party may submit a final report to PA DEP and, upon approval, will receive a new relief of liability (in the form of an NFA letter or equivalent) for the conditions addressed.

B. Implication of Stock Purchase Structure

A critical consideration in evaluating the significance of the Phase II findings is the structure of the proposed Transaction. This acquisition is structured as a stock purchase, in which Crestline will acquire one hundred percent of the outstanding common stock of ACC. In a stock purchase, the target entity continues to exist as a legal entity following the acquisition; it is the ownership of the entity that changes, not the composition of its assets or liabilities. As a consequence, all of ACC's existing liabilities — including environmental liabilities, regulatory obligations, pending or potential enforcement actions, third-party claims, and remediation obligations — will remain with ACC and will effectively transfer to Crestline as the new owner of the entity.

This stands in contrast to an asset purchase, in which the buyer selectively acquires identified assets and assumes identified liabilities, with the ability to exclude contaminated property or leave environmental liabilities with the seller entity. In a stock purchase, there is no opportunity to selectively exclude particular assets or liabilities; the buyer acquires the entire entity, "warts and all." While contractual protections — such as environmental representations and warranties, indemnification provisions, and escrow arrangements — can be used to allocate risk between the parties in a stock purchase, the buyer's direct exposure to the underlying environmental liabilities is greater than in an asset purchase structure.

The practical effect of this structure for the McKeesport Phase II findings is that all of the environmental conditions documented in TerraVerde's investigation — including the toluene groundwater exceedance at MW-3, the PCE and lead soil contamination at SB-7 and SB-14, and the TCE vapor intrusion condition at Building C — will become Crestline's responsibility upon closing. Any remediation costs, regulatory penalties, third-party claims, or worker health and safety liabilities associated with these conditions will be borne by ACC (and, by extension, Crestline as ACC's owner) post-closing. This reality underscores the importance of robust contractual protections in the Stock Purchase Agreement, as well as the need for accurate valuation and pricing of the environmental liabilities in connection with the purchase price.

C. Impact on 2001 NFA Letter

The 2001 NFA letter issued by PA DEP in connection with the 1993 UST removal and subsequent Act 2 remediation was a significant factor in the Phase I ESA's classification of the UST release as a Historical Recognized Environmental Condition. The NFA letter represents a regulatory determination that the soils in the former UST field area met the applicable Statewide Health Standards at the time of the 2001 submission and that no further action was required with respect to the specific conditions and media addressed.

However, the Phase II findings — particularly the toluene exceedance in groundwater at MW-3 and the presence of PCE in soil at SB-7, a chlorinated solvent not associated with the original UST release — raise serious questions about the scope and completeness of the prior Act 2 remediation. The specific concerns are as follows:

(i) Scope of the NFA Letter. The 2001 NFA letter addressed soils only under the Statewide Health Standard. There is no indication that groundwater was sampled or evaluated as part of the prior Act 2 filing. The NFA letter provides the holder with a release from liability under Act 2 for the specific conditions and standards addressed in the submission — that is, for soil contamination in the former UST field area as measured against the applicable soil MSCs. The NFA letter does not shield the holder against liability for conditions or media not addressed in the original filing, including groundwater contamination that was not evaluated at the time.

(ii) Potential for Incomplete Remediation. The toluene groundwater exceedance at MW-3 suggests that petroleum contamination from the former UST releases may not have been fully addressed by the prior remediation. It is possible that contamination migrated from the soil to the groundwater during or after the remediation period, or that residual soil contamination above the water table has continued to serve as a source of groundwater contamination through leaching and migration. In either case, the practical effect is that the environmental conditions associated with the former UST releases are not fully resolved, notwithstanding the issuance of the NFA letter.

(iii) New Contamination Not Addressed by the NFA Letter. The detection of PCE at SB-7 represents a contamination condition that is distinct from the petroleum hydrocarbon contamination addressed in the 2001 NFA filing. PCE is a chlorinated solvent, not a petroleum constituent, and its presence in the former UST field area suggests an additional contamination source — most likely the pre-1987 degreasing operations of Keystone Metalworks — that was not identified, evaluated, or remediated as part of the prior Act 2 process. The NFA letter does not provide any protection against liability for this newly identified condition.

(iv) PA DEP Authority to Reopen. Under Act 2, Section 505, PA DEP has the authority to reopen an Act 2 case if new information indicates that the relief of liability was based on inaccurate or incomplete information, or if conditions at the site have materially changed since the issuance of the NFA letter. The Phase II findings could provide a basis for PA DEP to exercise this authority, particularly if the agency concludes that the original remediation was inadequate or that the groundwater conditions now documented at MW-3 represent a threat to public health or the environment.

In sum, while the 2001 NFA letter remains a valid regulatory document, its practical value as a shield against environmental liability is significantly diminished by the Phase II findings. Crestline should not rely on the NFA letter

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is a privileged and confidential attorney work product prepared in anticipation of litigation or for the purpose of providing legal advice. It is not to be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
MEMORANDUM
TO: Derek Huang, General Counsel, Crestline Packaging Solutions LLC Patricia Okonkwo, Vice President, Environmental Health & Safety, Crestline Packaging Solutions LLC
FROM: Harrison Caldwell, Of Counsel, Calderwood & Harkness LLP Grace Nakamura, Associate, Calderwood & Harkness LLP
DATE: October 14, 2022
RE: Phase II Environmental Site Assessment — Analytical Results Analysis McKeesport Main Plant, 2200 Iron Works Boulevard, McKeesport, PA 15132 (Allegheny County, Parcel ID: 0383-M-00125-0000-00)
MATTER NO.: 1006-00003
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I. Purpose and Scope
The purpose of this memorandum is to provide a detailed legal and technical analysis of the Phase II Environmental Site Assessment ("Phase II ESA") analytical results for the McKeesport Main Plant (the "Facility" or the "Site"), the headquarters and primary manufacturing facility of Allegheny Chemical Coatings, Inc. ("ACC" or the "Target"). This analysis is prepared in connection with the proposed acquisition by Crestline Packaging Solutions LLC ("Crestline" or "CPS") of one hundred percent (100%) of the outstanding common stock of ACC at a proposed purchase price of Ninety-Four Million Five Hundred Thousand Dollars ($94,500,000) (the "Transaction"). The Transaction is currently structured as a stock purchase, and accordingly, all existing liabilities of ACC — including environmental liabilities associated with the McKeesport Main Plant and ACC's other facilities — will transfer to Crestline upon closing.
This memorandum reviews the Phase II analytical data received from TerraVerde Environmental Consulting LLC ("TerraVerde") on October 10, 2022, following completion of subsurface investigation activities at the Site. Specifically, this memorandum: (a) presents and interprets the analytical results for soil, groundwater, and sub-slab soil gas samples collected during the Phase II investigation; (b) compares those results against applicable cleanup standards established under the Pennsylvania Land Recycling and Environmental Remediation Standards Act, 35 P.S. §§ 6026.101–6026.908 ("Act 2"), including the Statewide Health Standards set forth in 25 Pa. Code Chapter 250, as well as the Pennsylvania Department of Environmental Protection ("PA DEP") vapor intrusion screening levels; (c) identifies exceedances of those standards and evaluates their legal and commercial significance in the context of the proposed Transaction; and (d) provides recommendations for next steps in the environmental diligence process and for risk allocation in the Transaction documentation.
This memorandum should be read in conjunction with the following related work product, which together comprise Calderwood & Harkness's environmental diligence analysis for the McKeesport Main Plant:
(i) The Phase I ESA Review Memorandum — McKeesport Main Plant, dated August 29, 2022, which reviewed TerraVerde's Phase I Environmental Site Assessment dated August 15, 2022 and identified two Recognized Environmental Conditions ("RECs") and one Historical Recognized Environmental Condition ("HREC") at the Site;
(ii) The Phase II Scope of Work Review & Comment Letter to TerraVerde, dated September 2, 2022, which approved TerraVerde's proposed Phase II sampling plan with certain modifications, including the addition of sub-slab soil gas sampling beneath Building C; and
(iii) The Vapor Intrusion Risk Assessment Memorandum, currently under preparation and to be delivered under separate cover, which addresses in comprehensive detail the sub-slab soil gas findings at Building C, the associated health and safety implications, and recommended mitigation measures.
The Calderwood & Harkness engagement team responsible for the environmental diligence workstream on this matter consists of the following personnel: Beatrice Holloway (Responsible Partner, M&A Practice Group), James Prentice (Billing Partner, M&A Practice Group), Harrison Caldwell (Of Counsel, Environmental & Land Use Practice Group), Grace Nakamura (Lead Associate, Real Estate Practice Group), Rafael Dominguez (Working Associate, Real Estate Practice Group), and Simone Estrada (Paralegal). Questions regarding this memorandum should be directed to Harrison Caldwell or Grace Nakamura in the first instance.
II. Executive Summary
TerraVerde's Phase II investigation at the McKeesport Main Plant has confirmed the presence of subsurface contamination associated with both of the Recognized Environmental Conditions identified in the Phase I ESA. The analytical results reveal exceedances of applicable regulatory standards in groundwater and sub-slab soil gas, as well as soil contamination that, while below non-residential standards under current use, exceeds the more stringent residential Statewide Health Standards. Taken together, these findings establish that the McKeesport facility has confirmed environmental contamination that will require remediation or active risk management under Act 2 and that this contamination presents a material liability for Crestline as the prospective acquiror in a stock purchase transaction.
The key findings requiring the attention of Crestline's management and deal team are summarized below:
Groundwater. Toluene was detected in groundwater at monitoring well MW-3, located in the former underground storage tank ("UST") field area associated with REC-1, at a concentration of 1,420 micrograms per liter ("µg/L"). This result exceeds the applicable PA Act 2 Statewide Health Standard of 1,000 µg/L for toluene in groundwater (used-aquifer, non-residential), representing a 42% exceedance over the regulatory threshold. Total xylenes were also detected at MW-3 at a concentration of 8,200 µg/L, which is below the applicable standard of 10,000 µg/L but within 18% of the threshold, warranting continued monitoring. All other monitoring wells showed analyte concentrations below applicable standards.
Soil. Tetrachloroethylene ("PCE") was detected in soil at boring SB-7, also located in the former UST field area, at a concentration of 3.8 milligrams per kilogram ("mg/kg"). This result exceeds the residential Statewide Health Standard of 2.4 mg/kg (a 58% exceedance) but is well below the non-residential Statewide Health Standard of 14 mg/kg. Additionally, lead was detected in soil at boring SB-14, located near the eastern boundary drum storage area associated with REC-2, at a concentration of 680 mg/kg. This result exceeds the residential Statewide Health Standard of 450 mg/kg (a 51% exceedance) but falls below the non-residential standard of 1,000 mg/kg. Under the facility's current industrial/commercial use, neither the PCE nor the lead soil result constitutes a regulatory exceedance; however, both represent conditions that could require remediation under a change-of-use scenario and that have implications for deal risk allocation.
Sub-Slab Soil Gas (Vapor Intrusion). Trichloroethylene ("TCE") was detected beneath Building C at sub-slab soil gas sampling point SSG-2 at a concentration of 42 micrograms per cubic meter ("µg/m³"), which exceeds the PA DEP vapor intrusion screening level of 21 µg/m³ by 100% (i.e., the detected concentration is double the screening level). This finding confirms an active vapor intrusion pathway from subsurface contamination into Building C, the facility's primary mixing and blending area, and presents the most acute worker health and safety concern identified in the Phase II investigation. This finding is analyzed in greater detail in the separate Vapor Intrusion Risk Assessment Memorandum currently under preparation.
These findings carry significant implications for the proposed Transaction. As a stock purchase, Crestline will acquire ACC as an entity and will step into all of ACC's existing environmental liabilities, obligations, and regulatory commitments. The confirmed toluene exceedance in groundwater will require remedial action under Act 2, and the vapor intrusion condition at Building C may require immediate mitigation and worker notification. TerraVerde has been requested to prepare a preliminary remediation cost estimate, which is expected to be delivered on or about October 18, 2022. Based on initial discussions with TerraVerde's project team, the anticipated cost range for groundwater treatment, vapor intrusion mitigation, and associated regulatory work is approximately $1.2 million to $2.8 million, exclusive of professional consulting fees and ongoing monitoring costs.
We recommend that Crestline's management and deal team review these findings carefully and schedule a conference call at the earliest convenience to discuss the implications for purchase price adjustment, environmental escrow and indemnification provisions, lender communication, and environmental insurance coverage.
III. Background
A. Facility Description
The McKeesport Main Plant is located at 2200 Iron Works Boulevard, McKeesport, Pennsylvania 15132, in Allegheny County (Parcel ID: 0383-M-00125-0000-00). The Site comprises approximately 14.3 acres and includes approximately 185,000 square feet of manufacturing space distributed across several interconnected buildings (identified in facility records as Buildings A through E) and approximately 12,000 square feet of office and administrative space contained in a two-story building on the northern portion of the parcel. The facility is situated in an area characterized by mixed industrial and commercial land use, consistent with McKeesport's historical role as a center of steel and metals manufacturing in the Monongahela River valley.
ACC utilizes the McKeesport Main Plant as its headquarters and primary manufacturing facility for the production of solvent-based and epoxy coating systems. The facility's principal operations include the mixing, blending, and filling of chemical coating products, which involve the regular use and handling of volatile organic compounds ("VOCs") — including toluene, xylene, methyl ethyl ketone ("MEK"), and ethylbenzene — as solvents and diluents in the coating formulations. Additionally, certain legacy pigment operations at the facility involved the use of heavy metals, including chromium and lead, in coating formulations, though ACC has represented that lead-based pigments have been phased out of production since approximately 2005.
The McKeesport Main Plant is owned in fee simple by ACC, which acquired the property in 1987 as described below. ACC holds an EPA Identification Number of PAD-098-721-445 and is classified as a Large Quantity Generator ("LQG") of hazardous waste under the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901–6992k, and the corresponding Pennsylvania regulations at 25 Pa. Code Chapter 262. The facility maintains active permits for air emissions under the Allegheny County Health Department Air Quality Program and for stormwater discharge under the National Pollutant Discharge Elimination System ("NPDES") program.
B. Environmental History
The environmental history of the McKeesport Main Plant is relevant to interpreting the Phase II analytical results, as the Site has been the subject of prior industrial operations and environmental investigation. The key milestones in the Site's environmental history are summarized below.
Pre-1987 Operations. Prior to ACC's acquisition of the facility, the Site was operated as a steel fabrication facility by Keystone Metalworks, a company that is now defunct and that ceased operations in approximately 1986. Keystone Metalworks' operations at the Site are reported to have included metal cutting, welding, grinding, and finishing operations, as well as parts degreasing using chlorinated solvents. The pre-1987 operations are significant because the presence of PCE in soil at boring SB-7 (discussed in Section V.B.1 below) may be attributable to degreasing operations conducted by Keystone Metalworks, rather than to ACC's coating manufacturing activities. Records relating to Keystone Metalworks' environmental practices at the Site are limited, as the company was dissolved prior to the enactment of many modern environmental regulatory requirements.
1987: ACC Acquisition. ACC was incorporated in 1987 and acquired the McKeesport facility from Keystone Metalworks in the same year. The terms of the acquisition, including any environmental representations, warranties, or indemnification provisions, have not been made available to Calderwood & Harkness as part of the due diligence process. We have requested these documents from Seller's counsel (Hargrove, Dalton & Speer LLP) but have not received them as of the date of this memorandum.
1993: UST Removal. In 1993, three 10,000-gallon underground storage tanks were removed from the former UST field area, located in the central-western portion of the Site near what is now the Building C mixing area. These USTs are understood to have contained heating oil and/or diesel fuel used in connection with the prior steel fabrication operations and subsequently by ACC. The UST removal was conducted pursuant to applicable Pennsylvania UST regulations (25 Pa. Code Chapter 245). Soil sampling conducted at the time of removal detected petroleum hydrocarbons in the tank excavation area.
1994: Act 2 Filing. Following the 1993 UST removal, ACC filed a Notice of Intent to Remediate ("NIR") with PA DEP under Act 2, initiating a remediation process to address petroleum hydrocarbon contamination in soils associated with the UST releases.
May 2001: No Further Action Letter. On May 14, 2001, PA DEP issued a No Further Action ("NFA") letter to ACC under the Statewide Health Standard for soils in connection with the 1994 Act 2 filing. The NFA letter confirmed that soils in the former UST field area had been remediated to levels meeting the applicable Statewide Health Standards for the identified petroleum constituents. Importantly, the 2001 NFA letter addressed soils only; it did not address groundwater conditions at the Site, and there is no indication in the records available to us that groundwater was sampled or evaluated as part of the 2001 Act 2 remediation. This distinction is critical in light of the toluene exceedance now detected in groundwater at monitoring well MW-3 in the same general area. The 2001 NFA letter was identified as a Historical Recognized Environmental Condition ("HREC-1") in TerraVerde's Phase I ESA.
1987–Present: Coating Manufacturing Operations. ACC has operated coatings manufacturing at the McKeesport Main Plant continuously since 1987, involving the regular use, storage, and handling of VOCs and other chemicals as described above. ACC maintains records of annual hazardous waste generation and disposal as required under RCRA and Pennsylvania regulations.
C. Phase I ESA Findings (TerraVerde, August 15, 2022)
TerraVerde's Phase I Environmental Site Assessment of the McKeesport Main Plant, dated August 15, 2022 and conducted in general accordance with ASTM Standard Practice E1527-21, identified two Recognized Environmental Conditions and one Historical Recognized Environmental Condition. These findings were analyzed in detail in Calderwood & Harkness's Phase I ESA Review Memorandum dated August 29, 2022. The Phase I findings are summarized below, as they form the basis for the Phase II investigation scope:
REC-1: Potential Vapor Intrusion Pathway — Building C / Former UST Field Area. TerraVerde's Phase I investigation identified elevated VOC readings in indoor air near the Building C mixing area, based on photoionization detector ("PID") screening conducted during the site reconnaissance. TerraVerde concluded that a potential vapor intrusion pathway exists from residual subsurface contamination beneath the former UST field area into the occupied portions of Building C. The proximity of Building C to the area of the 1993 UST removal, combined with the indoor air PID readings, supported the identification of this condition as a REC warranting Phase II investigation.
REC-2: Eastern Boundary — Staining and Stressed Vegetation / Drum Storage Area. TerraVerde observed staining on the pavement surface and stressed or absent vegetation along the eastern property boundary, adjacent to an unlined stormwater drainage channel. This area is proximate to an outdoor drum storage area where ACC stores both virgin and waste materials in drums prior to pickup by licensed waste haulers. TerraVerde concluded that the observed conditions were consistent with potential releases of chemicals from the drum storage area to soil and/or the adjacent drainage channel, constituting a REC.
HREC-1: 1994 Act 2 UST Release — 2001 NFA Letter. The 1994 Act 2 filing and subsequent 2001 NFA letter were identified as a Historical Recognized Environmental Condition, reflecting a past release that had been addressed to the satisfaction of PA DEP and for which no further action was required. TerraVerde noted that the HREC designation was based on the assumption that site conditions had not materially changed since the issuance of the NFA letter.
The Phase I ESA recommended that a Phase II subsurface investigation be conducted to evaluate both RECs through direct sampling of soil, groundwater, and (at Calderwood & Harkness's request) sub-slab soil gas.
D. Phase II Investigation Scope
The Phase II Environmental Site Assessment commenced on September 12, 2022, pursuant to a scope of work prepared by TerraVerde and reviewed and approved by Calderwood & Harkness in our Phase II Scope of Work Review & Comment Letter dated September 2, 2022. The investigation was designed to evaluate subsurface conditions associated with both RECs identified in the Phase I ESA and to characterize the nature and extent of any contamination present. The scope of the investigation included the following elements:
Soil Borings. A total of eighteen (18) soil borings, designated SB-1 through SB-18, were advanced across the Site using direct-push technology (Geoprobe). Boring locations were concentrated in two primary areas of concern: (a) the former UST field area in the central-western portion of the Site, corresponding to REC-1 (borings SB-1 through SB-10), and (b) the eastern boundary drum storage area and adjacent drainage channel, corresponding to REC-2 (borings SB-11 through SB-18). Soil samples were collected from multiple depth intervals at each boring location, generally at 2-foot intervals from ground surface to the maximum boring depth of approximately 15 feet below ground surface ("bgs"). Samples exhibiting the highest PID readings or visual/olfactory evidence of contamination at each boring location were selected for laboratory analysis.
Monitoring Wells. Six (6) temporary monitoring wells, designated MW-1 through MW-6, were installed to evaluate shallow groundwater quality at and around the Site. MW-1 and MW-2 were positioned upgradient and cross-gradient of the former UST field area, respectively, to establish background groundwater quality. MW-3 was installed within the former UST field area, in the vicinity of the 1993 UST excavation. MW-4 through MW-6 were installed along the eastern boundary near the drum storage area and drainage channel. Groundwater samples were collected from each well following well development and stabilization of water quality parameters, in accordance with standard low-flow purging protocols.
Sub-Slab Soil Gas Sampling. At Calderwood & Harkness's specific request — a modification to TerraVerde's original scope of work, which did not include vapor intrusion assessment — sub-slab soil gas samples were collected from three (3) sampling points, designated SSG-1 through SSG-3, installed through the concrete floor slab of Building C. These sampling points were positioned to evaluate the potential vapor intrusion pathway from the former UST field area into the occupied mixing and blending area of Building C, as identified in REC-1. The addition of sub-slab soil gas sampling to the investigation scope proved to be a critical decision, as discussed in Section V.C below.
All soil and groundwater sampling activities were completed by September 26, 2022. Samples were submitted to Keystone Analytical Laboratories Inc. ("Keystone Labs"), located in Monroeville, Pennsylvania, a PA DEP-accredited laboratory, for analysis. The analytical suite included the following methods:
• Volatile Organic Compounds ("VOCs") — EPA Method 8260B
• Semi-Volatile Organic Compounds ("SVOCs") — EPA Method 8270D
• RCRA 8 Metals — EPA Methods 6010C (ICP-OES) and 7471B (mercury by cold vapor)
• Diesel-Range Organics ("DRO") and Gasoline-Range Organics ("GRO") — EPA Method 8015
• Sub-Slab Soil Gas — EPA Method TO-15 (VOCs in air by GC/MS)
Laboratory analytical results were received by TerraVerde from Keystone Labs and transmitted to Calderwood & Harkness on October 10, 2022. The complete analytical data tables are attached hereto as Attachment A. A site plan showing the locations of all borings, monitoring wells, and sub-slab soil gas sampling points is attached as Attachment B.
IV. Applicable Regulatory Standards
A. Pennsylvania Act 2 — Land Recycling and Environmental Remediation Standards Act
The Pennsylvania Land Recycling and Environmental Remediation Standards Act, commonly known as "Act 2," was enacted in 1995 (35 P.S. §§ 6026.101–6026.908) to establish a comprehensive framework for the investigation and remediation of contaminated sites in the Commonwealth. Act 2 replaced the prior patchwork of cleanup requirements with a unified program that provides three alternative cleanup standards, each of which may be used to demonstrate attainment of environmental quality sufficient to obtain a release of liability from PA DEP:
(1) Background Standard (25 Pa. Code §§ 250.201–250.211): Requires remediation to naturally occurring concentrations of contaminants. This standard is most commonly used for metals or other naturally occurring substances and may be established through statistical comparison to background sampling data.
(2) Statewide Health Standard (25 Pa. Code §§ 250.301–250.311): A risk-based standard that establishes numeric concentration limits for individual contaminants in soil, groundwater, and other media, based on human health risk calculations using standardized exposure assumptions. The Statewide Health Standards are published in the Medium-Specific Concentrations ("MSCs") tables at 25 Pa. Code Chapter 250, Appendix A, Tables 1 through 6. The MSCs are set separately for two land use categories: (a) residential, which applies to residential properties and properties where a deed restriction or environmental covenant limiting use to non-residential purposes is not in place; and (b) non-residential, which applies to industrial, commercial, and other non-residential properties where appropriate land use restrictions are recorded. The Statewide Health Standard is the most commonly used cleanup standard under Act 2 and was the standard applied in the 2001 NFA letter for the McKeesport facility.
(3) Site-Specific Standard (25 Pa. Code §§ 250.401–250.411): Allows the use of a site-specific risk assessment to establish cleanup levels tailored to the particular conditions and exposure pathways at a given site. This standard provides the greatest flexibility but requires a more extensive and costly risk evaluation process and typically involves greater regulatory scrutiny.
For purposes of this memorandum, the Phase II analytical results are compared against the Statewide Health Standard values set forth in 25 Pa. Code Chapter 250, as these represent the most commonly applied and readily determinable cleanup benchmarks and are consistent with the standard applied in the prior Act 2 remediation at the Site. Both residential and non-residential MSC values are presented where applicable, given that the McKeesport facility is currently used for industrial/commercial purposes (supporting comparison to non-residential standards) but a future change in use — whether by Crestline or a subsequent owner — could trigger the application of the more stringent residential standards.
It is important to note that in a stock purchase transaction, Crestline will step into ACC's shoes as the owner and operator of the McKeesport facility. As such, Crestline could potentially be obligated to remediate under Act 2 if PA DEP initiates enforcement action, if contamination migrates off-site and triggers third-party claims, or if Crestline elects to voluntarily remediate as part of a property redevelopment or other strategic initiative. Additionally, under Section 501 of Act 2 (35 P.S. § 6026.501), any person who undertakes remediation of contamination at a site may seek and obtain a release of liability from PA DEP upon demonstrating attainment of one of the three cleanup standards.
B. Applicable Statewide Health Standard Values (Key Analytes)
The following table sets forth the Statewide Health Standard values (Medium-Specific Concentrations) applicable to the key analytes detected during the Phase II investigation. These values are drawn from the MSC tables at 25 Pa. Code Chapter 250, Appendix A, and represent the concentration thresholds above which remedial action is required to achieve attainment of the Statewide Health Standard. A complete compilation of applicable MSCs for all analytes included in the Phase II analytical program is attached hereto as Attachment C.
It should be noted that the groundwater MSC values for toluene and xylenes are based on the "used aquifer" designation. The aquifer underlying the McKeesport facility is classified as a used aquifer for Act 2 purposes, which is the more protective classification. If the aquifer were classified as a "non-use aquifer," higher MSC values would apply; however, there is no basis in the available information to support such a reclassification, and PA DEP's default presumption is that all aquifers are used aquifers absent demonstration to the contrary.
C. Vapor Intrusion Guidance
The PA DEP's Land Recycling Program Technical Guidance Manual includes specific guidance on the evaluation and mitigation of vapor intrusion, originally published in October 2004 and subsequently updated. This guidance establishes screening levels for volatile organic compounds in sub-slab soil gas that serve as the initial benchmarks for evaluating whether a vapor intrusion pathway presents an unacceptable risk to building occupants. The guidance applies wherever volatile contaminants are detected in subsurface media — including soil, groundwater, or soil gas — beneath or near occupied buildings.
For trichloroethylene, the PA DEP vapor intrusion screening level for sub-slab soil gas is 21 µg/m³. This value is derived from health-based risk calculations that account for the attenuation of VOC vapors as they migrate from the subsurface through the building foundation and into the indoor air environment, using a standard attenuation factor. An exceedance of the sub-slab soil gas screening level does not, in and of itself, establish that indoor air concentrations pose an unacceptable health risk; rather, it triggers a requirement for further evaluation, which may include indoor air sampling, modeling of vapor attenuation, or immediate mitigation. However, as a practical matter, PA DEP strongly recommends — and in many cases requires — the installation of engineering controls such as a sub-slab depressurization system ("SSDS") when sub-slab soil gas concentrations exceed the screening levels, particularly for carcinogenic compounds such as TCE.
The vapor intrusion findings at Building C are discussed further in Section V.C below and are the subject of a comprehensive analysis in the separate Vapor Intrusion Risk Assessment Memorandum.
V. Analytical Results — Detailed Findings
This section presents a detailed discussion of the Phase II analytical results, organized by medium (groundwater, soil, and sub-slab soil gas). The complete analytical data tables provided by TerraVerde are included as Attachment A; the discussion below highlights the results of greatest significance for purposes of the Transaction.
A. Groundwater Results
1. Monitoring Well MW-3 (Former UST Field Area — REC-1)
Monitoring well MW-3 is located in the central-western portion of the Site within the footprint of the former UST field area where three 10,000-gallon USTs were removed in 1993. This well was installed to evaluate whether residual contamination from the historic UST releases had migrated to the shallow groundwater system. MW-3 was screened across the water table interval at approximately 8 to 13 feet below ground surface, consistent with the depth to groundwater observed across the Site.
Toluene. Toluene was detected in the groundwater sample collected from MW-3 at a concentration of 1,420 µg/L. The applicable Statewide Health Standard for toluene in groundwater (used-aquifer, non-residential) is 1,000 µg/L. The detected concentration therefore exceeds the applicable standard by 420 µg/L, representing a 42% exceedance (1,420 ÷ 1,000 = 1.42 times the standard).
This is a confirmed exceedance of the PA Act 2 Statewide Health Standard and will require remedial action under Act 2. The presence of toluene in groundwater at concentrations above the MSC establishes that the shallow aquifer beneath the former UST field area is contaminated and that the contamination has not been adequately addressed by prior remedial activities at the Site.
The significance of this finding is heightened by several factors. First, MW-3 is located in the immediate vicinity of the former UST field where the three 10,000-gallon USTs were removed in 1993. Toluene is a constituent of petroleum fuels and is consistent with a release from the former USTs. This finding suggests that residual contamination from the UST releases was not fully addressed by the remediation that culminated in the 2001 NFA letter. Second, the 2001 NFA letter addressed soils only under the Statewide Health Standard. There is no indication in the available records that groundwater was sampled, characterized, or remediated as part of the prior Act 2 filing. It is possible that toluene contamination was present in groundwater at the time of the 2001 NFA letter but was not evaluated, or that contamination has migrated from residual soil sources to the groundwater since that time. In either event, the NFA letter does not provide protection against liability for the groundwater condition now identified.
Third, the HREC-1 designation assigned to the 2001 NFA letter in the Phase I ESA was based on the assumption that the prior Act 2 remediation had adequately addressed all contamination associated with the UST releases. The Phase II groundwater results effectively call into question the completeness of the prior cleanup. In our view, these results may warrant reclassifying the HREC back to an active environmental condition — a conclusion that is consistent with ASTM E1527-21 guidance providing that a Historical REC may be reclassified if new information indicates that the prior remediation was incomplete or that conditions have materially changed since the issuance of regulatory closure.
Xylene (total). Total xylenes were detected in the MW-3 groundwater sample at a concentration of 8,200 µg/L. The applicable Statewide Health Standard for xylene (total) in groundwater (used-aquifer, non-residential) is 10,000 µg/L. The detected concentration is below the applicable standard, representing 82% of the threshold value. Accordingly, the xylene result does not constitute a regulatory exceedance at this time.
However, the proximity of the xylene concentration to the applicable standard — within 18% of the MSC — warrants attention and continued monitoring. Seasonal fluctuations in groundwater levels and flow conditions can cause contaminant concentrations to vary over time, and it is not uncommon for analyte concentrations to fluctuate by more than 18% between sampling events. Additionally, if additional releases were to occur from the former UST area or from ongoing operations, the xylene concentration at MW-3 could rise above the applicable standard. We recommend that any supplemental groundwater sampling program include MW-3 to confirm whether the xylene concentration is stable, increasing, or decreasing over time.
Other VOCs at MW-3. Methyl ethyl ketone ("MEK") and ethylbenzene were also detected in the groundwater sample from MW-3, but at concentrations well below their respective Statewide Health Standards. These detections are consistent with the petroleum hydrocarbon profile expected in the vicinity of the former UST releases and do not represent regulatory concerns at current concentrations. Full analytical results for MW-3 are presented in Attachment A, Table 2.
2. Other Monitoring Wells (MW-1, MW-2, MW-4, MW-5, MW-6)
All monitoring wells other than MW-3 showed analyte concentrations below applicable Statewide Health Standards for all parameters tested. The results from these wells provide useful context for understanding the distribution and extent of contamination at the Site.
MW-1 and MW-2 (Upgradient/Cross-Gradient — Background). MW-1 and MW-2 were installed in upgradient and cross-gradient positions relative to the former UST field area, respectively, for the purpose of establishing background groundwater quality. VOCs were detected at trace levels only in both wells, generally at or near the method detection limits, consistent with ambient background conditions. The absence of significant VOC detections in these wells supports the conclusion that the toluene contamination observed at MW-3 is attributable to a localized source in the former UST field area rather than to a regional groundwater quality condition.
MW-4 through MW-6 (Eastern Boundary / Drum Storage Area — REC-2). MW-4, MW-5, and MW-6 were installed along the eastern boundary of the Site to evaluate whether releases from the outdoor drum storage area or the adjacent unlined stormwater drainage channel had impacted shallow groundwater quality. Diesel-range organics ("DRO") were detected at MW-5 at low concentrations below applicable action levels, which may be attributable to minor surface releases from drum handling activities. No VOC exceedances were identified at any of these three wells, and metals concentrations in groundwater were below applicable standards.
The groundwater results from the eastern boundary wells are encouraging in that they suggest the conditions associated with REC-2 have not resulted in significant groundwater contamination. However, the soil results from this area (discussed in Section V.B.2 below) indicate that surface and near-surface soil impacts are present.
In summary, the groundwater contamination identified during the Phase II investigation appears to be localized in the former UST field area in the vicinity of MW-3. This localization is favorable from a remediation standpoint, as it suggests that the toluene plume may be of limited extent. However, the lateral and vertical extent of the groundwater plume has not been fully delineated by the current well network, and supplemental investigation may be warranted to characterize the plume boundaries and assess the direction and rate of groundwater flow.
B. Soil Results
1. Boring SB-7 (Former UST Field Area — REC-1)
Soil boring SB-7 is located in the former UST field area, approximately 40 feet east of monitoring well MW-3 and within the footprint of the former UST excavation. Soil samples were collected from SB-7 at depth intervals of 0–2 feet, 4–6 feet, 8–10 feet, and 12–14 feet below ground surface. The sample from the 8–10 foot interval exhibited the highest PID readings during field screening and was submitted for laboratory analysis along with the shallowest sample.
Tetrachloroethylene (PCE). PCE was detected in the 8–10 foot soil sample from SB-7 at a concentration of 3.8 mg/kg. The applicable Statewide Health Standards for PCE in soil are:
• Residential MSC: 2.4 mg/kg — The detected concentration of 3.8 mg/kg exceeds the residential standard (3.8 ÷ 2.4 = 1.58 times the standard, a 58% exceedance).
• Non-Residential MSC: 14 mg/kg — The detected concentration of 3.8 mg/kg is below the non-residential standard (3.8 ÷ 14 = 0.27, representing only 27% of the standard).
Under the facility's current industrial/commercial use, the PCE soil result at SB-7 does not constitute a regulatory exceedance of the applicable non-residential Statewide Health Standard. However, this finding is a material concern for several reasons that warrant careful consideration in the context of the Transaction.
First, if the property were ever to change use to residential — whether by Crestline, a subsequent purchaser, or through municipal rezoning — the PCE concentration at SB-7 would exceed the applicable residential standard, and remediation would be required to achieve attainment. Under Act 2, the use of non-residential MSCs is contingent upon maintaining appropriate activity and use limitations on the property; if such limitations lapse or are not properly maintained, the more stringent residential standards would apply by default.
Second, PCE is a chlorinated solvent classified as a "likely" human carcinogen by the U.S. Environmental Protection Agency and as a Group 1 carcinogen by the International Agency for Research on Cancer. Its presence in the former UST area is notable because PCE is not a chemical typically associated with petroleum fuel storage or UST releases. The detection of PCE at SB-7 suggests either: (a) a co-mingled contamination condition in which PCE from a separate source has mixed with the petroleum contamination from the former USTs, or (b) a separate, distinct release of PCE in the same general area. The most likely source of PCE at the Site is the pre-1987 steel fabrication operations conducted by Keystone Metalworks, which reportedly included parts degreasing using chlorinated solvents. Degreasing operations commonly employed PCE (also known as perchloroethylene or "perc") as a cleaning agent, and releases of PCE from degreasing equipment are one of the most common sources of chlorinated solvent contamination at industrial sites.
Third, and perhaps most significantly, PCE can undergo sequential reductive dechlorination in the subsurface environment, degrading through a well-documented pathway: PCE → trichloroethylene (TCE) → cis-1,2-dichloroethylene (cis-1,2-DCE) → vinyl chloride → ethylene. The detection of TCE in the sub-slab soil gas beneath Building C (discussed in Section V.C below) may represent a degradation product of the PCE detected in soil at SB-7, suggesting an ongoing geochemical process that is generating TCE vapors from the PCE source mass. This potential degradation pathway is a significant concern because it means that the PCE contamination in soil is not merely a static condition but may be actively contributing to the vapor intrusion problem in Building C. Moreover, vinyl chloride — the penultimate degradation product of PCE — is a known human carcinogen with very low regulatory screening levels, and its potential presence in the degradation chain warrants evaluation.
2. Boring SB-14 (Eastern Boundary — REC-2)
Soil boring SB-14 is located near the eastern property boundary, approximately 25 feet from the outdoor drum storage area and approximately 15 feet from the unlined stormwater drainage channel identified in the Phase I ESA as part of REC-2. Soil samples were collected from SB-14 at depth intervals of 0–2 feet, 4–6 feet, and 8–10 feet below ground surface. The shallowest sample (0–2 feet) was selected for metals analysis based on the observed surface staining and stressed vegetation in the area.
Lead. Lead was detected in the 0–2 foot soil sample from SB-14 at a concentration of 680 mg/kg. The applicable Statewide Health Standards for lead in soil are:
• Residential MSC: 450 mg/kg — The detected concentration of 680 mg/kg exceeds the residential standard (680 ÷ 450 = 1.51 times the standard, a 51% exceedance).
• Non-Residential MSC: 1,000 mg/kg — The detected concentration of 680 mg/kg is below the non-residential standard (680 ÷ 1,000 = 0.68, representing 68% of the standard).
As with the PCE result at SB-7, the lead soil result at SB-14 does not constitute a regulatory exceedance under the current non-residential land use at the McKeesport facility. However, the exceedance of the residential standard is noted, and the result carries implications for property use restrictions and potential future liability.
The presence of elevated lead in surface soil at SB-14 is consistent with several potential sources, including: (a) ACC's historical pigment operations, which involved the use of lead-based pigments in coating formulations until approximately 2005, with associated drum handling and storage in the eastern boundary area; (b) the legacy steel fabrication operations conducted by Keystone Metalworks, which may have involved the use of lead-containing paints, coatings, or materials; and (c) potential deposition from the stormwater drainage channel, which may have concentrated metals from surface runoff across the industrial areas of the Site.
The proximity of SB-14 to the unlined stormwater drainage channel is of particular concern because the drainage channel provides a potential migration pathway for lead-contaminated soil or sediment to move off-site. The stressed and absent vegetation observed along the eastern boundary during the Phase I reconnaissance may be attributable, at least in part, to elevated lead concentrations in the shallow soil, as lead is toxic to plant life at the concentrations detected.
3. Other Soil Borings (SB-1 through SB-18, Excluding SB-7 and SB-14)
The remaining sixteen soil borings (SB-1 through SB-6, SB-8 through SB-13, and SB-15 through SB-18) showed analyte concentrations below both residential and non-residential Statewide Health Standards for all parameters tested, including VOCs, SVOCs, RCRA 8 metals, DRO, and GRO.
Low-level detections of toluene and xylene were observed in soil samples from borings SB-5 and SB-8, both of which are located in proximity to the former UST field area. These detections are consistent with the expected distribution of residual petroleum contamination in the vicinity of the former USTs but are well below applicable MSC values and do not represent regulatory concerns.
No significant metals exceedances were identified at any soil boring location other than SB-14. Specifically, lead concentrations at all other soil boring locations were below both residential and non-residential Statewide Health Standards, indicating that the elevated lead condition is localized in the vicinity of the eastern boundary drum storage area.
C. Sub-Slab Soil Gas Results (Building C — REC-1 / Vapor Intrusion Evaluation)
Sub-slab soil gas sampling was conducted at three sampling points (SSG-1, SSG-2, and SSG-3) installed through the concrete floor slab of Building C. Building C is the facility's primary mixing and blending building, where VOC-containing coating products are manufactured. The building is occupied by ACC production workers during operating hours. The sub-slab sampling points were positioned to evaluate the potential vapor intrusion pathway identified in REC-1, with SSG-2 located directly beneath the main mixing area and SSG-1 and SSG-3 positioned at the northern and southern ends of the building, respectively. As noted above, the inclusion of sub-slab soil gas sampling in the Phase II investigation scope was specifically requested by Calderwood & Harkness in our September 2, 2022 scope of work review letter; TerraVerde's original proposed scope of work did not include this testing.
SSG-2 — Trichloroethylene (TCE): 42 µg/m³. TCE was detected at sub-slab sampling point SSG-2 at a concentration of 42 µg/m³, directly beneath the Building C mixing area. The applicable PA DEP vapor intrusion screening level for TCE in sub-slab soil gas is 21 µg/m³. The detected concentration therefore exceeds the screening level by 100% — that is, the TCE concentration beneath Building C is exactly double the regulatory screening threshold (42 ÷ 21 = 2.0 times the screening level).
This finding is the most significant and most acute environmental concern identified in the Phase II investigation. The exceedance confirms that an active vapor intrusion pathway exists from subsurface contamination into Building C. TCE vapors are migrating upward through the subsurface, accumulating beneath the building's concrete floor slab, and — in the absence of engineering controls — likely entering the indoor air space of the building where workers are present. TCE is a volatile chlorinated solvent classified as a known human carcinogen by the U.S. Environmental Protection Agency and the International Agency for Research on Cancer. Chronic exposure to TCE vapors is associated with increased risks of kidney cancer, liver cancer, and non-Hodgkin lymphoma, as well as adverse effects on the central nervous system, liver, kidneys, and immune system.
The source of the TCE in sub-slab soil gas is likely related to the PCE contamination detected in soil at nearby boring SB-7. As discussed in Section V.B.1 above, PCE undergoes sequential reductive dechlorination in the subsurface, with TCE being the first daughter product in the degradation chain. The detection of TCE in the vapor phase beneath Building C, in proximity to the PCE soil contamination at SB-7, is consistent with a degradation pathway in which PCE in the soil and/or groundwater is being transformed to TCE by naturally occurring microbial processes, and the resulting TCE vapors are migrating through the vadose zone and accumulating beneath the building slab.
SSG-1 — TCE: 8 µg/m³. TCE was detected at SSG-1, located at the northern end of Building C, at a concentration of 8 µg/m³. This result is below the PA DEP screening level of 21 µg/m³ and does not represent a regulatory exceedance. However, the detection of TCE at this location indicates that the vapor intrusion pathway extends beyond the immediate area of SSG-2, albeit at lower concentrations.
SSG-3 — TCE: 14 µg/m³. TCE was detected at SSG-3, located at the southern end of Building C, at a concentration of 14 µg/m³. While this result is also below the screening level of 21 µg/m³, it is trending toward the regulatory threshold — representing approximately 67% of the screening level. The elevated concentration at SSG-3 suggests that the vapor intrusion plume may be migrating southward beneath Building C. If TCE concentrations continue to increase at this location, SSG-3 could exceed the screening level in the future, potentially necessitating mitigation measures across a broader portion of Building C.
The pattern of TCE concentrations across the three sub-slab sampling points — highest at SSG-2 (42 µg/m³) in the center of the building, intermediate at SSG-3 (14 µg/m³) at the southern end, and lowest at SSG-1 (8 µg/m³) at the northern end — is consistent with a subsurface source located in the central-western portion of the Site (the former UST field area), with vapor migration occurring laterally and upward beneath the Building C slab.
It bears emphasis that the Calderwood & Harkness team's proactive request to include sub-slab soil gas sampling in the Phase II scope of work was critical in identifying this vapor intrusion concern. Had TerraVerde's original scope been followed without modification, the TCE vapor intrusion pathway would not have been evaluated during the Phase II investigation, and this significant health and safety concern would have gone undetected — potentially until after closing of the Transaction. This underscores the importance of legal review of environmental consultant scopes of work in the M&A diligence context.
A comprehensive analysis of the vapor intrusion findings, including evaluation of potential exposure pathways, worker health risk assessment, regulatory obligations, and recommended mitigation measures, is being prepared in the separate Vapor Intrusion Risk Assessment Memorandum and will be delivered to the client under separate cover.
VI. Legal Analysis and Implications
A. Act 2 Obligations
The toluene exceedance in groundwater at monitoring well MW-3 (1,420 µg/L versus the Statewide Health Standard of 1,000 µg/L) represents a confirmed exceedance of the applicable cleanup standard under Act 2. This exceedance establishes that groundwater beneath the McKeesport facility is contaminated at levels that exceed the health-based thresholds established by PA DEP for the protection of human health and the environment. Under Act 2, this condition will require remedial action to achieve attainment of an applicable cleanup standard, followed by submission of a demonstration of attainment to PA DEP in order to obtain a new relief of liability.
Although the PCE concentration in soil at SB-7 (3.8 mg/kg) and the lead concentration in soil at SB-14 (680 mg/kg) do not exceed the non-residential Statewide Health Standards under the facility's current industrial/commercial use, they do exceed the residential Statewide Health Standards. These conditions represent environmental liabilities that could require remediation under several scenarios: (a) a change of use of the property from non-residential to residential; (b) a determination by PA DEP that the non-residential use classification is not appropriate or that the property does not qualify for the non-residential standard; (c) a voluntary decision by Crestline to remediate to residential standards in order to maximize the property's future reuse flexibility and value; or (d) an off-site migration of contamination to a residential area, which could trigger regulatory action and third-party claims. Furthermore, the use of non-residential MSCs under Act 2 requires the recording of an environmental covenant or deed restriction pursuant to the Uniform Environmental Covenants Act ("UECA"), 27 Pa. C.S. §§ 6501–6517, which imposes ongoing obligations to maintain the covenant and to restrict future uses of the property.
With respect to the 2001 NFA letter, the new Phase II groundwater findings may constitute "changed conditions" or "new information" that could prompt PA DEP to reconsider the adequacy of the prior Act 2 remediation. As noted in Section III.B above, the NFA letter addressed soils only, and the groundwater conditions now documented at MW-3 were not part of the prior evaluation. PA DEP has the authority under Act 2, Section 505 (35 P.S. § 6026.505), to reopen a remediation case and require further investigation or remediation if new information indicates that the previously issued relief of liability was based on inaccurate or incomplete information, or if conditions at the site have materially changed since the issuance of the NFA letter. Given that the toluene groundwater exceedance is located in the same area as the prior UST remediation and involves a petroleum constituent associated with the original UST releases, PA DEP could reasonably conclude that the prior cleanup did not adequately address all contamination and require ACC (or its successor) to conduct additional remediation.
The remediation options available under Act 2 for the identified contamination include the following:
(a) Achieving the Statewide Health Standard Through Active Remediation. This approach would involve implementing remediation technologies — such as pump-and-treat systems or in-situ chemical oxidation ("ISCO") for groundwater, and excavation and off-site disposal for localized soil contamination — to reduce contaminant concentrations to levels at or below the applicable MSC values. This is the most straightforward approach and provides the broadest relief of liability.
(b) Demonstrating Attainment of the Non-Residential Statewide Health Standard Combined with Engineering or Institutional Controls. Under this approach, the remediating party would demonstrate that contaminant concentrations meet the non-residential MSC values and would implement engineering controls (e.g., a cap, liner, or treatment system) and/or institutional controls (e.g., a recorded environmental covenant restricting future use to non-residential purposes) to manage residual contamination and prevent exposure. This approach is less costly but imposes ongoing obligations and restricts the property's future use.
(c) Developing a Site-Specific Standard Through Risk Assessment. This option involves conducting a site-specific risk assessment to establish cleanup levels tailored to the particular conditions and exposure pathways at the McKeesport facility. A Site-Specific Standard may allow higher contaminant concentrations to remain in place if the risk assessment demonstrates that they do not pose an unacceptable risk under the specific conditions of the Site. This approach provides the greatest flexibility but is more time-consuming and expensive to develop and requires more extensive regulatory review and approval.
Any remediation under Act 2 requires the filing of a Notice of Intent to Remediate ("NIR") with PA DEP, which notifies the agency and the public that contamination has been identified and that the responsible party intends to undertake remediation. The NIR must also be published in the Pennsylvania Bulletin and in a local newspaper. Upon completion of remediation and demonstration of attainment of the selected cleanup standard, the remediating party may submit a final report to PA DEP and, upon approval, will receive a new relief of liability (in the form of an NFA letter or equivalent) for the conditions addressed.
B. Implication of Stock Purchase Structure
A critical consideration in evaluating the significance of the Phase II findings is the structure of the proposed Transaction. This acquisition is structured as a stock purchase, in which Crestline will acquire one hundred percent of the outstanding common stock of ACC. In a stock purchase, the target entity continues to exist as a legal entity following the acquisition; it is the ownership of the entity that changes, not the composition of its assets or liabilities. As a consequence, all of ACC's existing liabilities — including environmental liabilities, regulatory obligations, pending or potential enforcement actions, third-party claims, and remediation obligations — will remain with ACC and will effectively transfer to Crestline as the new owner of the entity.
This stands in contrast to an asset purchase, in which the buyer selectively acquires identified assets and assumes identified liabilities, with the ability to exclude contaminated property or leave environmental liabilities with the seller entity. In a stock purchase, there is no opportunity to selectively exclude particular assets or liabilities; the buyer acquires the entire entity, "warts and all." While contractual protections — such as environmental representations and warranties, indemnification provisions, and escrow arrangements — can be used to allocate risk between the parties in a stock purchase, the buyer's direct exposure to the underlying environmental liabilities is greater than in an asset purchase structure.
The practical effect of this structure for the McKeesport Phase II findings is that all of the environmental conditions documented in TerraVerde's investigation — including the toluene groundwater exceedance at MW-3, the PCE and lead soil contamination at SB-7 and SB-14, and the TCE vapor intrusion condition at Building C — will become Crestline's responsibility upon closing. Any remediation costs, regulatory penalties, third-party claims, or worker health and safety liabilities associated with these conditions will be borne by ACC (and, by extension, Crestline as ACC's owner) post-closing. This reality underscores the importance of robust contractual protections in the Stock Purchase Agreement, as well as the need for accurate valuation and pricing of the environmental liabilities in connection with the purchase price.
C. Impact on 2001 NFA Letter
The 2001 NFA letter issued by PA DEP in connection with the 1993 UST removal and subsequent Act 2 remediation was a significant factor in the Phase I ESA's classification of the UST release as a Historical Recognized Environmental Condition. The NFA letter represents a regulatory determination that the soils in the former UST field area met the applicable Statewide Health Standards at the time of the 2001 submission and that no further action was required with respect to the specific conditions and media addressed.
However, the Phase II findings — particularly the toluene exceedance in groundwater at MW-3 and the presence of PCE in soil at SB-7, a chlorinated solvent not associated with the original UST release — raise serious questions about the scope and completeness of the prior Act 2 remediation. The specific concerns are as follows:
(i) Scope of the NFA Letter. The 2001 NFA letter addressed soils only under the Statewide Health Standard. There is no indication that groundwater was sampled or evaluated as part of the prior Act 2 filing. The NFA letter provides the holder with a release from liability under Act 2 for the specific conditions and standards addressed in the submission — that is, for soil contamination in the former UST field area as measured against the applicable soil MSCs. The NFA letter does not shield the holder against liability for conditions or media not addressed in the original filing, including groundwater contamination that was not evaluated at the time.
(ii) Potential for Incomplete Remediation. The toluene groundwater exceedance at MW-3 suggests that petroleum contamination from the former UST releases may not have been fully addressed by the prior remediation. It is possible that contamination migrated from the soil to the groundwater during or after the remediation period, or that residual soil contamination above the water table has continued to serve as a source of groundwater contamination through leaching and migration. In either case, the practical effect is that the environmental conditions associated with the former UST releases are not fully resolved, notwithstanding the issuance of the NFA letter.
(iii) New Contamination Not Addressed by the NFA Letter. The detection of PCE at SB-7 represents a contamination condition that is distinct from the petroleum hydrocarbon contamination addressed in the 2001 NFA filing. PCE is a chlorinated solvent, not a petroleum constituent, and its presence in the former UST field area suggests an additional contamination source — most likely the pre-1987 degreasing operations of Keystone Metalworks — that was not identified, evaluated, or remediated as part of the prior Act 2 process. The NFA letter does not provide any protection against liability for this newly identified condition.
(iv) PA DEP Authority to Reopen. Under Act 2, Section 505, PA DEP has the authority to reopen an Act 2 case if new information indicates that the relief of liability was based on inaccurate or incomplete information, or if conditions at the site have materially changed since the issuance of the NFA letter. The Phase II findings could provide a basis for PA DEP to exercise this authority, particularly if the agency concludes that the original remediation was inadequate or that the groundwater conditions now documented at MW-3 represent a threat to public health or the environment.
In sum, while the 2001 NFA letter remains a valid regulatory document, its practical value as a shield against environmental liability is significantly diminished by the Phase II findings. Crestline should not rely on the NFA letter

MEMORANDUM

MATTER NO.: 1006-00003

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