PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Beatrice Holloway, Responsible Partner Grace Nakamura, Lead Associate
FROM: Harrison Caldwell, Of Counsel (Environmental & Land Use)
DATE: October 15, 2022
RE: Clean Air Act Compliance Review — Allegheny Chemical Coatings, Inc. — All Facilities
MATTER NO.: 1006-00003
CLIENT: Crestline Packaging Solutions LLC
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I. Purpose and Scope
This memorandum summarizes Calderwood & Harkness LLP's ("C&H") review of federal Clean Air Act ("CAA") and applicable state air quality compliance across all four operating facilities of Allegheny Chemical Coatings, Inc. ("ACC" or the "Target") in connection with the proposed acquisition of one hundred percent (100%) of ACC's outstanding common stock by Crestline Packaging Solutions LLC ("Crestline" or "CPS"). Crestline is a portfolio company of Briarwood Capital Partners LP ("Briarwood"), and the proposed transaction is being structured as a stock purchase. This memorandum has been prepared at the direction of Beatrice Holloway, Responsible Partner, and Grace Nakamura, Lead Associate, to inform the environmental due diligence component of the acquisition.
The review was conducted as part of the broader environmental due diligence engagement opened under Matter No. 1006-00003 on July 19, 2022. The scope of this memorandum is limited to air quality regulatory compliance under the CAA (42 U.S.C. § 7401 et seq.), its implementing regulations, and the corresponding state air pollution control programs administered by the Pennsylvania Department of Environmental Protection ("PA DEP") and the West Virginia Department of Environmental Protection ("WV DEP"). Other environmental media — including water quality (Clean Water Act / NPDES), hazardous waste management (RCRA), site contamination and remediation, and related regulatory programs — are addressed in separate memoranda prepared under this engagement.
The four ACC operating facilities reviewed in connection with this memorandum are as follows:
1. McKeesport Main Plant — 2200 Iron Works Boulevard, McKeesport, Pennsylvania 15132 (Allegheny County). This is ACC's corporate headquarters and primary manufacturing facility, where solvent-based coatings, epoxy coatings, and related chemical products are produced.
2. Charleroi Specialty Coatings Plant — 450 Industrial Park Road, Charleroi, Pennsylvania 15022 (Washington County). This is a secondary manufacturing facility focused on water-based and UV-curable coating production.
3. Clarksburg Resin Blending Facility — 1875 Route 50 West, Clarksburg, West Virginia 26301 (Harrison County). This is a leased facility used for resin receipt, blending, and redistribution operations.
4. Weirton Warehouse & Distribution Center — 600 Commerce Way, Weirton, West Virginia 26062 (Hancock County). This is a leased warehouse and distribution facility with no manufacturing operations and no air emission sources.
With respect to the Weirton facility, because it functions exclusively as a finished goods warehouse and distribution center with no manufacturing operations, no process-related air emission sources, and no air quality permits, it is excluded from the substantive regulatory analysis set forth below. It is addressed briefly in Section III.D for completeness and to confirm the absence of air quality regulatory exposure at that location.
In preparing this memorandum, C&H reviewed the following categories of documents and information:
• Air permits and permit applications provided by ACC through Seller's counsel, Hargrove, Dalton & Speer LLP (Franklin Speer, lead partner), via the virtual data room maintained for the transaction;
• Annual compliance certifications submitted by ACC to PA DEP and WV DEP for the years 2019, 2020, and 2021;
• Emission inventories submitted by ACC for the years 2019, 2020, and 2021;
• Toxics Release Inventory ("TRI") Form R filings for 2021;
• TerraVerde Environmental Services, LLC Phase I Environmental Site Assessment reports dated August 15, 18, 22, and 25, 2022, covering all four ACC facilities;
• PA DEP and WV DEP publicly available compliance and enforcement records accessed during September and October 2022 through the respective agencies' online databases;
• Notes and observations from the McKeesport facility site visit conducted by C&H on September 12, 2022, including the interview with ACC's Environmental, Health & Safety ("EHS") Manager, Carl Johannsen; and
• Various other documents referenced herein and listed in the Enclosures section of this memorandum.
This memorandum is intended to feed into and be incorporated by reference in the Comprehensive Environmental Diligence Summary Memorandum currently in preparation (draft anticipated to be dated October 22, 2022), which will consolidate findings across all environmental media and provide an integrated risk assessment for use by Crestline, Briarwood, and their financing sources.
II. Regulatory Framework Summary
A. Federal Clean Air Act Overview
The federal Clean Air Act, as amended (42 U.S.C. § 7401 et seq.), is the principal federal statute governing air pollution control in the United States. The CAA establishes a comprehensive regulatory framework that operates through a combination of federal standards and state implementation plans. The statute and its implementing regulations address air quality through several major programs relevant to this review:
National Ambient Air Quality Standards (NAAQS). The United States Environmental Protection Agency ("EPA") establishes NAAQS for six criteria pollutants — particulate matter (PM₂.₅ and PM₁₀), ground-level ozone, sulfur dioxide, nitrogen dioxide, carbon monoxide, and lead — at levels designed to protect public health and welfare. States are required to develop State Implementation Plans ("SIPs") to achieve and maintain compliance with NAAQS, and individual source permitting requirements flow in part from the attainment or nonattainment status of the area in which a facility is located. Allegheny County, Pennsylvania (where the McKeesport facility is located) has historically been classified as a nonattainment area for certain criteria pollutants, including fine particulate matter, which can result in more stringent permitting requirements for new and modified sources in the area.
New Source Performance Standards (NSPS). Under Section 111 of the CAA (42 U.S.C. § 7411), EPA promulgates performance standards for categories of new stationary sources. NSPS set technology-based emission limits for new, modified, and reconstructed sources within covered categories. The applicability of specific NSPS subparts to ACC's operations was reviewed as part of this analysis.
National Emission Standards for Hazardous Air Pollutants (NESHAPs) and MACT Standards. Section 112 of the CAA (42 U.S.C. § 7412) addresses emissions of hazardous air pollutants ("HAPs"). EPA has listed 187 HAPs under Section 112(b). Sources that emit or have the potential to emit HAPs above certain thresholds are classified as "major sources" and are subject to Maximum Achievable Control Technology ("MACT") standards, which are technology-based emission standards set at the level achieved by the best-performing sources in the relevant source category.
The major source thresholds under Section 112 are:
• 10 tons per year of any single HAP; or
• 25 tons per year of any combination of HAPs.
A facility that emits or has the potential to emit HAPs at or above either of these thresholds is classified as a major source of HAPs and is subject to the applicable MACT standard for its source category, codified in various subparts of 40 CFR Part 63. The distinction between major and area (non-major) source classification is critically important because major sources face substantially more stringent emission control, monitoring, recordkeeping, and reporting requirements.
Title V Operating Permit Program. Title V of the CAA (42 U.S.C. § 7661 et seq.) establishes a comprehensive operating permit program for major sources and certain other sources. Title V operating permits do not themselves impose new substantive emission limitations; rather, they consolidate all applicable air quality requirements — including NAAQS-related limitations, NSPS, MACT standards, SIP requirements, and state-specific standards — into a single, federally enforceable permit document. Title V permits are issued for a fixed term not to exceed five (5) years and must be renewed prior to expiration. The permit requires compliance with all identified applicable requirements and mandates annual compliance certifications from the permit holder. Any deviation from permit conditions must be reported to the permitting authority. The Title V program thus provides a comprehensive mechanism for ensuring ongoing compliance with the full suite of air quality regulations applicable to a given facility.
B. Pennsylvania Implementation
The Commonwealth of Pennsylvania implements the federal CAA through the Pennsylvania Air Pollution Control Act (35 P.S. § 4001 et seq.) and the air quality regulations promulgated thereunder at 25 Pa. Code Chapters 121 through 145. PA DEP is the delegated state agency responsible for administering the federal CAA programs within Pennsylvania, including the issuance of permits, compliance monitoring, and enforcement.
Two categories of operating permits issued by PA DEP are relevant to this review:
Title V Operating Permits. Applicable to major sources, as defined under federal and state law. Title V permits consolidate all applicable air quality requirements into a single federally enforceable document, are issued for a five-year term, and require annual compliance certifications. PA DEP's Title V program is codified at 25 Pa. Code §§ 127.501–127.544. Renewal applications must be submitted at least eighteen (18) months prior to permit expiration under 25 Pa. Code § 127.514.
State-Only Operating Permits. Applicable to non-major sources (including both "natural minor" sources, which are below major source thresholds based on actual and potential emissions, and "synthetic minor" sources, which have accepted enforceable emission limitations to stay below major source thresholds). State-only permits impose conditions tailored to the specific source's emission profile but are not federally enforceable. PA DEP's State-Only operating permit program is also administered by the Bureau of Air Quality.
PA DEP's Bureau of Air Quality, operating through regional offices, is responsible for the permitting, compliance inspection, and enforcement activities applicable to the McKeesport and Charleroi facilities addressed in this memorandum. The Southwest Regional Office of PA DEP has jurisdiction over both Allegheny County (McKeesport) and Washington County (Charleroi).
C. West Virginia Implementation
The State of West Virginia implements the federal CAA through the West Virginia Air Pollution Control Act (W. Va. Code § 22-5-1 et seq.) and the air quality regulations promulgated by the WV DEP Division of Air Quality, codified at 45 CSR 1 through 45 CSR 34. WV DEP is the delegated state agency responsible for CAA implementation within West Virginia.
The following permit types under the WV DEP program are relevant to this review:
Registration Permits. Issued under 45 CSR 31 for minor sources with low actual emissions that do not require a more detailed permit. Registration permits represent the simplest tier of air permitting in West Virginia and impose general emission limits, basic recordkeeping, and annual reporting obligations. These permits are appropriate for facilities with minimal air emissions that are well below major source thresholds.
Construction/Modification Permits. Required for the construction of new sources or modification of existing sources that may emit air pollutants above applicable thresholds.
Title V Operating Permits. Required for major sources in West Virginia, consistent with the federal Title V program requirements.
The Clarksburg and Weirton facilities addressed in this memorandum are both located in West Virginia and fall within WV DEP's jurisdiction. The Clarksburg facility holds a Registration Permit; the Weirton facility holds no air permit and is not required to obtain one.
III. Facility-by-Facility Analysis
A. McKeesport Main Plant — 2200 Iron Works Boulevard, McKeesport, PA 15132
1. Facility Description and Emission Sources. The McKeesport Main Plant serves as ACC's corporate headquarters and primary manufacturing facility. The property is identified as Parcel ID 0383-M-00125-0000-00 and encompasses approximately 14.3 acres, including approximately 185,000 square feet of manufacturing space and approximately 12,000 square feet of office and administrative space. The facility has been in continuous operation as a chemical coatings manufacturing plant since ACC's founding and represents the core of ACC's production capacity.
Manufacturing operations at the McKeesport facility include solvent-based coating manufacturing, epoxy coating production, mixing, blending, and filling operations across multiple production lines (Lines 1 through 4, with Line 4 being the most recently added). The facility produces a range of industrial and specialty coatings for use in packaging, metal finishing, and protective coating applications.
The principal air emission sources at the McKeesport facility, as identified through the permit review and site visit, include:
• Solvent mixing and blending tanks: These operations generate volatile organic compound ("VOC") emissions from the handling, mixing, and processing of organic solvents including toluene, xylene, methyl ethyl ketone ("MEK"), and ethylbenzene. Solvent mixing occurs in enclosed vessels, but emissions occur during material transfers, tank breathing, and process operations.
• Coating application and filling lines (Lines 1–4): The coating production and filling lines are the primary sources of VOC and HAP emissions at the facility. Coating formulation, blending, and filling operations result in the evaporation and release of solvent vapors.
• Thermal oxidizers (Lines 1–3): Three thermal oxidizer units serve as the primary pollution control devices on production Lines 1, 2, and 3. These units are designed to combust VOC and HAP emissions from the controlled production lines at high temperatures, destroying the organic compounds with a targeted minimum destruction efficiency of 98%. Line 4 does not currently have a dedicated thermal oxidizer, though a permit modification for the installation of such a unit is pending (discussed in Section III.A.4 below).
• Paint booth operations: Miscellaneous paint booth activities associated with quality control testing and product development generate additional VOC emissions, though at lower volumes than the primary production lines.
• Material storage and handling: The receipt, storage, and transfer of raw materials — including bulk solvents, resins, and chemical intermediates — results in VOC emissions from storage tank breathing, loading/unloading operations, and material transfer activities.
• Fugitive emissions: Fugitive emissions from piping, valves, flanges, pumps, and other transfer equipment throughout the facility represent an additional category of VOC and HAP emissions. Fugitive emission management is addressed through the facility's leak detection and repair ("LDAR") practices.
From an air quality regulatory perspective, the chemicals of primary concern at the McKeesport facility are:
• VOCs: Toluene, xylene (mixed isomers), MEK, ethylbenzene, and various other organic solvents used in coating formulations.
• HAPs: Toluene, xylene (mixed isomers), ethylbenzene, methanol, and other compounds listed under Section 112(b) of the CAA. Several of the VOCs emitted from the McKeesport facility are also classified as HAPs, creating dual regulatory implications under both the SIP/NAAQS framework and the Section 112 HAP framework.
2. Major Source Classification. ACC's McKeesport facility is classified as a major source of HAPs under Section 112 of the CAA. This classification is the single most significant air quality regulatory characteristic of the McKeesport facility and has substantial implications for Crestline's ongoing compliance obligations post-closing.
Based on C&H's review of the 2021 emission inventory submitted by ACC to PA DEP, the McKeesport facility reported combined HAP emissions of approximately 38.2 tons per year. This figure exceeds the 25 tons per year combined HAP major source threshold by a substantial margin — specifically, the facility's combined HAP emissions represent approximately 152.8% of the major source threshold. The facility's major source classification is therefore not marginal; ACC is not operating near the boundary of major/minor classification, and there is no near-term prospect that the facility could be reclassified as a minor source absent a fundamental change in operations or product formulations.
C&H reviewed the individual HAP breakdowns from the emission inventory. Toluene and xylene are the dominant HAPs emitted from the facility, which is consistent with the solvent-based coating manufacturing operations conducted at McKeesport. The emission inventory data is directionally consistent with ACC's Toxics Release Inventory ("TRI") Form R filings for 2021, which reported the following releases for the McKeesport facility:
• Toluene: 12,400 pounds released to air
• Xylene: 8,700 pounds released to air
It should be noted that TRI release figures reflect a different reporting methodology than air emission inventories compiled for permit compliance purposes, and the two sets of data are not directly comparable on a pound-for-pound basis. TRI reporting includes certain release categories (such as fugitive releases and stack releases) and uses estimation methods that may differ from the emission calculation methodologies required under the Title V permit. Nevertheless, the TRI data is directionally consistent with the emission inventory and supports the conclusion that toluene and xylene are the primary HAPs of concern at the facility.
As a major source of HAPs, the McKeesport facility is subject to applicable MACT standards promulgated under 40 CFR Part 63. Based on the nature of ACC's operations at McKeesport (miscellaneous coating manufacturing using organic solvents), the applicable MACT standard is 40 CFR Part 63, Subpart HHHHH — National Emission Standards for Hazardous Air Pollutants: Miscellaneous Coating Manufacturing. The implications of Subpart HHHHH compliance are discussed further in Section III.A.5 below.
ACC's major source classification is significant for Crestline in the post-closing period for several reasons. Major source status triggers a comprehensive set of ongoing compliance obligations, including but not limited to: annual compliance certifications under the Title V permit; continuous monitoring and recordkeeping requirements for emission control equipment; MACT standard compliance (including emission limits, work practice standards, and monitoring provisions); and the requirement to conduct MACT applicability determinations for any new or modified emission sources or operations. Any future changes in operations — such as the introduction of new product lines, changes in solvent formulations, increases in production throughput, or modifications to emission control equipment — must be evaluated against the existing permit conditions and MACT standard requirements, and may require permit modifications or new source review.
3. Title V Operating Permit. The McKeesport facility holds Title V Operating Permit No. TV-0383-0125, issued by the PA DEP Southwest Regional Office. The key permit parameters are as follows:
• Permit Number: TV-0383-0125
• Issued: June 1, 2019
• Expiration: May 31, 2024
• Issuing Agency: PA DEP, Southwest Regional Office
• Permit Type: Title V Operating Permit (major source)
The Title V permit consolidates all applicable air quality requirements for the McKeesport facility into a single, federally enforceable permit document. The permit incorporates requirements derived from NAAQS/SIP-related emission limitations, NSPS applicability determinations, NESHAPs/MACT standards (specifically 40 CFR Part 63, Subpart HHHHH), state-specific emission limitations under 25 Pa. Code, and compliance monitoring, recordkeeping, and reporting obligations.
C&H reviewed the permit in detail. The key conditions and requirements identified in the permit include:
Emission Limits. The permit establishes emission limits for VOCs and HAPs from each individual production line and from the facility on a facility-wide aggregate basis. These limits are expressed in both tons per year and pounds per hour, depending on the specific applicable requirement. The facility-wide VOC and HAP limits are set at levels consistent with ACC's historical emission profile and operational throughput.
Operational Throughput Limits. The permit imposes caps on solvent throughput, expressed both on an annual basis (total solvent usage per calendar year) and a monthly rolling twelve-month basis. These throughput limits serve as surrogate compliance parameters — by limiting the volume of solvent processed, the permit effectively constrains the potential emissions from the facility.
Thermal Oxidizer Requirements (Lines 1, 2, and 3). The permit requires the operation of thermal oxidizers on production Lines 1, 2, and 3 as pollution control devices. The permit specifies a minimum destruction efficiency of 98% for VOCs. Continuous monitoring of the thermal oxidizer operating temperature is required to demonstrate compliance with the destruction efficiency standard; the operating temperature must be maintained above a minimum set point specified in the permit at all times during which the associated production line is in operation. Deviations from the minimum operating temperature trigger reporting obligations.
Recordkeeping Requirements. The permit requires ACC to maintain detailed records including, but not limited to: monthly solvent usage logs (by solvent type and by production line); monthly emission calculations derived from solvent usage data and emission factors; thermal oxidizer operating logs (including continuous temperature monitoring data); maintenance records for emission control equipment; and records of any permit deviations or exceedances.
Annual Compliance Certification. The permit requires the submission of an annual compliance certification to PA DEP within sixty (60) days of the end of each calendar year (i.e., by approximately March 1 of the following year). The certification must address compliance with each applicable requirement identified in the permit and must be signed by a responsible official of ACC.
Reporting Obligations. In addition to the annual compliance certification, the permit requires prompt notification of any permit deviations, excess emissions, and other non-compliance events to PA DEP, consistent with 25 Pa. Code § 127.511 and the specific reporting conditions set forth in the permit.
C&H reviewed the annual compliance certifications submitted by ACC for the calendar years 2019, 2020, and 2021. All three certifications were timely filed within the required sixty-day window following the end of each calendar year. Each certification was executed by a responsible official of ACC and certified compliance with all material permit conditions. No deviations from permit conditions were reported in any of the three certifications reviewed. This represents a consistently clean compliance record over the first three full years of the current permit term.
Assessment: The Title V permit appears current and in good standing. ACC has demonstrated a consistent pattern of compliance with the permit conditions over the permit term to date, as evidenced by the timely filing of annual compliance certifications and the absence of reported deviations. The permit is, however, scheduled to expire on May 31, 2024, and under PA DEP regulations (25 Pa. Code § 127.514), a timely and complete renewal application must be submitted at least eighteen (18) months prior to the expiration date — which means the renewal application deadline is approximately November 30, 2022. This deadline is imminent and coincides closely with the originally targeted closing date for the transaction.
C&H recommends that Crestline confirm with ACC and Carl Johannsen whether the renewal application preparation is underway and on track for submission by the November 30, 2022 deadline. It is also important to determine whether ACC anticipates any material changes to its operations that would affect the content of the renewal application, such as changes in production volume, solvent formulations, product mix, or the addition of new emission sources. Under the application shield provision of PA DEP's regulations (25 Pa. Code § 127.517), if a timely and complete renewal application is submitted, the existing permit remains in effect and enforceable beyond its stated expiration date until PA DEP takes final action on the renewal application. This provision protects the permittee from a lapse in permit coverage during the agency's review period, which can be lengthy.
4. Pending Permit Modification — Thermal Oxidizer on Line 4. In addition to the existing Title V permit, ACC submitted a permit modification application to PA DEP in March 2022 for the installation of a new thermal oxidizer on Line 4. Line 4 is currently an uncontrolled or partially controlled solvent coating production line — unlike Lines 1, 2, and 3, which are served by dedicated thermal oxidizers, Line 4 relies on other, less effective emission management practices (and/or operates at lower throughput levels to manage emissions within permit limits).
Based on C&H's review of the application materials provided in the data room, the proposed modification involves the installation, commissioning, and operation of a new regenerative thermal oxidizer ("RTO") unit dedicated to Line 4. The modification appears to qualify as a "significant" modification under PA DEP's Title V permitting rules (25 Pa. Code § 127.541) because it involves the addition of a new emission control device that will change the applicable emission monitoring methodology and may alter the facility's permitted emission limits for Line 4 operations. Significant modifications require public notice and a thirty-day comment period before PA DEP can issue the modified permit.
The installation of the Line 4 thermal oxidizer would be expected to reduce VOC and HAP emissions from Line 4 operations upon commissioning, which is an environmentally beneficial outcome. However, the modified permit will likely impose new compliance conditions on the Line 4 thermal oxidizer, including minimum destruction efficiency requirements, continuous temperature monitoring, performance testing (stack testing) to demonstrate compliance with emission limits, and enhanced recordkeeping obligations. These new conditions will constitute ongoing compliance obligations for Crestline in the post-closing period.
Status as of the date of this review: PA DEP has not yet issued the permit modification. Based on typical PA DEP processing timelines for significant Title V modifications — which involve technical review, draft permit preparation, public notice and comment, and final permit issuance — the process can take approximately 12 to 18 months from the date of a complete application submission. Given that the application was submitted in March 2022, the modification may not be issued until the second or third quarter of 2023 at the earliest. Accordingly, it is unlikely that the modification will be issued before the originally targeted closing date of November 30, 2022.
Implications for the Transaction:
If the transaction closes before PA DEP issues the permit modification, Crestline — as the new owner of ACC's outstanding stock — will inherit the pending application and the associated obligations. Specifically, Crestline will be responsible for:
(a) Cooperating with PA DEP to complete the permit modification process, including responding to any requests for additional information or technical clarification from PA DEP reviewers;
(b) Procuring, installing, and commissioning the thermal oxidizer unit in accordance with the specifications set forth in the modification application and the conditions of the modified permit once issued;
(c) Conducting any required performance testing (stack testing) to demonstrate that the installed thermal oxidizer meets the destruction efficiency and emission limit requirements specified in the modified permit; and
(d) Implementing the ongoing monitoring, recordkeeping, and reporting obligations associated with the new control device.
The estimated capital cost for the thermal oxidizer installation was not within C&H's environmental diligence scope and has not been independently evaluated. However, regenerative thermal oxidizer units of the type contemplated for Line 4 typically represent a significant capital investment, including equipment procurement, engineering design, installation, utility connections, commissioning, and initial performance testing. C&H recommends that Crestline's operational team — specifically Patricia Okonkwo, who we understand will oversee EHS integration post-closing — obtain from ACC a detailed cost estimate for the Line 4 thermal oxidizer project and incorporate that estimate into Crestline's post-closing capital expenditure budget.
From a transaction documentation perspective, the pending permit modification should be specifically addressed in the Stock Purchase Agreement ("SPA"). The environmental representations in the SPA (Article IV, Section 4.18 of the current draft) should require the Seller to disclose all pending permit applications and modifications, including the Line 4 thermal oxidizer modification, and to represent that all information provided to PA DEP in connection with the modification application is accurate and complete. The Seller should also be required to disclose any communications with PA DEP regarding the modification, including any informal indications from PA DEP staff regarding the likely conditions of the modified permit or any concerns raised during the review process. If the modification is denied by PA DEP or if PA DEP requires substantial changes to the proposed scope of the modification, the implications for Line 4 production capacity and overall facility compliance posture could be significant.
5. MACT Compliance. As a major source of HAPs, the McKeesport facility is subject to MACT standards promulgated under Section 112 of the CAA. Based on the nature of ACC's operations at McKeesport — which involve the manufacturing of coatings using organic solvents and HAP-containing materials — the applicable MACT standard is 40 CFR Part 63, Subpart HHHHH — National Emission Standards for Hazardous Air Pollutants: Miscellaneous Coating Manufacturing.
Subpart HHHHH establishes emission limits, operating limits, and work practice standards for facilities engaged in the manufacture of coatings, paints, adhesives, and related products that use organic HAP-containing materials. The standard addresses emissions from process vessels, storage tanks, transfer operations, and wastewater systems, and requires the use of emission control devices (such as thermal oxidizers, condensers, or carbon adsorbers) to reduce HAP emissions to specified levels. The standard also requires facilities to develop and implement management practices to minimize HAP emissions from equipment leaks and other fugitive sources.
C&H's review of ACC's records indicates that the McKeesport facility completed its initial MACT notification to PA DEP and EPA as required under Subpart HHHHH and has been operating in compliance with the applicable provisions of the standard. The facility's use of thermal oxidizers on Lines 1, 2, and 3 is consistent with the emission control requirements of Subpart HHHHH, and the recordkeeping and monitoring practices described in the Title V permit align with the requirements of the MACT standard. Review of available compliance documentation, including the annual compliance certifications and records made available in the data room, did not reveal any instances of noncompliance with the MACT standard.
No Notices of Violation ("NOVs"), warning letters, or other enforcement communications related to MACT compliance were identified in the records reviewed by C&H, either in ACC's own files or in the publicly available PA DEP compliance and enforcement databases.
Crestline should be aware that EPA periodically conducts residual risk and technology reviews ("RTR") of MACT standards, as required under Sections 112(d)(6) and 112(f)(2) of the CAA. These reviews may result in more stringent emission limits, additional control requirements, or expanded monitoring obligations for affected facilities. Any tightening of the Subpart HHHHH standard could require ACC to invest in additional emission controls or operational modifications at the McKeesport facility. C&H recommends that Crestline monitor EPA's regulatory agenda and the Unified Agenda of Regulatory and Deregulatory Actions for any pending or anticipated RTR actions affecting Subpart HHHHH.
6. Compliance History and Enforcement. C&H conducted a review of ACC's compliance history at the McKeesport facility, covering the most recent ten-year period. This review encompassed ACC's own records made available in the data room, publicly available PA DEP compliance and enforcement records, and the TerraVerde Phase I ESA report for the McKeesport facility.
No air quality Notices of Violation ("NOVs"), consent orders and agreements, civil penalty assessments, administrative orders, or enforcement actions of any kind were identified for the McKeesport facility during the review period. The PA DEP online compliance and enforcement database, accessed in September and October 2022, confirmed the absence of any air quality enforcement actions against ACC at the McKeesport facility.
C&H notes that a PA DEP RCRA inspection was conducted at the McKeesport facility on April 14, 2021. Based on the inspection report reviewed, no violations were noted during that inspection. The inspection was focused on RCRA compliance (hazardous waste management) and did not include an air quality inspection component. However, the absence of any air-specific enforcement actions in PA DEP's publicly available records is a positive indicator of ACC's overall environmental compliance posture at the facility.
As noted in Section III.A.3 above, the annual compliance certifications submitted by ACC for the calendar years 2019, 2020, and 2021 all reported compliance with all applicable permit conditions, with no deviations identified. This clean certification record, combined with the absence of any enforcement actions, indicates that ACC has maintained a satisfactory air quality compliance posture at the McKeesport facility during the review period.
7. Risk Assessment — McKeesport Air Quality. Overall Risk Rating: MODERATE
The McKeesport facility presents a moderate air quality risk profile for purposes of the proposed transaction. The risk rating reflects a balancing of several positive and negative factors:
Positive Factors:
• Clean compliance history over the most recent ten-year period, with no NOVs, enforcement actions, or consent orders;
• Active pollution control infrastructure, including thermal oxidizers on production Lines 1, 2, and 3;
• Timely filing of annual compliance certifications for each year of the current permit term, with no deviations reported;
• Demonstrated compliance with applicable MACT standard (40 CFR Part 63, Subpart HHHHH);
• Cooperative and knowledgeable EHS management (Carl Johannsen) based on C&H's site visit and interview.
Risk Factors:
(a) Major source classification: The McKeesport facility's combined HAP emissions of 38.2 tons per year significantly exceed the 25 tons per year major source threshold, resulting in ongoing, stringent compliance obligations under the Title V permit, MACT standards, and related regulatory programs. Major source status creates an elevated baseline regulatory burden and heightened scrutiny from PA DEP and EPA.
(b) Pending Title V permit modification: The unresolved permit modification for the Line 4 thermal oxidizer introduces uncertainty regarding the timing of issuance, the specific conditions that PA DEP will impose, the capital cost of installation, and the impact on Line 4 operations during the period before the thermal oxidizer is installed and operational.
(c) Title V permit renewal deadline: The McKeesport Title V permit (TV-0383-0125) expires May 31, 2024, and the renewal application must be submitted by approximately November 30, 2022. This deadline coincides with the anticipated closing date and requires immediate attention to ensure timely filing. Failure to submit a timely renewal application would result in the loss of application shield protection and could expose ACC to operating without a valid permit.
(d) Future operational changes: Any future changes to operations at the McKeesport facility — including the introduction of new product lines, changes in solvent formulations, increases in production throughput, or modifications to process equipment — could trigger additional permitting requirements (including new source review or permit modification), push individual HAP emissions above the 10 tons per year single-HAP major source threshold for additional compounds, or otherwise complicate the compliance posture.
(e) Potential for more stringent MACT standards: EPA's residual risk and technology review of 40 CFR Part 63, Subpart HHHHH, could result in more stringent emission limits or additional control requirements in the future, requiring further capital investment by Crestline.
B. Charleroi Specialty Coatings Plant — 450 Industrial Park Road, Charleroi, PA 15022
1. Facility Description and Emission Sources. The Charleroi Specialty Coatings Plant is a newer facility constructed in 2003 on a greenfield site (former agricultural land) in Washington County, Pennsylvania. The property is identified as Parcel ID 120-015-00-03-0018-00 and encompasses approximately 8.7 acres, including approximately 92,000 square feet of manufacturing and production space and approximately 4,500 square feet of office and laboratory space. The facility was purpose-built for the production of water-based and UV-curable coatings and represents ACC's principal manufacturing location for these product categories.
Operations at the Charleroi facility focus on the formulation, mixing, blending, and filling of water-based coatings and UV-curable coatings. Unlike the McKeesport facility, the Charleroi plant makes minimal use of organic solvents in its manufacturing processes. Water-based coatings rely on water as the primary carrier rather than organic solvents, resulting in significantly lower VOC emissions per unit of production. UV-curable coatings are formulated with photoinitiators and reactive monomers that polymerize upon exposure to ultraviolet light, a process that generates negligible air emissions.
Air emission sources at the Charleroi facility are correspondingly limited:
• Water-based coating mixing and filling operations: These operations generate minimal VOC emissions, as the coatings formulated at Charleroi contain only small amounts of organic co-solvents and coalescents.
• UV-curing processes: UV-curing of coatings produces negligible air emissions, as the photopolymerization process does not involve the evaporation of organic solvents.
• Minor particulate emissions from material handling: The receipt, handling, and transfer of dry raw materials (pigments, fillers, and other powder-form ingredients) may generate minor amounts of particulate matter, though these emissions are controlled through standard material handling practices and are not significant from a regulatory perspective.
Critically, no HAP-emitting operations were identified at the Charleroi facility. The facility's emission profile is well below major source thresholds for both criteria pollutants (VOCs, particulate matter) and HAPs.
2. Minor Source Classification and State-Only Operating Permit. The Charleroi facility is classified as a minor source under both federal and Pennsylvania air quality regulations. The facility's actual and potential emissions are below the major source thresholds for all criteria pollutants and HAPs. Based on the permit structure, Charleroi operates as a natural minor source — that is, it is below major source thresholds based on its actual emission profile and does not rely on enforceable emission limitations or operational restrictions to maintain its minor source status (which would characterize it as a synthetic minor).
The facility holds PA DEP State-Only Operating Permit No. 63-00982, issued by the PA DEP Southwest Regional Office. State-only operating permits are issued to non-major sources under PA DEP's air quality program and impose emission limitations and operational conditions tailored to the specific source's emission profile. Unlike Title V permits, state-only permits are not federally enforceable and do not consolidate all applicable federal requirements into the permit document. State-only permits generally impose less burdensome compliance monitoring, recordkeeping, and reporting obligations than Title V permits.
C&H reviewed the state-only operating permit and identified the following key conditions:
• Facility-wide VOC emission limits: The permit establishes facility-wide VOC emission limits. Based on ACC's emission records, the facility's actual VOC emissions are substantially below the permitted limits, providing a comfortable compliance margin.
• Recordkeeping: The permit requires ACC to maintain records of material usage and emission calculations, which are used to demonstrate ongoing compliance with the emission limits.
• No continuous monitoring requirements: Unlike the McKeesport Title V permit, the Charleroi state-only permit does not require continuous monitoring of emission control equipment or continuous emission monitoring systems (CEMS). This is consistent with the facility's low emission profile and minor source classification.
• Annual reporting: The permit requires annual reporting to PA DEP summarizing the facility's emissions and compliance status.
C&H reviewed the compliance certifications and annual reports submitted by ACC for the Charleroi facility. All reports were current and indicated compliance with all applicable permit conditions. No deviations or exceedances were identified in the records reviewed.
3. Compliance History and Enforcement. C&H's review of ACC's compliance history at the Charleroi facility identified no air quality Notices of Violation, consent orders, civil penalty assessments, administrative orders, or enforcement actions of any kind. The PA DEP online compliance and enforcement database, accessed during the review period, confirmed the absence of any adverse air quality enforcement history at the facility.
This clean compliance record is consistent with the facility's limited emission profile, its newer construction (2003), and its focus on water-based and UV-curable coating operations that generate minimal air pollutant emissions.
4. Risk Assessment — Charleroi Air Quality. Overall Risk Rating: LOW
The Charleroi facility presents a low air quality risk profile for purposes of the proposed transaction. The facility is classified as a minor source with a state-only operating permit, its water-based and UV-curable coating operations generate minimal VOC emissions and no HAP emissions of regulatory concern, and it has a clean compliance history with no enforcement actions or permit issues.
The primary future risk factor associated with the Charleroi facility would arise only if ACC (or Crestline post-closing) were to shift solvent-based manufacturing operations from McKeesport to Charleroi, or otherwise introduce processes involving significant quantities of organic solvents or HAP-containing materials. Such a change could fundamentally alter the facility's emission profile, potentially triggering the need for a Title V operating permit, MACT standard applicability, and the associated compliance obligations that currently apply to the McKeesport facility. Absent such a change in operations, the Charleroi facility's air quality risk is minimal.
C. Clarksburg Resin Blending Facility — 1875 Route 50 West, Clarksburg, WV 26301
1. Facility Description and Emission Sources. The Clarksburg Resin Blending Facility is a leased property located in Harrison County, West Virginia. The facility is leased from Mountainview Properties LLC under a triple-net lease with a term of January 1, 2015 through December 31, 2029. The property is identified as Parcel ID 04-0012-0056-0000 and encompasses approximately 5.2 acres, including approximately 48,000 square feet of warehouse and blending space and approximately 3,000 square feet of office space.
Operations at the Clarksburg facility consist of resin receipt, blending, and redistribution. The facility receives bulk resin materials from various suppliers, blends them according to ACC's proprietary formulations, and redistributes the blended resins to ACC's manufacturing facilities (principally McKeesport) or directly to customers. The Clarksburg facility does not conduct significant manufacturing operations; rather, it functions primarily as a blending and logistics hub within ACC's supply chain.
Air emission sources at the Clarksburg facility are limited to:
• Minor VOC emissions from resin blending: The blending of resin materials involves the use of small quantities of organic solvents, principally acetone and MEK, as diluents and processing aids. These solvents generate minor VOC emissions during the blending process.
• Fugitive emissions from material handling and storage: The receipt, handling, transfer, and storage of resin materials and solvents results in minor fugitive VOC emissions.
The emission levels at the Clarksburg facility are well below major source thresholds for both criteria pollutants and HAPs, consistent with the limited scope of blending and redistribution operations conducted at the site.
2. Minor Source Classification and WV DEP Registration Permit. The Clarksburg facility is classified as a minor source under WV DEP regulations. The facility holds WV DEP Registration Permit No. R13-3201, issued under 45 CSR 31.
Registration permits represent the simplest and least burdensome tier of air permitting under the West Virginia regulatory program. They are issued to minor sources with low actual emissions that do not require the detailed emission controls, monitoring, and recordkeeping associated with more significant emission sources. The registration permit at Clarksburg imposes the following conditions:
• General emission limits: The permit establishes general emission limits for VOCs and other pollutants, consistent with the facility's minor source classification and low emission profile.
• Basic recordkeeping: The permit requires ACC to maintain records of solvent usage at the facility, which are used to demonstrate compliance with the emission limits.
• Annual reporting: The permit requires annual reporting to WV DEP summarizing the facility's emissions and compliance status.
C&H reviewed the compliance records for the Clarksburg facility, including the annual reports submitted to WV DEP. All records indicate full compliance with the registration permit conditions. No deviations from permit requirements were identified.
3. Compliance History and Enforcement. C&H's review of ACC's compliance history at the Clarksburg facility identified no air quality NOVs, consent orders, civil penalty assessments, administrative orders, or enforcement actions. The WV DEP online compliance and enforcement database, accessed during the review period, confirmed the absence of any adverse air quality enforcement history at the facility.
This clean compliance record is consistent with the facility's limited emission profile and the straightforward nature of its blending and redistribution operations.
4. Risk Assessment — Clarksburg Air Quality. Overall Risk Rating: LOW
The Clarksburg facility presents a low air quality risk profile. It is classified as a minor source with a WV DEP registration permit — the simplest tier of air permitting in West Virginia. Its blending and redistribution operations generate minimal VOC emissions and negligible HAP emissions. The facility has a clean compliance history with no enforcement actions.
C&H notes that the triple-net lease with Mountainview Properties LLC requires ACC, as tenant, to comply with all applicable laws, ordinances, and regulations, which includes air quality requirements. This lease provision is not a concern given the facility's current compliance posture, but Crestline should be aware of the obligation in the context of its post-closing lease administration.
D. Weirton Warehouse & Distribution Center — 600 Commerce Way, Weirton, WV 26062
1. Facility Description. The Weirton Warehouse & Distribution Center is a leased property located in Hancock County, West Virginia. The facility is leased from Northern Panhandle Realty Corp. under a double-net lease with a term of March 1, 2018 through February 28, 2028. The property is identified as Parcel ID 07-0304-0012-0000 and encompasses approximately 3.1 acres, including approximately 65,000 square feet of warehouse space and approximately 2,000 square feet of office space.
Operations at the Weirton facility are limited exclusively to the storage and distribution of finished goods. No manufacturing, blending, mixing, formulating, coating, or other production operations are conducted at this location. The facility functions as a logistics and distribution hub, receiving finished product from ACC's manufacturing facilities and distributing it to customers.
2. Air Permit Status. The Weirton facility does not hold an air quality permit of any kind, nor is it required to obtain one. The facility has no manufacturing-related air emission sources and does not conduct any operations that would trigger air permitting requirements under WV DEP regulations or the federal CAA.
The only potential emission sources at the facility are minor and incidental — specifically, diesel exhaust emissions from trucks and delivery vehicles during loading and unloading operations. These emissions are de minimis and are exempt from air permitting requirements under WV DEP regulations and applicable federal exemptions for mobile sources and routine commercial activities.
3. Risk Assessment — Weirton Air Quality. Overall Risk Rating: NEGLIGIBLE
The Weirton facility presents no meaningful air quality regulatory exposure. There are no air permits to maintain, no emission limitations to comply with, no monitoring or recordkeeping requirements, and no enforcement history to evaluate. The facility's warehouse and distribution operations do not generate regulated air emissions and are not expected to do so absent a fundamental change in the nature of operations conducted at the site.
IV. Cross-Cutting Issues and Transaction Considerations
A. Permit Transferability and Change of Ownership
The proposed transaction is structured as a stock acquisition, in which Crestline will acquire 100% of ACC's outstanding common stock. In a stock acquisition, the Target entity — ACC — continues to exist as the same legal entity, and its permits, licenses, and authorizations generally remain in effect without the need for reissuance. This is in contrast to an asset acquisition, where the transfer of physical assets and operations from one legal entity to another may require new permit applications or formal permit transfers. The stock acquisition structure simplifies the permit transition process but does not eliminate all administrative requirements.
Pennsylvania. Under PA DEP regulations (25 Pa. Code § 127.464), a change in ownership of a facility holding an air quality permit does not automatically invalidate the existing permit. However, the new owner or operator must notify PA DEP of the change in ownership or operational control within thirty (30) days of the effective date of the change and must comply with applicable administrative transfer requirements. For the McKeesport Title V permit (TV-0383-0125) and the Charleroi state-only operating permit (63-00982), ACC and/or Crestline must submit the appropriate transfer notification forms to PA DEP's Southwest Regional Office promptly after the closing of the transaction. In the context of a stock acquisition, where ACC remains the permittee, the notification will reflect the change in ACC's ultimate ownership from the current shareholders to Crestline and Briarwood. PA DEP may require updated responsible official designations and corporate contact information as part of the notification process.
West Virginia. Similar transfer notification requirements apply under WV DEP regulations. For the Clarksburg Registration Permit (R13-3201), notification to WV DEP of the change in ultimate ownership and control of ACC is advisable, even though the permit itself is held by ACC and ACC continues as the same legal entity post-closing. WV DEP may require updated ownership and contact information to maintain accurate records.
SPA Provisions. The environmental representations and warranties in the draft SPA (Article IV, Section 4.18) should include specific representations that all air quality permits held by ACC are current, valid, and in good standing; that ACC is in material compliance with all conditions of its air quality permits; and that no pending permit applications, modifications, or renewal applications are outstanding other than those specifically disclosed to Crestline (i.e., the McKeesport Line 4 thermal oxidizer modification application submitted in March 2022). The Seller should covenant to cooperate with Crestline and PA DEP/WV DEP in any post-closing permit transfer notification or administrative process required to reflect the change in ownership.
B. Title V Permit Renewal Timeline — McKeesport
As discussed in Section III.A.3 above, the McKeesport Title V permit (TV-0383-0125) is scheduled to expire on May 31, 2024. Under PA DEP regulations (25 Pa. Code § 127.514), a timely and complete renewal application must be submitted at least eighteen (18) months before the expiration date. This requirement places the renewal application submission deadline at approximately November 30, 2022 — a date that is only approximately six weeks from the date of this memorandum and coincides closely with the originally anticipated closing date for the proposed transaction.
C&H recommends that Crestline take the following steps with respect to the Title V renewal:
(a) Confirm renewal application status: Engage with ACC's EHS Manager, Carl Johannsen, to determine whether the renewal application is currently being prepared and whether it is on track for timely submission by the November 30, 2022 deadline. Determine the identity of the environmental consultant or permitting firm, if any, that ACC has retained to assist with the renewal application preparation.
(b) Assess operational changes: Determine whether ACC anticipates any material changes to the McKeesport facility's operations, emission sources, production volume, or product mix that would affect the content of the renewal application. Changes in operations may require updated emission calculations, revised permit conditions, or additional applicable requirement determinations as part of the renewal process.
(c) Coordinate with closing timeline: If the transaction closes before the renewal application is submitted, Crestline will inherit the obligation to prepare and submit the renewal application. In that event, Crestline should review the application content before submission to ensure it accurately reflects both current and projected operations under Crestline's ownership. If the renewal application is submitted by ACC before closing, Crestline should review the submitted application and assess whether any amendments or supplements may be needed post-closing.
Under the application shield provision (25 Pa. Code § 127.517), if a timely and complete renewal application is submitted before the permit expiration date, the existing permit remains in effect and enforceable beyond its stated expiration date until PA DEP takes final action on the renewal. This provision provides important continuity of permit coverage during what can be a lengthy renewal review period.
C. Interaction with Pending Permit Modification (Line 4 Thermal Oxidizer)
The pending permit modification for the installation of a thermal oxidizer on Line 4 at the McKeesport facility, discussed in Section III.A.4 above, may interact with the Title V permit renewal process in ways that should be monitored. Depending on the timing of PA DEP's review and action on the modification application, PA DEP may elect to address the modification as part of the broader Title V renewal process rather than as a standalone modification action. This consolidation approach could offer administrative efficiency by incorporating the Line 4 thermal oxidizer conditions into the renewed permit, but it could also complicate and extend the renewal timeline if the modification raises issues that require additional technical review or public comment.
Crestline should assess whether the Line 4 thermal oxidizer installation is critical to its post-acquisition operational plans for the McKeesport facility. If Crestline intends to increase Line 4 production throughput following the acquisition — for example, to accommodate additional product orders from CPS's existing customer base — the thermal oxidizer will be essential to managing emission levels within permit limits. In that case, the timing of the permit modification and the associated capital investment should be factored into Crestline's post-closing integration plan and operating budget.
D. Lender Considerations
Commonwealth National Bank, N.A. (Victoria Chen, Managing Director) has conditioned its $65 million senior secured term loan and $20 million revolving credit facility on satisfactory environmental due diligence. While the lender's environmental condition was primarily focused on Phase I Environmental Site Assessment results and the identification of Recognized Environmental Conditions ("RECs") at the Target's facilities, air quality compliance is a component of the overall environmental risk assessment that will inform the lender's satisfaction determination.
The McKeesport facility's classification as a major source of HAPs, with combined HAP emissions of 38.2 tons per year and the associated ongoing compliance obligations under the Title V permit and MACT standard, should be disclosed to Commonwealth National Bank in the environmental diligence summary. While the McKeesport facility's compliance history is clean, the major source designation creates a level of ongoing regulatory risk that the lender should understand in the context of its collateral valuation and credit risk assessment. The pending permit modification and the approaching Title V renewal deadline should also be noted.
E. Environmental Insurance (PLL Policy) Considerations
Air quality violations and associated regulatory penalties or corrective action costs are typically excluded from the coverage provided by Pollution Legal Liability ("PLL") insurance policies, which are designed to address contamination and remediation liabilities — principally the costs of investi