1006-00003 · Crestline Packaging Solutions LLC · Diligence/Regulatory Compliance

cwa-npdes-compliance-review-memo.docx DOCUMENT M&A / Corporate

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

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

This memorandum constitutes privileged and confidential attorney work product prepared in anticipation of litigation and/or in connection with the rendering of legal advice. It is protected from disclosure by the attorney-client privilege, the work product doctrine, and all other applicable privileges. This memorandum is not intended for distribution to, or reliance by, any third party without the prior written consent of Calderwood & Harkness LLP.

I. Purpose and Scope

This memorandum presents the results of Calderwood & Harkness LLP's ("C&H") review of the Clean Water Act ("CWA") and National Pollutant Discharge Elimination System ("NPDES") compliance status of the McKeesport Main Plant facility owned and operated by Allegheny Chemical Coatings, Inc. ("ACC" or the "Target"), located at 2200 Iron Works Boulevard, McKeesport, Pennsylvania 15132, Allegheny County, Pennsylvania (the "Facility" or "McKeesport Main Plant"). The Facility is identified by Allegheny County Parcel ID No. 0383-M-00125-0000-00.

This memorandum has been 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 (the "Transaction"). The Transaction is structured as a stock purchase at a proposed purchase price of $94.5 million. As a stock purchase, Crestline will acquire ACC as a going concern, and ACC will continue as the operating entity and holder of all permits, licenses, and regulatory obligations, including those arising under the CWA and the NPDES program. This structural feature has significant implications for the allocation of environmental liabilities, as discussed in further detail in Sections VIII and IX below.

This memorandum is designated as C&H Matter No. 1006-00003.

The scope of this review encompasses the following areas:

(i) review and analysis of the terms, conditions, and compliance status of the NPDES stormwater discharge permit (Permit No. PA0025631) held by ACC for the McKeesport Main Plant;

(ii) review of Discharge Monitoring Reports ("DMRs") submitted by ACC to the Pennsylvania Department of Environmental Protection ("PA DEP") for the Facility covering a five-year period from approximately 2017 through the most recent available reporting period in 2022;

(iii) review of any enforcement actions, consent orders, administrative orders, notices of violation ("NOVs"), or other regulatory actions by PA DEP or the U.S. Environmental Protection Agency ("EPA") relating to water discharges at or from the Facility;

(iv) analysis of corrective actions implemented by ACC in response to any identified compliance deviations; and

(v) assessment of post-closing compliance obligations and risk exposure for Crestline arising from CWA/NPDES matters at the Facility.

This memorandum is part of the broader environmental due diligence workstream for the Transaction, which is being overseen by Beatrice Holloway, Responsible Partner (M&A), and Harrison Caldwell, Of Counsel (Environmental & Land Use). This memorandum should be read together with the following related work product:

• Comprehensive Environmental Diligence Summary Memorandum (draft dated October 22, 2022);

• Phase I ESA Review Memorandum — McKeesport (draft dated September 8, 2022);

• Phase II Results Analysis Memorandum — McKeesport (draft dated October 12, 2022);

• Spill History and Enforcement Review Memorandum (draft dated October 5, 2022); and

• Air Permit Compliance Review Memorandum — McKeesport (draft dated October 11, 2022).

The documents reviewed in connection with this memorandum were obtained from Seller's counsel, Hargrove, Dalton & Speer LLP (attention: Franklin Speer, Partner, and Megan Trask, Associate), in response to C&H's Environmental Document Request List dated July 25, 2022, as supplemented by additional documents provided directly by ACC's Environmental, Health, and Safety ("EHS") Manager, Carl Johannsen, during facility access visits conducted on August 22, 2022, and September 15, 2022. A complete list of documents reviewed is set forth in Section X below. C&H has not independently verified the accuracy or completeness of the documents provided by Seller's counsel or by ACC; our analysis is based solely on the information made available to us in the course of this diligence review.

II. Facility Overview

The following summary of the Facility and its operations is based on C&H's review of the diligence materials, the Phase I Environmental Site Assessment prepared by TerraVerde Environmental Consulting LLC ("TerraVerde"), and information provided by ACC's EHS Manager, Carl Johannsen.

Operations. The McKeesport Main Plant serves as ACC's primary manufacturing facility and corporate headquarters. The Facility's principal operations consist of the manufacture of solvent-based and epoxy coatings, including mixing, blending, tinting, and filling operations. Raw materials include various organic solvents, pigments, resins, and hardeners. The Facility operates multiple production lines across several interconnected manufacturing buildings, including the main production building (Building A), the specialty coatings building (Building B), and the warehouse and distribution building (Building C).

Ownership History. ACC acquired the McKeesport Main Plant property in fee simple in 1987 from Keystone Metalworks, a steel fabrication operation that is now defunct. The prior industrial use of the property as a steel fabrication facility is relevant to the environmental condition of the site, as the Phase I ESA identified certain recognized environmental conditions ("RECs") that may be attributable, in whole or in part, to historical operations predating ACC's ownership. ACC has operated continuously at the Facility since 1987 and has made several capital improvements to the property, including the construction of Building C (warehouse, completed 1996), expansion of the outdoor drum storage area along the eastern property boundary (2004 and 2021–2022), and various process upgrades.

Chemicals of Concern (Relevant to Water Discharges). The following chemicals are of particular relevance to the CWA/NPDES compliance analysis presented in this memorandum:

• Volatile Organic Compounds (VOCs): Toluene, xylene, methyl ethyl ketone (MEK), and ethylbenzene are used extensively in the Facility's solvent-based coating formulations. These compounds are present in raw material storage areas, process areas, and waste streams, and have the potential to migrate to stormwater runoff if not properly contained.

• Heavy Metals: Chromium and lead are present in certain pigments used in coating formulations. While ACC reports that lead-based pigments have been largely phased out of current production, legacy contamination from historical pigment operations remains a concern, particularly in the vicinity of the outdoor drum storage area and Building A.

• Epoxy Resins and Hardeners: Bisphenol A-based epoxy resins and amine-based hardeners are used in the Facility's epoxy coating product lines. These materials are stored and handled in both indoor and outdoor areas of the Facility.

Adjacent Water Features. The Facility is situated on relatively flat terrain within the Youghiogheny River valley. The eastern property boundary of the Facility runs along an unlined stormwater drainage channel (the "Eastern Drainage Channel") that collects and conveys stormwater runoff from the Facility and adjacent properties. The Eastern Drainage Channel ultimately discharges to a tributary of the Youghiogheny River, which is part of the larger Monongahela River watershed. Stormwater runoff from the Facility's impervious surfaces — including paved parking areas, loading docks, truck staging areas, and the outdoor drum storage area — drains through this channel. The Eastern Drainage Channel is the principal pathway by which stormwater from the Facility reaches surface waters, and it is the location of the NPDES-regulated discharge point (Outfall 001), as discussed in Section III below.

The proximity of the outdoor drum storage area to the Eastern Drainage Channel is a matter of particular concern in this review, as discussed in Sections IV.B, V, and VII below, given the identification of staining and stressed vegetation in this area in the Phase I ESA (designated as REC-2) and the potential for contaminated stormwater runoff to reach the regulated discharge point.

III. NPDES Permit — Key Terms and Conditions

A. Permit Identification

The following table summarizes the key identifying information for the NPDES permit held by ACC for the McKeesport Main Plant:

The current NPDES permit was issued by PA DEP on March 15, 2019, with an effective period of five years, expiring on March 14, 2024. This is an individual NPDES permit, as distinguished from coverage under the PA DEP Multi-Sector General Permit ("MSGP") for stormwater discharges associated with industrial activity. ACC's operations and the site-specific characteristics of the McKeesport Main Plant — including the presence of the Eastern Drainage Channel, the nature and volume of chemicals handled at the Facility, and the Facility's proximity to the Youghiogheny River watershed — necessitate individual permit coverage rather than general permit coverage. The permit was issued pursuant to the authority delegated to PA DEP by EPA under Section 402(b) of the CWA, 33 U.S.C. § 1342(b), which authorizes states with approved NPDES programs to administer the permitting program in lieu of EPA. Pennsylvania has maintained an approved NPDES program since 1978.

The applicable federal regulatory framework is set forth in 40 C.F.R. Parts 122 through 125, and the corresponding state regulations are codified at 25 Pa. Code Chapters 91, 92a, and 93. Section 301(a) of the CWA, 33 U.S.C. § 1311(a), prohibits the discharge of any pollutant from a point source to waters of the United States except in compliance with, inter alia, an NPDES permit issued under Section 402. Stormwater discharges associated with industrial activity are subject to NPDES permitting requirements under Section 402(p) of the CWA, 33 U.S.C. § 1342(p), and implementing regulations at 40 C.F.R. § 122.26.

B. Authorized Discharge Points

NPDES Permit No. PA0025631 authorizes stormwater discharges from the McKeesport Main Plant through one designated outfall point:

Outfall 001: Located at the southeastern corner of the Facility property, at the point where the Eastern Drainage Channel exits the ACC property boundary. This outfall collects stormwater runoff from the majority of the Facility's impervious surfaces, including the main parking lot, the Building A and Building B loading dock areas, the truck staging area, and the outdoor drum storage area. The outfall discharges to the Eastern Drainage Channel, which conveys flow to an unnamed tributary of the Youghiogheny River.

The receiving stream (unnamed tributary of the Youghiogheny River) is classified by PA DEP under 25 Pa. Code Chapter 93 as a Warm Water Fishes ("WWF") stream with existing uses including aquatic life and water supply. The applicable water quality standards for the receiving stream are those set forth in 25 Pa. Code § 93.7 for WWF-designated streams, including criteria for dissolved oxygen, pH, temperature, and specific pollutants. The Facility's NPDES permit incorporates effluent limitations designed to ensure that stormwater discharges from Outfall 001 do not cause or contribute to violations of these water quality standards.

The permit does not authorize any process wastewater discharges from the Facility. ACC's process wastewater is collected, treated on-site through a basic oil-water separator system, and discharged to the Municipal Authority of the City of McKeesport sanitary sewer system pursuant to a separate industrial pretreatment permit. The sanitary sewer discharge is not within the scope of the NPDES permit reviewed herein, though the February 2020 spill event involving the sanitary sewer is discussed in Section V below for completeness.

C. Effluent Limitations

The NPDES permit establishes the following effluent limitations applicable to discharges from Outfall 001:

In addition to the numeric effluent limitations set forth above, the permit establishes benchmark monitoring values for specific pollutants associated with ACC's Standard Industrial Classification ("SIC") code for industrial coating manufacturing (SIC Code 2851 — Paints, Varnishes, Lacquers, Enamels, and Allied Products). These benchmark values serve as reference concentrations that, if exceeded, trigger requirements for additional monitoring and/or corrective actions under the permit's adaptive management provisions. The benchmark monitoring parameters include:

• Total Recoverable Zinc: benchmark value of 0.120 mg/L

• Total Recoverable Lead: benchmark value of 0.0816 mg/L

• Total Recoverable Chromium: benchmark value of 0.0162 mg/L

• Biochemical Oxygen Demand (BOD₅): benchmark value of 30 mg/L

The technology-based effluent limitations for TSS and oil and grease are derived from EPA's effluent guidelines and standards applicable to the relevant industrial category, reflecting Best Practicable Control Technology Currently Available ("BPT") and Best Available Technology Economically Achievable ("BAT") standards pursuant to Sections 301(b)(1) and 301(b)(2) of the CWA, 33 U.S.C. §§ 1311(b)(1) and (b)(2). The pH limitation is water quality-based, derived from the receiving stream's designated use classification and applicable water quality criteria under 25 Pa. Code Chapter 93.

D. Monitoring and Reporting Requirements

The NPDES permit imposes the following monitoring and reporting obligations on ACC:

Discharge Monitoring Reports (DMRs). ACC is required to submit DMRs to PA DEP on a quarterly basis. Each DMR must report the analytical results for all parameters specified in the permit, including TSS, pH, oil and grease, COD, and the benchmark monitoring parameters listed in Section III.C above. DMRs are due to PA DEP within thirty (30) days following the end of each calendar quarter (i.e., by January 30, April 30, July 30, and October 30 of each year). ACC is required to collect representative stormwater samples from Outfall 001 during qualifying storm events (defined as precipitation events of at least 0.1 inch occurring after a dry period of at least 72 hours) and to analyze those samples at a Pennsylvania-accredited laboratory.

Visual Inspections. ACC is required to conduct quarterly visual inspections of Outfall 001 and the stormwater conveyance system, including the Eastern Drainage Channel, to identify any visible signs of pollution, erosion, or BMP deficiencies. Records of visual inspections must be maintained on-site and made available to PA DEP upon request.

Stormwater Pollution Prevention Plan (SWPPP). The permit requires ACC to develop, implement, and maintain a current SWPPP for the Facility. The SWPPP must identify all potential sources of stormwater contamination at the Facility, describe the BMPs employed to minimize the risk of pollutant discharge, and establish procedures for spill prevention and response, employee training, and periodic plan review and update. The SWPPP is further discussed in Section VI below.

Exceedance Reporting. In the event that any monitored parameter exceeds the applicable effluent limitation, ACC is required to report the exceedance to PA DEP in the DMR for the applicable reporting period. For exceedances of numeric effluent limitations that may result in a threat to public health or the environment, ACC is required to provide oral notification to PA DEP within twenty-four (24) hours of becoming aware of the exceedance, followed by a written notification within five (5) days.

C&H's review of the DMR submission records indicates that ACC has consistently filed its DMRs on time throughout the five-year review period. No late filings or missed reporting periods were identified.

E. Best Management Practices (BMPs)

The NPDES permit requires ACC to implement and maintain the following categories of BMPs at the Facility:

• Containment of Outdoor Storage Areas: All outdoor storage of raw materials, intermediates, finished products, and waste containers must be within areas equipped with secondary containment or equivalent measures to prevent the migration of spilled materials to stormwater conveyances.

• Good Housekeeping: ACC must implement and maintain good housekeeping practices throughout the Facility, including routine sweeping and cleaning of paved areas, prompt cleanup of spills and leaks, proper management of waste materials, and minimization of exposure of pollutant sources to stormwater.

• Spill Prevention and Response: ACC must maintain spill prevention and response procedures, including the availability of spill response equipment (absorbent materials, portable containment berms, etc.) at key locations throughout the Facility, and training of personnel in spill response protocols.

• Employee Training: ACC must provide annual training to all employees whose activities may affect stormwater quality, covering the requirements of the NPDES permit, the SWPPP, and applicable BMPs.

• Preventive Maintenance: ACC must implement a preventive maintenance program for stormwater management infrastructure, including catch basins, drainage channels, sediment traps, and oil-water separators.

The permit further requires that the SWPPP be reviewed and updated at least annually, and more frequently if warranted by changes in Facility operations, the results of monitoring or inspections, or the occurrence of a spill or release event.

IV. Compliance History — Discharge Monitoring Reports

A. DMR Review Summary (Five-Year Period)

C&H reviewed DMRs submitted by ACC for the McKeesport Main Plant covering the period from the first quarter of 2017 through the second quarter of 2022, representing the most recent data available as of the date of this memorandum. This review period encompasses approximately twenty (20) quarterly reporting periods under the prior permit term (which expired on March 14, 2019) and the current permit term (effective March 15, 2019).

For all reporting periods reviewed, with the single exception of the March 2022 reporting period (discussed in detail in Section IV.B below), all DMR results were within the applicable permit limits for all monitored parameters. The key findings from the DMR review are summarized as follows:

• Total Suspended Solids (TSS): TSS results were generally well within the 40 mg/L monthly average effluent limit throughout the five-year review period. Reported monthly average TSS concentrations typically ranged from approximately 12 mg/L to 28 mg/L, with a median value of approximately 19 mg/L. No daily maximum exceedances (80 mg/L limit) were reported. The sole exception was the March 2022 reporting period, in which a TSS result of 48 mg/L was reported, as discussed below.

• pH: All reported pH values were within the permitted instantaneous range of 6.0 to 9.0 standard units throughout the review period. Reported values typically ranged from approximately 6.5 to 7.8 standard units, reflecting neutral to slightly alkaline conditions consistent with expected stormwater chemistry at a facility of this type.

• Oil and Grease: All reported oil and grease concentrations were below the 15 mg/L monthly average limit and the 30 mg/L daily maximum limit. Reported values were generally low, typically ranging from non-detect (< 5 mg/L) to approximately 8 mg/L, indicating effective containment and good housekeeping practices with respect to oil and petroleum products at the Facility.

• Chemical Oxygen Demand (COD): COD is monitored on a "monitor and report" basis rather than subject to a numeric effluent limit. Reported COD values ranged from approximately 15 mg/L to 55 mg/L, with occasional elevated readings that appear to correlate with higher-intensity precipitation events. No COD values were flagged by PA DEP as requiring corrective action.

• Benchmark Monitoring Parameters: The benchmark monitoring parameters (zinc, lead, chromium, and BOD₅) were consistently reported at concentrations below the applicable benchmark values set forth in the permit. No exceedances of benchmark monitoring thresholds were identified.

Overall, the DMR record reflects a well-managed stormwater program with monitoring results generally well within permitted ranges. The consistency of the results across the five-year period suggests that ACC's BMPs and stormwater management practices have been effective in minimizing the discharge of pollutants in stormwater runoff from the Facility, with the single exception discussed below.

B. March 2022 TSS Exceedance

The DMR for the March 2022 reporting period disclosed a single exceedance of the monthly average effluent limitation for Total Suspended Solids at Outfall 001. The details of this exceedance are as follows:

Cause of Exceedance. Based on ACC's internal incident report and the explanatory narrative submitted with the March 2022 DMR, the TSS exceedance was attributable to the confluence of two factors: (i) a heavy precipitation event that occurred during the sampling period, producing higher-than-normal stormwater volumes and flow velocities; and (ii) active construction and grading activity on the Facility property in the vicinity of the Eastern Drainage Channel. Specifically, ACC was in the process of expanding the outdoor drum storage area along the eastern property boundary, which required grading and earthwork in close proximity to the stormwater conveyance channel. The combination of exposed soils from the grading work and the intense rainfall event resulted in elevated sediment loading in the stormwater runoff captured at Outfall 001, producing the reported TSS concentration of 48 mg/L.

Self-Reporting. ACC self-reported the exceedance to PA DEP in accordance with the permit's self-monitoring and reporting requirements. The exceedance was disclosed on the March 2022 DMR filed with PA DEP within the applicable reporting deadline. ACC's EHS Manager, Carl Johannsen, confirmed that the exceedance was timely reported and that no oral notification was provided, as the exceedance was determined not to present an imminent threat to public health or the environment. C&H considers this determination to be reasonable under the circumstances, given the nature of the parameter (TSS) and the modest magnitude of the exceedance.

Enforcement Response. PA DEP took no enforcement action in response to the March 2022 TSS exceedance. No Notice of Violation ("NOV"), consent order, consent decree, administrative order, or civil penalty was issued. C&H reviewed ACC's regulatory correspondence files for the period following the March 2022 DMR filing and found no indication of any pending or threatened enforcement action relating to this exceedance. Mr. Johannsen confirmed in interviews conducted during the September 15, 2022 site visit that ACC had not received any follow-up communications from PA DEP regarding the exceedance beyond a routine acknowledgment of the DMR filing.

Cross-Reference to Phase I ESA. It is noteworthy that the eastern boundary area where the grading and construction activity occurred — and where the elevated sediment loading originated — corresponds to the same area identified in TerraVerde's Phase I ESA (dated August 15, 2022) as REC-2: staining and stressed vegetation along the eastern property boundary adjacent to the outdoor drum storage area. The hydraulic connectivity between the drum storage area, the Eastern Drainage Channel, and the NPDES-regulated Outfall 001 means that any contamination present in the REC-2 area has the potential to migrate to the stormwater discharge point. This overlap between the NPDES compliance issue and the Phase I ESA findings warrants continued attention and is discussed further in Section VII below.

C. Corrective Actions Implemented

Following the March 2022 TSS exceedance, ACC implemented the following corrective actions to address the elevated sediment loading and prevent recurrence:

1. Silt Fence Installation: ACC installed silt fencing along the downslope perimeter of the active construction and grading area adjacent to the Eastern Drainage Channel. The silt fence was positioned to intercept and retain sediment-laden runoff before it could reach the stormwater conveyance channel.

2. Additional Best Management Practices (BMPs): ACC deployed additional erosion and sediment control BMPs in the construction area, including the installation of sediment basins and traps at key drainage points, stabilized construction entrances with aggregate underlayment to minimize track-out of soil and sediment, and temporary berms to redirect surface water flow away from exposed soil areas.

3. SWPPP Update: ACC reviewed and updated the Facility's SWPPP to incorporate enhanced erosion and sediment control measures specific to the construction area. The updated SWPPP included revised site maps showing the location of installed BMPs, modified inspection schedules requiring more frequent monitoring of the construction area during active grading, and documentation of the corrective actions taken in response to the exceedance.

4. Personnel Training: ACC conducted supplemental training for on-site personnel, including both ACC employees and the grading contractor's workforce, regarding the updated BMP requirements and the importance of maintaining erosion and sediment controls during the remaining construction activities.

According to Mr. Johannsen, subsequent DMR results for the periods following March 2022 (i.e., the second quarter of 2022) have returned to compliance, with TSS readings reported below the 40 mg/L monthly average limit. C&H has requested but has not yet received the second quarter 2022 DMR for independent verification of this representation. Confirmation of post-corrective action compliance is included as a recommendation in Section IX.C below.

C&H notes that the corrective actions implemented by ACC appear to have been appropriately responsive to the identified cause of the exceedance. The installation of silt fencing and sediment controls is consistent with standard erosion and sediment control practices for construction activities in proximity to stormwater conveyances. However, it should be noted that silt fencing is a temporary measure with a limited effective lifespan, and its long-term effectiveness is contingent upon ongoing maintenance, including regular inspection, repair, and replacement as needed. If the outdoor drum storage area expansion has been completed, the silt fencing should be removed and replaced with permanent stabilization measures (e.g., vegetative cover, riprap, or engineered stormwater conveyance improvements) to provide long-term sediment control in the eastern boundary area.

V. Spill Events with Water Discharge Implications

C&H's review of ACC's spill and release history for the McKeesport Main Plant is the subject of a separate Spill History and Enforcement Review Memorandum. This section summarizes those spill events that have potential implications for CWA/NPDES compliance at the Facility. Readers should refer to the Spill History and Enforcement Review Memorandum for a comprehensive analysis of all reported releases.

February 3, 2020 — Epoxy Resin Hardener Release. On February 3, 2020, approximately 120 gallons of epoxy resin hardener (amine-based, Formulation HR-4420) was released from a storage vessel in the Building C warehouse area. The released material flowed across the warehouse floor and entered a floor drain that was connected to the municipal sanitary sewer system operated by the Municipal Authority of the City of McKeesport. The release was reported to PA DEP and the Allegheny County Health Department ("ACHD") in accordance with applicable notification requirements. PA DEP issued a civil penalty in the amount of $4,500 for the unauthorized discharge to the sanitary sewer system. ACC paid the penalty without contest and implemented the following corrective actions: (i) the floor drain in the warehouse area was permanently sealed to prevent future discharges; (ii) secondary containment (concrete berming and epoxy-coated floor coating) was installed in the storage vessel area; and (iii) spill response procedures were updated and personnel were retrained.

Although this event involved a discharge to the sanitary sewer system rather than to the NPDES-regulated stormwater discharge, it is relevant to this memorandum for two reasons. First, the event reflects a historical gap in the Facility's containment infrastructure, specifically the existence of an open floor drain connected to a receiving system without adequate safeguards to prevent unauthorized discharges. The corrective actions taken by ACC — sealing the drain and installing secondary containment — address this gap, but the event demonstrates that as recently as 2020, the Facility's physical infrastructure was not fully protective against releases to water conveyance systems. Second, the event contributes to the Facility's overall compliance history with PA DEP and may be considered by the agency in the context of any future enforcement action, including in connection with any future NPDES violations.

June 14, 2017 — Xylene Release. On June 14, 2017, approximately 50 gallons of xylene was released from a ruptured transfer hose during a raw material transfer operation in the Building A production area. The released xylene was captured within the existing secondary containment system surrounding the transfer station and did not reach any floor drains, stormwater conveyances, or the environment. The release was reported to PA DEP as required, and PA DEP issued a determination of No Further Action ("NFA"). No cleanup costs were incurred beyond the immediate recovery of the spilled material and replacement of the damaged hose. This event has no implications for NPDES compliance, as no material reached any water conveyance system or water body.

Other Releases. No other reportable releases to stormwater systems or surface waters were identified during the review period. However, the potential connection between the REC-2 area (drum storage staining along the eastern property boundary) and the Eastern Drainage Channel is being evaluated as part of the ongoing Phase II investigation and may represent an unreported or chronic release pathway, as discussed in Section VII below.

VI. Stormwater Pollution Prevention Plan (SWPPP) Review

ACC maintains a written Stormwater Pollution Prevention Plan ("SWPPP") for the McKeesport Main Plant, as required under NPDES Permit No. PA0025631 and applicable PA DEP regulations at 25 Pa. Code § 92a.32. C&H reviewed the most current version of the SWPPP, which was last updated in April 2022 following the March 2022 TSS exceedance.

The SWPPP identifies the following potential sources of stormwater contamination at the Facility:

• Outdoor drum storage area along the eastern property boundary, where raw materials, intermediates, and waste containers are stored on pallets on a paved surface;

• Loading dock operations at Buildings A, B, and C, where materials are loaded and unloaded from delivery trucks and may be temporarily staged in uncovered areas;

• Vehicle and equipment maintenance areas, including a small maintenance garage used for forklift and delivery vehicle servicing; and

• General impervious surface areas, including parking lots, driveways, and truck staging areas, where accumulated pollutants (oil, sediment, debris) may be mobilized during precipitation events.

The SWPPP specifies the following BMPs to address these potential contamination sources:

• Secondary containment for the outdoor drum storage area, consisting of a perimeter curb and containment wall with a drainage sump equipped with a manual valve (valve is to remain closed except during controlled drainage of accumulated, uncontaminated stormwater);

• Covered loading docks to minimize exposure of materials handling areas to precipitation;

• Good housekeeping protocols, including daily sweeping schedules for production areas, weekly cleaning of loading docks and outdoor staging areas, and prompt cleanup of spills;

• Employee training, conducted annually and documented in the SWPPP appendix; and

• Periodic visual monitoring of Outfall 001, conducted quarterly and documented on standardized inspection forms maintained as part of the SWPPP records.

The April 2022 update to the SWPPP incorporated enhanced erosion and sediment control measures specific to the construction area near the eastern property boundary, including documentation of the silt fencing, sediment basins, and stabilized construction entrances installed in response to the March 2022 TSS exceedance. The update also included revised inspection frequencies for the eastern boundary area during the active construction period.

Identified Gap. C&H notes that the SWPPP does not specifically address the unlined Eastern Drainage Channel as a potential migration pathway for contamination from the outdoor drum storage area to the NPDES-regulated discharge point (Outfall 001). The SWPPP identifies the drum storage area as a potential source of stormwater contamination and describes the secondary containment system as the primary BMP for that area, but it does not analyze the scenario in which contamination from the drum storage area — whether from a spill event, chronic drip/seepage, or migration of subsurface contamination — could enter the unlined drainage channel upstream of the outfall. Given the Phase I ESA findings at REC-2 (staining and stressed vegetation along the eastern boundary), this represents a potential gap in the SWPPP's threat assessment. C&H recommends that the SWPPP be updated post-closing to address this pathway, as further discussed in Section IX.C below.

VII. Relationship to Phase I / Phase II ESA Findings

This section addresses the intersection between the CWA/NPDES compliance matters discussed in this memorandum and the findings of the Phase I and Phase II Environmental Site Assessments conducted by TerraVerde Environmental Consulting LLC for the McKeesport Main Plant.

REC-2 (Phase I ESA). TerraVerde's Phase I ESA, dated August 15, 2022, identified a recognized environmental condition designated as REC-2, described as follows: staining and stressed vegetation observed along the eastern property boundary adjacent to the outdoor drum storage area and the unlined stormwater drainage channel. The staining was characterized by TerraVerde as a dark discoloration on the paved surface and adjacent soils, consistent with potential releases of organic solvents or coating materials. The stressed vegetation — manifested as discolored and dying plant material in the buffer area between the drum storage area and the drainage channel — was noted as consistent with phytotoxic effects of organic chemical exposure.

The significance of REC-2 for purposes of this CWA/NPDES compliance review lies in the hydraulic connectivity between the affected area and the NPDES-regulated discharge point. The unlined Eastern Drainage Channel runs along the eastern property boundary in direct proximity to the drum storage area and the REC-2 observations. Stormwater runoff from the drum storage area, as well as any contamination that has migrated into the shallow subsurface in this area, has the potential to enter the drainage channel and be conveyed to Outfall 001, where it would be discharged to the receiving stream. If the staining and stressed vegetation observed at REC-2 are indicative of a release of regulated substances, the ongoing migration of those substances through the stormwater discharge pathway could constitute an unauthorized discharge of pollutants in violation of the NPDES permit and the CWA.

Phase II ESA Results. The Phase II Environmental Site Assessment at the McKeesport Main Plant was commenced on September 12, 2022, and analytical results were received on October 10, 2022. The Phase II investigation focused primarily on the former underground storage tank ("UST") field in the northern portion of the Facility and the Building C vapor intrusion pathway, but also included soil borings and groundwater monitoring well installations in the eastern boundary area relevant to REC-2.

Of particular relevance to this memorandum, the Phase II investigation detected toluene in groundwater at monitoring well MW-3, located in the eastern boundary area, at a concentration of 1,420 µg/L. This concentration exceeds the Pennsylvania Act 2 Statewide Health Standard ("SHS") for toluene of 1,000 µg/L. While the toluene detection at MW-3 is primarily a groundwater and subsurface contamination issue that is being addressed in the Phase II Results Analysis Memorandum, it presents secondary implications for NPDES compliance that must be considered in this review.

Specifically, if contaminated groundwater in the eastern boundary area is seeping into the unlined Eastern Drainage Channel — or if contaminated soil in this area is being mobilized during precipitation events and contributing to stormwater runoff — there is a potential for the NPDES-regulated discharge at Outfall 001 to contain elevated concentrations of toluene or other contaminants that are not currently being monitored under the permit. The NPDES permit requires monitoring for VOCs only as part of the benchmark monitoring program, and toluene is not among the specific benchmark parameters listed. However, the CWA's general prohibition on the discharge of pollutants in violation of effluent limitations and water quality standards (33 U.S.C. § 1311(a)) applies regardless of whether a specific parameter is listed in the permit's monitoring schedule. If toluene or other contaminants are being discharged through the stormwater outfall at concentrations that cause or contribute to violations of water quality standards in the receiving stream, ACC (and, post-closing, Crestline as ACC's owner) could face enforcement liability under both the CWA and the Pennsylvania Clean Streams Law.

C&H recommends that the Phase II findings in the eastern boundary area be carefully coordinated with the NPDES compliance analysis and that stormwater sampling at Outfall 001 be expanded to include VOCs (specifically toluene) to assess whether the groundwater contamination is impacting the stormwater discharge. This recommendation is further discussed in Section IX below.

VIII. Regulatory Framework — Post-Closing Obligations

A. Permit Transfer / Name Change Requirements

Because the proposed Transaction is structured as a stock purchase — in which Crestline will acquire 100% of the outstanding common stock of ACC — the legal entity that holds NPDES Permit No. PA0025631 (i.e., ACC) will remain unchanged following the closing. ACC will continue to exist as a corporate entity and will continue to be the permittee of record. Accordingly, no formal NPDES permit transfer application is required under 25 Pa. Code § 92a.52 in connection with the Transaction.

However, Crestline should be aware of the following considerations:

• As the new sole shareholder of ACC, Crestline will assume indirect control over ACC's operations, including all regulatory compliance obligations. Although the change in stock ownership does not, by itself, trigger a permit transfer requirement, Crestline will bear the economic and operational responsibility for ensuring ACC's ongoing compliance with all terms and conditions of the NPDES permit.

• If ACC's corporate name is changed post-closing (e.g., to reflect the Crestline brand), PA DEP should be notified, and a permit amendment may be required to reflect the name change on the face of the permit. Similarly, if Crestline elects to merge ACC into Crestline or another entity, a formal permit transfer to the surviving entity would be required.

• If ACC's operations at the McKeesport Main Plant change materially post-closing — for example, through the addition of new manufacturing processes, significant changes in chemical usage, or modifications to the stormwater conveyance infrastructure — Crestline should evaluate whether such changes necessitate a modification of the NPDES permit under 25 Pa. Code § 92a.41 or the submission of a new permit application.

B. Permit Renewal

The current NPDES permit (PA0025631) has an effective date of March 15, 2019, and an expiration date of March 14, 2024. Under 25 Pa. Code § 92a.41(a) and the general requirement of 40 C.F.R. § 122.21(d), permit renewal applications must be submitted to PA DEP at least 180 days prior to the expiration of the current permit term. Accordingly, the renewal application for NPDES Permit No. PA0025631 must be submitted to PA DEP no later than September 15, 2023.

Crestline should calendar this deadline and begin preparations for the permit renewal application well in advance. The renewal process provides an opportunity for PA DEP to review and potentially modify the permit terms, including effluent limitations, monitoring requirements, and BMP specifications. If the Phase II investigation results reveal contamination that is impacting or has the potential to impact the stormwater discharge, PA DEP may impose additional monitoring requirements or more stringent effluent limitations as part of the renewed permit.

Additionally, any pending or contemplated operational changes at the Facility should be evaluated for their potential impact on stormwater discharge characteristics and the scope of the NPDES permit. C&H notes that ACC's pending Title V permit modification application (for the installation of a thermal oxidizer on Production Line 4) may result in changes to the Facility's air emissions profile that could, in turn, affect the chemical composition of stormwater runoff through atmospheric deposition. While this is not expected to be a significant factor, it should be considered in the context of the permit renewal application.

C. Ongoing DMR and SWPPP Obligations

Following the closing of the Transaction, Crestline (through ACC) will inherit the obligation to:

• Submit timely and accurate DMRs to PA DEP on a quarterly basis, in accordance with the permit's monitoring and reporting schedule;

• Maintain and implement the SWPPP, including the updated erosion and sediment control measures incorporated following the March 2022 TSS exceedance;

• Conduct the required monitoring, sampling, and analysis of stormwater discharges at Outfall 001;

• Perform quarterly visual inspections of the outfall and stormwater conveyance system;

• Report any exceedances of effluent limitations to PA DEP in accordance with the permit's reporting requirements; and

• Maintain all records required under the permit for a period of at least five (5) years.

The March 2022 TSS exceedance, though resolved without enforcement action, becomes part of the Facility's regulatory compliance history maintained by PA DEP. While a single isolated exceedance is unlikely to materially affect PA DEP's treatment of the Facility in the near term, it may be considered by the agency in the context of any future enforcement action or in the evaluation of the Facility's compliance record during the permit renewal process. Repeated exceedances, or the occurrence of a more serious violation, could result in enhanced regulatory scrutiny.

D. Potential Enhanced Monitoring

If the Phase II investigation findings confirm that contamination in the eastern boundary area (including the toluene exceedance at MW-3) is migrating to the stormwater outfall or has the potential to do so, PA DEP may require enhanced monitoring of the stormwater discharge as a condition of the current permit (through a permit modification) or the renewed permit. Such enhanced monitoring could include:

• Addition of VOC parameters (including toluene, xylene, MEK, and ethylbenzene) to the routine monitoring schedule at Outfall 001;

• Increased sampling frequency (e.g., monthly rather than quarterly);

• Installation of additional monitoring points along the Eastern Drainage Channel to characterize the spatial extent of any contamination; and

• Implementation of additional treatment measures for stormwater runoff from the eastern boundary area, such as activated carbon filtration or constructed wetland treatment systems.

Crestline should consider proactively enhancing stormwater monitoring in the eastern boundary area post-closing, even in advance of any PA DEP directive, to demonstrate good faith compliance and to develop a baseline understanding of stormwater quality in the area potentially affected by subsurface contamination. Proactive monitoring would also provide early warning of any emerging compliance issues and would position Crestline to respond effectively to any PA DEP inquiries or requirements.

IX. Risk Assessment and Recommendations

A. Overall CWA/NPDES Compliance Assessment

Based on C&H's review of the materials described in Section X below, the McKeesport Main Plant facility is in substantial compliance with NPDES Permit No. PA0025631 and the applicable requirements of the CWA and the Pennsylvania Clean Streams Law.

The March 2022 TSS exceedance was a single, isolated event attributable to identifiable and site-specific causes — namely, the coincidence of a heavy precipitation event with active construction and grading work in the vicinity of the stormwater conveyance channel. ACC responded appropriately to the exceedance by self-reporting the event to PA DEP in the applicable DMR, implementing corrective actions (silt fencing, additional BMPs, SWPPP update, and personnel training), and restoring compliance in subsequent monitoring periods. PA DEP did not pursue any enforcement action in response to the exceedance, and no NOV, consent order, or civil penalty was issued.

No pattern of noncompliance was identified in the five-year DMR review. With the exception of the March 2022 event, all monitored parameters were consistently within permitted ranges, and benchmark monitoring values were not exceeded. The Facility's SWPPP is in place and has been updated to reflect current conditions. Required monitoring, reporting, and recordkeeping obligations appear to have been met throughout the review period.

The February 2020 epoxy resin hardener release to the sanitary sewer, while not directly an NPDES stormwater matter, reflects historical gaps in the Facility's containment infrastructure that have since been addressed through the sealing of the floor drain and installation of secondary containment in the Building C warehouse area.

B. Risk Rating

C&H assigns the following risk rating to the CWA/NPDES compliance matters at the McKeesport Main Plant:

LOW TO MODERATE RISK

The isolated TSS exceedance and the responsive corrective actions implemented by ACC place the direct NPDES compliance risk in the lower end of the risk spectrum. However, the potential intersection of the Phase II contamination findings (particularly the toluene exceedance at MW-3) with the stormwater discharge pathway along the Eastern Drainage Channel elevates the overall risk to moderate pending further assessment. If contaminated groundwater is confirmed to be seeping into the stormwater conveyance system, or if contaminated soil in the eastern boundary area is contributing to stormwater pollution, the risk profile could increase, potentially triggering additional monitoring requirements, permit modifications, and remediation obligations with associated costs.

The risk rating is further supported by the following factors:

• The absence of any PA DEP enforcement action in response to the March 2022 exceedance suggests that the agency views the event as a minor and non-recurring compliance deviation;

• The corrective actions implemented by ACC are consistent with industry practice and appear to have been effective;

• The ongoing Phase II investigation may reveal additional information that could alter the risk assessment; and

• The stock purchase structure of the Transaction means that Crestline will assume all existing environmental liabilities of ACC, including any liabilities arising from past or ongoing NPDES violations.

C. Specific Recommendations

Based on the analysis set forth in this memorandum, C&H makes the following recommendations to Crestline in connection with the CWA/NPDES compliance matters at the McKeesport Main Plant:

1. Confirm Post-March 2022 Compliance. Crestline should obtain and review all DMRs filed by ACC after the March 2022 reporting period through the most current period available to confirm that TSS and all other monitored parameters have remained within permit limits following the implementation of corrective actions. Mr. Johannsen has represented that subsequent DMR results are in compliance, but this representation should be independently verified through review of the actual DMR filings.

2. Update SWPPP. Post-closing, Crestline should update the SWPPP to address the unlined Eastern Drainage Channel as a potential contaminant migration pathway from the outdoor drum storage area (and the broader REC-2 area) to the NPDES-regulated discharge point at Outfall 001. The updated SWPPP should incorporate the findings from the Phase II ESA, identify appropriate BMPs to address the potential for contaminated stormwater runoff in the eastern boundary area, and include an enhanced inspection and monitoring protocol for the drainage channel.

3. Coordinate with Phase II Remediation Planning. If remediation is required for groundwater or soil contamination in the eastern boundary area (related to REC-2 and the toluene exceedance at MW-3), Crestline should integrate stormwater management considerations into the remediation design. The remediation plan should include measures to prevent cross-contamination of the stormwater discharge during remediation activities (e.g., containment of dewatering effluent, erosion and sediment controls around excavation areas) and should address the long-term protection of the stormwater conveyance system from contaminated groundwater seepage.

4. Calendar NPDES Permit Renewal. Crestline should determine and calendar the exact expiration date of the current NPDES permit (March 14, 2024) and the corresponding renewal application deadline (September 15, 2023, i.e., 180 days prior to expiration). Preparations for the permit renewal application should begin no later than the second quarter of 2023 to allow sufficient time for the preparation and review of the application, including any updates necessitated by the Phase II findings or changes in Facility operations.

5. Monitor PA DEP Communications. Prior to closing, Crestline should review all pending correspondence between ACC and PA DEP regarding the March 2022 exceedance, the February 2020 spill event, or any other stormwater-related matters. Crestline should confirm that there are no open investigations, pending enforcement actions, or unresolved PA DEP inquiries relating to the Facility's NPDES permit. This review should be included as a specific item in the pre-closing diligence checklist and, if appropriate, addressed in the seller's representations and warranties.

6. Include in Environmental Representations. Crestline should ensure that the environmental representations and warranties in the Stock Purchase Agreement (Article IV, Section 4.18) adequately cover the following:

(a) ACC's current NPDES compliance status, including specific disclosure of the March 2022 TSS exceedance, the corrective actions implemented, and the absence of PA DEP enforcement action;

(b) the status of the SWPPP and any pending updates or deficiencies;

(d) any pending or threatened regulatory action by PA DEP or EPA relating to water discharges at the Facility; and

(e) the relationship between the Phase II contamination findings and the stormwater discharge pathway, including any potential for future NPDES permit modifications or enhanced monitoring requirements.

The environmental disclosure schedules to the Stock Purchase Agreement should specifically reference the March 2022 TSS exceedance and the corrective actions described in this memorandum.

7. Evaluate in Context of Environmental Liability Estimates. The NPDES compliance matters at the McKeesport Main Plant do not, independently, generate significant additional liability beyond the remediation costs already estimated for the Facility in the Comprehensive Environmental Diligence Summary Memorandum (estimated range of $1.2 million to $2.8 million for McKeesport). However, if PA DEP requires enhanced stormwater treatment infrastructure as a result of contamination in the outfall area — such as the installation of an engineered treatment system for the Eastern Drainage Channel — additional capital expenditure could be required. The estimated cost of such a treatment system, based on comparable projects at similar industrial facilities, could range from approximately $75,000 to $250,000, depending on the nature and extent of the treatment required. This potential cost should be factored into the overall environmental liability range currently estimated at $1.925 million (low) to $4.345 million (high) across all ACC facilities included in the Transaction.

8. Lender Notification. Commonwealth National Bank, N.A. (Victoria Chen, Managing Director, Environmental & Infrastructure Finance Group) has conditioned its $65 million term loan commitment on satisfactory environmental diligence results with no unaddressed recognized environmental conditions. The March 2022 TSS exceedance, while minor and corrected, should be disclosed in the environmental diligence summary provided to the lender. The disclosure should emphasize the isolated and construction-related nature of the exceedance, the corrective actions implemented by ACC, and the absence of PA DEP enforcement. C&H does not believe that this exceedance, standing alone, would cause the lender to find the environmental diligence results unsatisfactory, but transparency in the disclosure is important to maintaining the lender's confidence and to avoiding any post-closing disputes regarding the adequacy of the environmental diligence.

X. Documents Reviewed

In preparing this memorandum, C&H reviewed the following documents:

1. NPDES Permit No. PA0025631, as issued by PA DEP to Allegheny Chemical Coatings, Inc., effective March 15, 2019, including all amendments and modifications thereto.

2. Discharge Monitoring Reports (DMRs) submitted by ACC to PA DEP for the McKeesport Main Plant, Outfall 001, for the period from the first quarter of 2017 through the second quarter of 2022 (twenty quarterly reporting periods).

3. ACC Stormwater Pollution Prevention Plan (SWPPP) for the McKeesport Main Plant, most recent version dated April 2022 (updated following the March 2022 TSS exceedance), including all appendices, site maps, and inspection records.

4. ACC internal incident report regarding the March 2022 TSS exceedance at Outfall 001, prepared by Carl Johannsen, EHS Manager, dated March 28, 2022.

5. ACC correspondence with PA DEP regarding the March 2022 DMR filing, including the explanatory narrative submitted with the DMR and PA DEP's routine acknowledgment of receipt.

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

7. TerraVerde Environmental Consulting LLC, Phase II Environmental Site Assessment — Analytical Results and Data Tables, McKeesport Main Plant, 2200 Iron Works Boulevard, McKeesport, PA 15132, received October 10, 2022.

8. ACC spill/release logs and regulatory correspondence (2012–2022), provided by Carl Johannsen, EHS Manager, during the September 15, 2022 site visit.

9. PA DEP inspection reports and correspondence for the McKeesport Main Plant facility, including the most recent PA DEP compliance inspection report (dated June 2021) and all follow-up correspondence.

10. Draft Stock Purchase Agreement by and among Crestline Packaging Solutions LLC (Buyer), ACC shareholders (Sellers), and Allegheny Chemical Coatings, Inc. (the Company), dated August 12, 2022, including Article IV, Section 4.18 (Environmental Representations and Warranties) and the related disclosure schedules.

XI. Conclusion

Based on the review and analysis presented in this memorandum, the McKeesport Main Plant facility's NPDES compliance record is satisfactory. The Facility has maintained substantial compliance with NPDES Permit No. PA0025631 throughout the five-year review period, with a single TSS exceedance in March 2022 that was promptly self-reported to PA DEP and corrected through appropriate remedial measures. PA DEP did not pursue enforcement action in connection with the exceedance, and no NOV, consent order, or civil penalty was issued.

The primary CWA/NPDES risk for Crestline post-closing does not arise from the March 2022 exceedance itself, which appears to be an isolated, construction-related event, but rather from the potential interaction between the subsurface contamination identified in the Phase II Environmental Site Assessment — particularly the toluene exceedance in groundwater at MW-3 — and the stormwater discharge pathway along the Eastern Drainage Channel at the eastern property boundary. If contaminated groundwater or soil in this area is contributing to or has the potential to contribute to the stormwater discharge at Outfall 001, Crestline could face regulatory scrutiny, enhanced monitoring requirements, and potential enforcement exposure under the CWA and the Pennsylvania Clean Streams Law.

This risk is, in C&H's assessment, manageable through the implementation of the recommendations set forth in Section IX.C above, including proactive stormwater monitoring in the eastern boundary area, coordination of stormwater management with any Phase II remediation activities, timely preparation for the NPDES permit renewal, and appropriate documentation in the Transaction agreements. The environmental representations and warranties in the Stock Purchase Agreement, together with the environmental indemnification and escrow provisions currently under negotiation, should be structured to allocate responsibility for pre-closing NPDES compliance matters to the Sellers and to protect Crestline against post-closing liabilities arising from undisclosed or pre-existing environmental conditions.

This memorandum should be incorporated into the Comprehensive Environmental Diligence Summary Memorandum currently in draft form (draft dated October 22, 2022) and made available to the Transaction team, including Beatrice Holloway (Responsible Partner, M&A) and Harrison Caldwell (Of Counsel, Environmental & Land Use), for review and integration into the overall environmental risk assessment for the Transaction. The conclusions and recommendations herein should also be reflected in the environmental diligence summary to be provided to Commonwealth National Bank, N.A., in satisfaction of the lender's environmental diligence condition.

This memorandum is intended solely for the use of Calderwood & Harkness LLP and the client, Crestline Packaging Solutions LLC, in connection with the Transaction. It does not constitute a guarantee of any particular legal or factual outcome and is subject to the limitations and qualifications described herein.

Prepared by:

________________________________________

Grace Nakamura Associate, Real Estate Practice Group Calderwood & Harkness LLP

Date: October 14, 2022

Reviewed by:

________________________________________

Harrison Caldwell Of Counsel, Environmental &

CALDERWOOD & HARKNESS LLP 1900 Euclid Avenue, Suite 3200 Cleveland, Ohio 44115
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
This memorandum constitutes privileged and confidential attorney work product prepared in anticipation of litigation and/or in connection with the rendering of legal advice. It is protected from disclosure by the attorney-client privilege, the work product doctrine, and all other applicable privileges. This memorandum is not intended for distribution to, or reliance by, any third party without the prior written consent of Calderwood & Harkness LLP.
I. Purpose and Scope
This memorandum presents the results of Calderwood & Harkness LLP's ("C&H") review of the Clean Water Act ("CWA") and National Pollutant Discharge Elimination System ("NPDES") compliance status of the McKeesport Main Plant facility owned and operated by Allegheny Chemical Coatings, Inc. ("ACC" or the "Target"), located at 2200 Iron Works Boulevard, McKeesport, Pennsylvania 15132, Allegheny County, Pennsylvania (the "Facility" or "McKeesport Main Plant"). The Facility is identified by Allegheny County Parcel ID No. 0383-M-00125-0000-00.
This memorandum has been 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 (the "Transaction"). The Transaction is structured as a stock purchase at a proposed purchase price of $94.5 million. As a stock purchase, Crestline will acquire ACC as a going concern, and ACC will continue as the operating entity and holder of all permits, licenses, and regulatory obligations, including those arising under the CWA and the NPDES program. This structural feature has significant implications for the allocation of environmental liabilities, as discussed in further detail in Sections VIII and IX below.
This memorandum is designated as C&H Matter No. 1006-00003.
The scope of this review encompasses the following areas:
(i) review and analysis of the terms, conditions, and compliance status of the NPDES stormwater discharge permit (Permit No. PA0025631) held by ACC for the McKeesport Main Plant;
(ii) review of Discharge Monitoring Reports ("DMRs") submitted by ACC to the Pennsylvania Department of Environmental Protection ("PA DEP") for the Facility covering a five-year period from approximately 2017 through the most recent available reporting period in 2022;
(iii) review of any enforcement actions, consent orders, administrative orders, notices of violation ("NOVs"), or other regulatory actions by PA DEP or the U.S. Environmental Protection Agency ("EPA") relating to water discharges at or from the Facility;
(iv) analysis of corrective actions implemented by ACC in response to any identified compliance deviations; and
(v) assessment of post-closing compliance obligations and risk exposure for Crestline arising from CWA/NPDES matters at the Facility.
This memorandum is part of the broader environmental due diligence workstream for the Transaction, which is being overseen by Beatrice Holloway, Responsible Partner (M&A), and Harrison Caldwell, Of Counsel (Environmental & Land Use). This memorandum should be read together with the following related work product:
•  Comprehensive Environmental Diligence Summary Memorandum (draft dated October 22, 2022);
•  Phase I ESA Review Memorandum — McKeesport (draft dated September 8, 2022);
•  Phase II Results Analysis Memorandum — McKeesport (draft dated October 12, 2022);
•  Spill History and Enforcement Review Memorandum (draft dated October 5, 2022); and
•  Air Permit Compliance Review Memorandum — McKeesport (draft dated October 11, 2022).
The documents reviewed in connection with this memorandum were obtained from Seller's counsel, Hargrove, Dalton & Speer LLP (attention: Franklin Speer, Partner, and Megan Trask, Associate), in response to C&H's Environmental Document Request List dated July 25, 2022, as supplemented by additional documents provided directly by ACC's Environmental, Health, and Safety ("EHS") Manager, Carl Johannsen, during facility access visits conducted on August 22, 2022, and September 15, 2022. A complete list of documents reviewed is set forth in Section X below. C&H has not independently verified the accuracy or completeness of the documents provided by Seller's counsel or by ACC; our analysis is based solely on the information made available to us in the course of this diligence review.
II. Facility Overview
The following summary of the Facility and its operations is based on C&H's review of the diligence materials, the Phase I Environmental Site Assessment prepared by TerraVerde Environmental Consulting LLC ("TerraVerde"), and information provided by ACC's EHS Manager, Carl Johannsen.
Operations. The McKeesport Main Plant serves as ACC's primary manufacturing facility and corporate headquarters. The Facility's principal operations consist of the manufacture of solvent-based and epoxy coatings, including mixing, blending, tinting, and filling operations. Raw materials include various organic solvents, pigments, resins, and hardeners. The Facility operates multiple production lines across several interconnected manufacturing buildings, including the main production building (Building A), the specialty coatings building (Building B), and the warehouse and distribution building (Building C).
Ownership History. ACC acquired the McKeesport Main Plant property in fee simple in 1987 from Keystone Metalworks, a steel fabrication operation that is now defunct. The prior industrial use of the property as a steel fabrication facility is relevant to the environmental condition of the site, as the Phase I ESA identified certain recognized environmental conditions ("RECs") that may be attributable, in whole or in part, to historical operations predating ACC's ownership. ACC has operated continuously at the Facility since 1987 and has made several capital improvements to the property, including the construction of Building C (warehouse, completed 1996), expansion of the outdoor drum storage area along the eastern property boundary (2004 and 2021–2022), and various process upgrades.
Chemicals of Concern (Relevant to Water Discharges). The following chemicals are of particular relevance to the CWA/NPDES compliance analysis presented in this memorandum:
•  Volatile Organic Compounds (VOCs): Toluene, xylene, methyl ethyl ketone (MEK), and ethylbenzene are used extensively in the Facility's solvent-based coating formulations. These compounds are present in raw material storage areas, process areas, and waste streams, and have the potential to migrate to stormwater runoff if not properly contained.
•  Heavy Metals: Chromium and lead are present in certain pigments used in coating formulations. While ACC reports that lead-based pigments have been largely phased out of current production, legacy contamination from historical pigment operations remains a concern, particularly in the vicinity of the outdoor drum storage area and Building A.
•  Epoxy Resins and Hardeners: Bisphenol A-based epoxy resins and amine-based hardeners are used in the Facility's epoxy coating product lines. These materials are stored and handled in both indoor and outdoor areas of the Facility.
Adjacent Water Features. The Facility is situated on relatively flat terrain within the Youghiogheny River valley. The eastern property boundary of the Facility runs along an unlined stormwater drainage channel (the "Eastern Drainage Channel") that collects and conveys stormwater runoff from the Facility and adjacent properties. The Eastern Drainage Channel ultimately discharges to a tributary of the Youghiogheny River, which is part of the larger Monongahela River watershed. Stormwater runoff from the Facility's impervious surfaces — including paved parking areas, loading docks, truck staging areas, and the outdoor drum storage area — drains through this channel. The Eastern Drainage Channel is the principal pathway by which stormwater from the Facility reaches surface waters, and it is the location of the NPDES-regulated discharge point (Outfall 001), as discussed in Section III below.
The proximity of the outdoor drum storage area to the Eastern Drainage Channel is a matter of particular concern in this review, as discussed in Sections IV.B, V, and VII below, given the identification of staining and stressed vegetation in this area in the Phase I ESA (designated as REC-2) and the potential for contaminated stormwater runoff to reach the regulated discharge point.
III. NPDES Permit — Key Terms and Conditions
A. Permit Identification
The following table summarizes the key identifying information for the NPDES permit held by ACC for the McKeesport Main Plant:
The current NPDES permit was issued by PA DEP on March 15, 2019, with an effective period of five years, expiring on March 14, 2024. This is an individual NPDES permit, as distinguished from coverage under the PA DEP Multi-Sector General Permit ("MSGP") for stormwater discharges associated with industrial activity. ACC's operations and the site-specific characteristics of the McKeesport Main Plant — including the presence of the Eastern Drainage Channel, the nature and volume of chemicals handled at the Facility, and the Facility's proximity to the Youghiogheny River watershed — necessitate individual permit coverage rather than general permit coverage. The permit was issued pursuant to the authority delegated to PA DEP by EPA under Section 402(b) of the CWA, 33 U.S.C. § 1342(b), which authorizes states with approved NPDES programs to administer the permitting program in lieu of EPA. Pennsylvania has maintained an approved NPDES program since 1978.
The applicable federal regulatory framework is set forth in 40 C.F.R. Parts 122 through 125, and the corresponding state regulations are codified at 25 Pa. Code Chapters 91, 92a, and 93. Section 301(a) of the CWA, 33 U.S.C. § 1311(a), prohibits the discharge of any pollutant from a point source to waters of the United States except in compliance with, inter alia, an NPDES permit issued under Section 402. Stormwater discharges associated with industrial activity are subject to NPDES permitting requirements under Section 402(p) of the CWA, 33 U.S.C. § 1342(p), and implementing regulations at 40 C.F.R. § 122.26.
B. Authorized Discharge Points
NPDES Permit No. PA0025631 authorizes stormwater discharges from the McKeesport Main Plant through one designated outfall point:
Outfall 001: Located at the southeastern corner of the Facility property, at the point where the Eastern Drainage Channel exits the ACC property boundary. This outfall collects stormwater runoff from the majority of the Facility's impervious surfaces, including the main parking lot, the Building A and Building B loading dock areas, the truck staging area, and the outdoor drum storage area. The outfall discharges to the Eastern Drainage Channel, which conveys flow to an unnamed tributary of the Youghiogheny River.
The receiving stream (unnamed tributary of the Youghiogheny River) is classified by PA DEP under 25 Pa. Code Chapter 93 as a Warm Water Fishes ("WWF") stream with existing uses including aquatic life and water supply. The applicable water quality standards for the receiving stream are those set forth in 25 Pa. Code § 93.7 for WWF-designated streams, including criteria for dissolved oxygen, pH, temperature, and specific pollutants. The Facility's NPDES permit incorporates effluent limitations designed to ensure that stormwater discharges from Outfall 001 do not cause or contribute to violations of these water quality standards.
The permit does not authorize any process wastewater discharges from the Facility. ACC's process wastewater is collected, treated on-site through a basic oil-water separator system, and discharged to the Municipal Authority of the City of McKeesport sanitary sewer system pursuant to a separate industrial pretreatment permit. The sanitary sewer discharge is not within the scope of the NPDES permit reviewed herein, though the February 2020 spill event involving the sanitary sewer is discussed in Section V below for completeness.
C. Effluent Limitations
The NPDES permit establishes the following effluent limitations applicable to discharges from Outfall 001:
In addition to the numeric effluent limitations set forth above, the permit establishes benchmark monitoring values for specific pollutants associated with ACC's Standard Industrial Classification ("SIC") code for industrial coating manufacturing (SIC Code 2851 — Paints, Varnishes, Lacquers, Enamels, and Allied Products). These benchmark values serve as reference concentrations that, if exceeded, trigger requirements for additional monitoring and/or corrective actions under the permit's adaptive management provisions. The benchmark monitoring parameters include:
•  Total Recoverable Zinc: benchmark value of 0.120 mg/L
•  Total Recoverable Lead: benchmark value of 0.0816 mg/L
•  Total Recoverable Chromium: benchmark value of 0.0162 mg/L
•  Biochemical Oxygen Demand (BOD₅): benchmark value of 30 mg/L
The technology-based effluent limitations for TSS and oil and grease are derived from EPA's effluent guidelines and standards applicable to the relevant industrial category, reflecting Best Practicable Control Technology Currently Available ("BPT") and Best Available Technology Economically Achievable ("BAT") standards pursuant to Sections 301(b)(1) and 301(b)(2) of the CWA, 33 U.S.C. §§ 1311(b)(1) and (b)(2). The pH limitation is water quality-based, derived from the receiving stream's designated use classification and applicable water quality criteria under 25 Pa. Code Chapter 93.
D. Monitoring and Reporting Requirements
The NPDES permit imposes the following monitoring and reporting obligations on ACC:
Discharge Monitoring Reports (DMRs). ACC is required to submit DMRs to PA DEP on a quarterly basis. Each DMR must report the analytical results for all parameters specified in the permit, including TSS, pH, oil and grease, COD, and the benchmark monitoring parameters listed in Section III.C above. DMRs are due to PA DEP within thirty (30) days following the end of each calendar quarter (i.e., by January 30, April 30, July 30, and October 30 of each year). ACC is required to collect representative stormwater samples from Outfall 001 during qualifying storm events (defined as precipitation events of at least 0.1 inch occurring after a dry period of at least 72 hours) and to analyze those samples at a Pennsylvania-accredited laboratory.
Visual Inspections. ACC is required to conduct quarterly visual inspections of Outfall 001 and the stormwater conveyance system, including the Eastern Drainage Channel, to identify any visible signs of pollution, erosion, or BMP deficiencies. Records of visual inspections must be maintained on-site and made available to PA DEP upon request.
Stormwater Pollution Prevention Plan (SWPPP). The permit requires ACC to develop, implement, and maintain a current SWPPP for the Facility. The SWPPP must identify all potential sources of stormwater contamination at the Facility, describe the BMPs employed to minimize the risk of pollutant discharge, and establish procedures for spill prevention and response, employee training, and periodic plan review and update. The SWPPP is further discussed in Section VI below.
Exceedance Reporting. In the event that any monitored parameter exceeds the applicable effluent limitation, ACC is required to report the exceedance to PA DEP in the DMR for the applicable reporting period. For exceedances of numeric effluent limitations that may result in a threat to public health or the environment, ACC is required to provide oral notification to PA DEP within twenty-four (24) hours of becoming aware of the exceedance, followed by a written notification within five (5) days.
C&H's review of the DMR submission records indicates that ACC has consistently filed its DMRs on time throughout the five-year review period. No late filings or missed reporting periods were identified.
E. Best Management Practices (BMPs)
The NPDES permit requires ACC to implement and maintain the following categories of BMPs at the Facility:
•  Containment of Outdoor Storage Areas: All outdoor storage of raw materials, intermediates, finished products, and waste containers must be within areas equipped with secondary containment or equivalent measures to prevent the migration of spilled materials to stormwater conveyances.
•  Good Housekeeping: ACC must implement and maintain good housekeeping practices throughout the Facility, including routine sweeping and cleaning of paved areas, prompt cleanup of spills and leaks, proper management of waste materials, and minimization of exposure of pollutant sources to stormwater.
•  Spill Prevention and Response: ACC must maintain spill prevention and response procedures, including the availability of spill response equipment (absorbent materials, portable containment berms, etc.) at key locations throughout the Facility, and training of personnel in spill response protocols.
•  Employee Training: ACC must provide annual training to all employees whose activities may affect stormwater quality, covering the requirements of the NPDES permit, the SWPPP, and applicable BMPs.
•  Preventive Maintenance: ACC must implement a preventive maintenance program for stormwater management infrastructure, including catch basins, drainage channels, sediment traps, and oil-water separators.
The permit further requires that the SWPPP be reviewed and updated at least annually, and more frequently if warranted by changes in Facility operations, the results of monitoring or inspections, or the occurrence of a spill or release event.
IV. Compliance History — Discharge Monitoring Reports
A. DMR Review Summary (Five-Year Period)
C&H reviewed DMRs submitted by ACC for the McKeesport Main Plant covering the period from the first quarter of 2017 through the second quarter of 2022, representing the most recent data available as of the date of this memorandum. This review period encompasses approximately twenty (20) quarterly reporting periods under the prior permit term (which expired on March 14, 2019) and the current permit term (effective March 15, 2019).
For all reporting periods reviewed, with the single exception of the March 2022 reporting period (discussed in detail in Section IV.B below), all DMR results were within the applicable permit limits for all monitored parameters. The key findings from the DMR review are summarized as follows:
•  Total Suspended Solids (TSS): TSS results were generally well within the 40 mg/L monthly average effluent limit throughout the five-year review period. Reported monthly average TSS concentrations typically ranged from approximately 12 mg/L to 28 mg/L, with a median value of approximately 19 mg/L. No daily maximum exceedances (80 mg/L limit) were reported. The sole exception was the March 2022 reporting period, in which a TSS result of 48 mg/L was reported, as discussed below.
•  pH: All reported pH values were within the permitted instantaneous range of 6.0 to 9.0 standard units throughout the review period. Reported values typically ranged from approximately 6.5 to 7.8 standard units, reflecting neutral to slightly alkaline conditions consistent with expected stormwater chemistry at a facility of this type.
•  Oil and Grease: All reported oil and grease concentrations were below the 15 mg/L monthly average limit and the 30 mg/L daily maximum limit. Reported values were generally low, typically ranging from non-detect (< 5 mg/L) to approximately 8 mg/L, indicating effective containment and good housekeeping practices with respect to oil and petroleum products at the Facility.
•  Chemical Oxygen Demand (COD): COD is monitored on a "monitor and report" basis rather than subject to a numeric effluent limit. Reported COD values ranged from approximately 15 mg/L to 55 mg/L, with occasional elevated readings that appear to correlate with higher-intensity precipitation events. No COD values were flagged by PA DEP as requiring corrective action.
•  Benchmark Monitoring Parameters: The benchmark monitoring parameters (zinc, lead, chromium, and BOD₅) were consistently reported at concentrations below the applicable benchmark values set forth in the permit. No exceedances of benchmark monitoring thresholds were identified.
Overall, the DMR record reflects a well-managed stormwater program with monitoring results generally well within permitted ranges. The consistency of the results across the five-year period suggests that ACC's BMPs and stormwater management practices have been effective in minimizing the discharge of pollutants in stormwater runoff from the Facility, with the single exception discussed below.
B. March 2022 TSS Exceedance
The DMR for the March 2022 reporting period disclosed a single exceedance of the monthly average effluent limitation for Total Suspended Solids at Outfall 001. The details of this exceedance are as follows:
Cause of Exceedance. Based on ACC's internal incident report and the explanatory narrative submitted with the March 2022 DMR, the TSS exceedance was attributable to the confluence of two factors: (i) a heavy precipitation event that occurred during the sampling period, producing higher-than-normal stormwater volumes and flow velocities; and (ii) active construction and grading activity on the Facility property in the vicinity of the Eastern Drainage Channel. Specifically, ACC was in the process of expanding the outdoor drum storage area along the eastern property boundary, which required grading and earthwork in close proximity to the stormwater conveyance channel. The combination of exposed soils from the grading work and the intense rainfall event resulted in elevated sediment loading in the stormwater runoff captured at Outfall 001, producing the reported TSS concentration of 48 mg/L.
Self-Reporting. ACC self-reported the exceedance to PA DEP in accordance with the permit's self-monitoring and reporting requirements. The exceedance was disclosed on the March 2022 DMR filed with PA DEP within the applicable reporting deadline. ACC's EHS Manager, Carl Johannsen, confirmed that the exceedance was timely reported and that no oral notification was provided, as the exceedance was determined not to present an imminent threat to public health or the environment. C&H considers this determination to be reasonable under the circumstances, given the nature of the parameter (TSS) and the modest magnitude of the exceedance.
Enforcement Response. PA DEP took no enforcement action in response to the March 2022 TSS exceedance. No Notice of Violation ("NOV"), consent order, consent decree, administrative order, or civil penalty was issued. C&H reviewed ACC's regulatory correspondence files for the period following the March 2022 DMR filing and found no indication of any pending or threatened enforcement action relating to this exceedance. Mr. Johannsen confirmed in interviews conducted during the September 15, 2022 site visit that ACC had not received any follow-up communications from PA DEP regarding the exceedance beyond a routine acknowledgment of the DMR filing.
Cross-Reference to Phase I ESA. It is noteworthy that the eastern boundary area where the grading and construction activity occurred — and where the elevated sediment loading originated — corresponds to the same area identified in TerraVerde's Phase I ESA (dated August 15, 2022) as REC-2: staining and stressed vegetation along the eastern property boundary adjacent to the outdoor drum storage area. The hydraulic connectivity between the drum storage area, the Eastern Drainage Channel, and the NPDES-regulated Outfall 001 means that any contamination present in the REC-2 area has the potential to migrate to the stormwater discharge point. This overlap between the NPDES compliance issue and the Phase I ESA findings warrants continued attention and is discussed further in Section VII below.
C. Corrective Actions Implemented
Following the March 2022 TSS exceedance, ACC implemented the following corrective actions to address the elevated sediment loading and prevent recurrence:
1.  Silt Fence Installation: ACC installed silt fencing along the downslope perimeter of the active construction and grading area adjacent to the Eastern Drainage Channel. The silt fence was positioned to intercept and retain sediment-laden runoff before it could reach the stormwater conveyance channel.
2.  Additional Best Management Practices (BMPs): ACC deployed additional erosion and sediment control BMPs in the construction area, including the installation of sediment basins and traps at key drainage points, stabilized construction entrances with aggregate underlayment to minimize track-out of soil and sediment, and temporary berms to redirect surface water flow away from exposed soil areas.
3.  SWPPP Update: ACC reviewed and updated the Facility's SWPPP to incorporate enhanced erosion and sediment control measures specific to the construction area. The updated SWPPP included revised site maps showing the location of installed BMPs, modified inspection schedules requiring more frequent monitoring of the construction area during active grading, and documentation of the corrective actions taken in response to the exceedance.
4.  Personnel Training: ACC conducted supplemental training for on-site personnel, including both ACC employees and the grading contractor's workforce, regarding the updated BMP requirements and the importance of maintaining erosion and sediment controls during the remaining construction activities.
According to Mr. Johannsen, subsequent DMR results for the periods following March 2022 (i.e., the second quarter of 2022) have returned to compliance, with TSS readings reported below the 40 mg/L monthly average limit. C&H has requested but has not yet received the second quarter 2022 DMR for independent verification of this representation. Confirmation of post-corrective action compliance is included as a recommendation in Section IX.C below.
C&H notes that the corrective actions implemented by ACC appear to have been appropriately responsive to the identified cause of the exceedance. The installation of silt fencing and sediment controls is consistent with standard erosion and sediment control practices for construction activities in proximity to stormwater conveyances. However, it should be noted that silt fencing is a temporary measure with a limited effective lifespan, and its long-term effectiveness is contingent upon ongoing maintenance, including regular inspection, repair, and replacement as needed. If the outdoor drum storage area expansion has been completed, the silt fencing should be removed and replaced with permanent stabilization measures (e.g., vegetative cover, riprap, or engineered stormwater conveyance improvements) to provide long-term sediment control in the eastern boundary area.
V. Spill Events with Water Discharge Implications
C&H's review of ACC's spill and release history for the McKeesport Main Plant is the subject of a separate Spill History and Enforcement Review Memorandum. This section summarizes those spill events that have potential implications for CWA/NPDES compliance at the Facility. Readers should refer to the Spill History and Enforcement Review Memorandum for a comprehensive analysis of all reported releases.
February 3, 2020 — Epoxy Resin Hardener Release. On February 3, 2020, approximately 120 gallons of epoxy resin hardener (amine-based, Formulation HR-4420) was released from a storage vessel in the Building C warehouse area. The released material flowed across the warehouse floor and entered a floor drain that was connected to the municipal sanitary sewer system operated by the Municipal Authority of the City of McKeesport. The release was reported to PA DEP and the Allegheny County Health Department ("ACHD") in accordance with applicable notification requirements. PA DEP issued a civil penalty in the amount of $4,500 for the unauthorized discharge to the sanitary sewer system. ACC paid the penalty without contest and implemented the following corrective actions: (i) the floor drain in the warehouse area was permanently sealed to prevent future discharges; (ii) secondary containment (concrete berming and epoxy-coated floor coating) was installed in the storage vessel area; and (iii) spill response procedures were updated and personnel were retrained.
Although this event involved a discharge to the sanitary sewer system rather than to the NPDES-regulated stormwater discharge, it is relevant to this memorandum for two reasons. First, the event reflects a historical gap in the Facility's containment infrastructure, specifically the existence of an open floor drain connected to a receiving system without adequate safeguards to prevent unauthorized discharges. The corrective actions taken by ACC — sealing the drain and installing secondary containment — address this gap, but the event demonstrates that as recently as 2020, the Facility's physical infrastructure was not fully protective against releases to water conveyance systems. Second, the event contributes to the Facility's overall compliance history with PA DEP and may be considered by the agency in the context of any future enforcement action, including in connection with any future NPDES violations.
June 14, 2017 — Xylene Release. On June 14, 2017, approximately 50 gallons of xylene was released from a ruptured transfer hose during a raw material transfer operation in the Building A production area. The released xylene was captured within the existing secondary containment system surrounding the transfer station and did not reach any floor drains, stormwater conveyances, or the environment. The release was reported to PA DEP as required, and PA DEP issued a determination of No Further Action ("NFA"). No cleanup costs were incurred beyond the immediate recovery of the spilled material and replacement of the damaged hose. This event has no implications for NPDES compliance, as no material reached any water conveyance system or water body.
Other Releases. No other reportable releases to stormwater systems or surface waters were identified during the review period. However, the potential connection between the REC-2 area (drum storage staining along the eastern property boundary) and the Eastern Drainage Channel is being evaluated as part of the ongoing Phase II investigation and may represent an unreported or chronic release pathway, as discussed in Section VII below.
VI. Stormwater Pollution Prevention Plan (SWPPP) Review
ACC maintains a written Stormwater Pollution Prevention Plan ("SWPPP") for the McKeesport Main Plant, as required under NPDES Permit No. PA0025631 and applicable PA DEP regulations at 25 Pa. Code § 92a.32. C&H reviewed the most current version of the SWPPP, which was last updated in April 2022 following the March 2022 TSS exceedance.
The SWPPP identifies the following potential sources of stormwater contamination at the Facility:
•  Outdoor drum storage area along the eastern property boundary, where raw materials, intermediates, and waste containers are stored on pallets on a paved surface;
•  Loading dock operations at Buildings A, B, and C, where materials are loaded and unloaded from delivery trucks and may be temporarily staged in uncovered areas;
•  Vehicle and equipment maintenance areas, including a small maintenance garage used for forklift and delivery vehicle servicing; and
•  General impervious surface areas, including parking lots, driveways, and truck staging areas, where accumulated pollutants (oil, sediment, debris) may be mobilized during precipitation events.
The SWPPP specifies the following BMPs to address these potential contamination sources:
•  Secondary containment for the outdoor drum storage area, consisting of a perimeter curb and containment wall with a drainage sump equipped with a manual valve (valve is to remain closed except during controlled drainage of accumulated, uncontaminated stormwater);
•  Covered loading docks to minimize exposure of materials handling areas to precipitation;
•  Good housekeeping protocols, including daily sweeping schedules for production areas, weekly cleaning of loading docks and outdoor staging areas, and prompt cleanup of spills;
•  Employee training, conducted annually and documented in the SWPPP appendix; and
•  Periodic visual monitoring of Outfall 001, conducted quarterly and documented on standardized inspection forms maintained as part of the SWPPP records.
The April 2022 update to the SWPPP incorporated enhanced erosion and sediment control measures specific to the construction area near the eastern property boundary, including documentation of the silt fencing, sediment basins, and stabilized construction entrances installed in response to the March 2022 TSS exceedance. The update also included revised inspection frequencies for the eastern boundary area during the active construction period.
Identified Gap. C&H notes that the SWPPP does not specifically address the unlined Eastern Drainage Channel as a potential migration pathway for contamination from the outdoor drum storage area to the NPDES-regulated discharge point (Outfall 001). The SWPPP identifies the drum storage area as a potential source of stormwater contamination and describes the secondary containment system as the primary BMP for that area, but it does not analyze the scenario in which contamination from the drum storage area — whether from a spill event, chronic drip/seepage, or migration of subsurface contamination — could enter the unlined drainage channel upstream of the outfall. Given the Phase I ESA findings at REC-2 (staining and stressed vegetation along the eastern boundary), this represents a potential gap in the SWPPP's threat assessment. C&H recommends that the SWPPP be updated post-closing to address this pathway, as further discussed in Section IX.C below.
VII. Relationship to Phase I / Phase II ESA Findings
This section addresses the intersection between the CWA/NPDES compliance matters discussed in this memorandum and the findings of the Phase I and Phase II Environmental Site Assessments conducted by TerraVerde Environmental Consulting LLC for the McKeesport Main Plant.
REC-2 (Phase I ESA). TerraVerde's Phase I ESA, dated August 15, 2022, identified a recognized environmental condition designated as REC-2, described as follows: staining and stressed vegetation observed along the eastern property boundary adjacent to the outdoor drum storage area and the unlined stormwater drainage channel. The staining was characterized by TerraVerde as a dark discoloration on the paved surface and adjacent soils, consistent with potential releases of organic solvents or coating materials. The stressed vegetation — manifested as discolored and dying plant material in the buffer area between the drum storage area and the drainage channel — was noted as consistent with phytotoxic effects of organic chemical exposure.
The significance of REC-2 for purposes of this CWA/NPDES compliance review lies in the hydraulic connectivity between the affected area and the NPDES-regulated discharge point. The unlined Eastern Drainage Channel runs along the eastern property boundary in direct proximity to the drum storage area and the REC-2 observations. Stormwater runoff from the drum storage area, as well as any contamination that has migrated into the shallow subsurface in this area, has the potential to enter the drainage channel and be conveyed to Outfall 001, where it would be discharged to the receiving stream. If the staining and stressed vegetation observed at REC-2 are indicative of a release of regulated substances, the ongoing migration of those substances through the stormwater discharge pathway could constitute an unauthorized discharge of pollutants in violation of the NPDES permit and the CWA.
Phase II ESA Results. The Phase II Environmental Site Assessment at the McKeesport Main Plant was commenced on September 12, 2022, and analytical results were received on October 10, 2022. The Phase II investigation focused primarily on the former underground storage tank ("UST") field in the northern portion of the Facility and the Building C vapor intrusion pathway, but also included soil borings and groundwater monitoring well installations in the eastern boundary area relevant to REC-2.
Of particular relevance to this memorandum, the Phase II investigation detected toluene in groundwater at monitoring well MW-3, located in the eastern boundary area, at a concentration of 1,420 µg/L. This concentration exceeds the Pennsylvania Act 2 Statewide Health Standard ("SHS") for toluene of 1,000 µg/L. While the toluene detection at MW-3 is primarily a groundwater and subsurface contamination issue that is being addressed in the Phase II Results Analysis Memorandum, it presents secondary implications for NPDES compliance that must be considered in this review.
Specifically, if contaminated groundwater in the eastern boundary area is seeping into the unlined Eastern Drainage Channel — or if contaminated soil in this area is being mobilized during precipitation events and contributing to stormwater runoff — there is a potential for the NPDES-regulated discharge at Outfall 001 to contain elevated concentrations of toluene or other contaminants that are not currently being monitored under the permit. The NPDES permit requires monitoring for VOCs only as part of the benchmark monitoring program, and toluene is not among the specific benchmark parameters listed. However, the CWA's general prohibition on the discharge of pollutants in violation of effluent limitations and water quality standards (33 U.S.C. § 1311(a)) applies regardless of whether a specific parameter is listed in the permit's monitoring schedule. If toluene or other contaminants are being discharged through the stormwater outfall at concentrations that cause or contribute to violations of water quality standards in the receiving stream, ACC (and, post-closing, Crestline as ACC's owner) could face enforcement liability under both the CWA and the Pennsylvania Clean Streams Law.
C&H recommends that the Phase II findings in the eastern boundary area be carefully coordinated with the NPDES compliance analysis and that stormwater sampling at Outfall 001 be expanded to include VOCs (specifically toluene) to assess whether the groundwater contamination is impacting the stormwater discharge. This recommendation is further discussed in Section IX below.
VIII. Regulatory Framework — Post-Closing Obligations
A. Permit Transfer / Name Change Requirements
Because the proposed Transaction is structured as a stock purchase — in which Crestline will acquire 100% of the outstanding common stock of ACC — the legal entity that holds NPDES Permit No. PA0025631 (i.e., ACC) will remain unchanged following the closing. ACC will continue to exist as a corporate entity and will continue to be the permittee of record. Accordingly, no formal NPDES permit transfer application is required under 25 Pa. Code § 92a.52 in connection with the Transaction.
However, Crestline should be aware of the following considerations:
•  As the new sole shareholder of ACC, Crestline will assume indirect control over ACC's operations, including all regulatory compliance obligations. Although the change in stock ownership does not, by itself, trigger a permit transfer requirement, Crestline will bear the economic and operational responsibility for ensuring ACC's ongoing compliance with all terms and conditions of the NPDES permit.
•  If ACC's corporate name is changed post-closing (e.g., to reflect the Crestline brand), PA DEP should be notified, and a permit amendment may be required to reflect the name change on the face of the permit. Similarly, if Crestline elects to merge ACC into Crestline or another entity, a formal permit transfer to the surviving entity would be required.
•  If ACC's operations at the McKeesport Main Plant change materially post-closing — for example, through the addition of new manufacturing processes, significant changes in chemical usage, or modifications to the stormwater conveyance infrastructure — Crestline should evaluate whether such changes necessitate a modification of the NPDES permit under 25 Pa. Code § 92a.41 or the submission of a new permit application.
B. Permit Renewal
The current NPDES permit (PA0025631) has an effective date of March 15, 2019, and an expiration date of March 14, 2024. Under 25 Pa. Code § 92a.41(a) and the general requirement of 40 C.F.R. § 122.21(d), permit renewal applications must be submitted to PA DEP at least 180 days prior to the expiration of the current permit term. Accordingly, the renewal application for NPDES Permit No. PA0025631 must be submitted to PA DEP no later than September 15, 2023.
Crestline should calendar this deadline and begin preparations for the permit renewal application well in advance. The renewal process provides an opportunity for PA DEP to review and potentially modify the permit terms, including effluent limitations, monitoring requirements, and BMP specifications. If the Phase II investigation results reveal contamination that is impacting or has the potential to impact the stormwater discharge, PA DEP may impose additional monitoring requirements or more stringent effluent limitations as part of the renewed permit.
Additionally, any pending or contemplated operational changes at the Facility should be evaluated for their potential impact on stormwater discharge characteristics and the scope of the NPDES permit. C&H notes that ACC's pending Title V permit modification application (for the installation of a thermal oxidizer on Production Line 4) may result in changes to the Facility's air emissions profile that could, in turn, affect the chemical composition of stormwater runoff through atmospheric deposition. While this is not expected to be a significant factor, it should be considered in the context of the permit renewal application.
C. Ongoing DMR and SWPPP Obligations
Following the closing of the Transaction, Crestline (through ACC) will inherit the obligation to:
•  Submit timely and accurate DMRs to PA DEP on a quarterly basis, in accordance with the permit's monitoring and reporting schedule;
•  Maintain and implement the SWPPP, including the updated erosion and sediment control measures incorporated following the March 2022 TSS exceedance;
•  Conduct the required monitoring, sampling, and analysis of stormwater discharges at Outfall 001;
•  Perform quarterly visual inspections of the outfall and stormwater conveyance system;
•  Report any exceedances of effluent limitations to PA DEP in accordance with the permit's reporting requirements; and
•  Maintain all records required under the permit for a period of at least five (5) years.
The March 2022 TSS exceedance, though resolved without enforcement action, becomes part of the Facility's regulatory compliance history maintained by PA DEP. While a single isolated exceedance is unlikely to materially affect PA DEP's treatment of the Facility in the near term, it may be considered by the agency in the context of any future enforcement action or in the evaluation of the Facility's compliance record during the permit renewal process. Repeated exceedances, or the occurrence of a more serious violation, could result in enhanced regulatory scrutiny.
D. Potential Enhanced Monitoring
If the Phase II investigation findings confirm that contamination in the eastern boundary area (including the toluene exceedance at MW-3) is migrating to the stormwater outfall or has the potential to do so, PA DEP may require enhanced monitoring of the stormwater discharge as a condition of the current permit (through a permit modification) or the renewed permit. Such enhanced monitoring could include:
•  Addition of VOC parameters (including toluene, xylene, MEK, and ethylbenzene) to the routine monitoring schedule at Outfall 001;
•  Increased sampling frequency (e.g., monthly rather than quarterly);
•  Installation of additional monitoring points along the Eastern Drainage Channel to characterize the spatial extent of any contamination; and
•  Implementation of additional treatment measures for stormwater runoff from the eastern boundary area, such as activated carbon filtration or constructed wetland treatment systems.
Crestline should consider proactively enhancing stormwater monitoring in the eastern boundary area post-closing, even in advance of any PA DEP directive, to demonstrate good faith compliance and to develop a baseline understanding of stormwater quality in the area potentially affected by subsurface contamination. Proactive monitoring would also provide early warning of any emerging compliance issues and would position Crestline to respond effectively to any PA DEP inquiries or requirements.
IX. Risk Assessment and Recommendations
A. Overall CWA/NPDES Compliance Assessment
Based on C&H's review of the materials described in Section X below, the McKeesport Main Plant facility is in substantial compliance with NPDES Permit No. PA0025631 and the applicable requirements of the CWA and the Pennsylvania Clean Streams Law.
The March 2022 TSS exceedance was a single, isolated event attributable to identifiable and site-specific causes — namely, the coincidence of a heavy precipitation event with active construction and grading work in the vicinity of the stormwater conveyance channel. ACC responded appropriately to the exceedance by self-reporting the event to PA DEP in the applicable DMR, implementing corrective actions (silt fencing, additional BMPs, SWPPP update, and personnel training), and restoring compliance in subsequent monitoring periods. PA DEP did not pursue any enforcement action in response to the exceedance, and no NOV, consent order, or civil penalty was issued.
No pattern of noncompliance was identified in the five-year DMR review. With the exception of the March 2022 event, all monitored parameters were consistently within permitted ranges, and benchmark monitoring values were not exceeded. The Facility's SWPPP is in place and has been updated to reflect current conditions. Required monitoring, reporting, and recordkeeping obligations appear to have been met throughout the review period.
The February 2020 epoxy resin hardener release to the sanitary sewer, while not directly an NPDES stormwater matter, reflects historical gaps in the Facility's containment infrastructure that have since been addressed through the sealing of the floor drain and installation of secondary containment in the Building C warehouse area.
B. Risk Rating
C&H assigns the following risk rating to the CWA/NPDES compliance matters at the McKeesport Main Plant:
LOW TO MODERATE RISK
The isolated TSS exceedance and the responsive corrective actions implemented by ACC place the direct NPDES compliance risk in the lower end of the risk spectrum. However, the potential intersection of the Phase II contamination findings (particularly the toluene exceedance at MW-3) with the stormwater discharge pathway along the Eastern Drainage Channel elevates the overall risk to moderate pending further assessment. If contaminated groundwater is confirmed to be seeping into the stormwater conveyance system, or if contaminated soil in the eastern boundary area is contributing to stormwater pollution, the risk profile could increase, potentially triggering additional monitoring requirements, permit modifications, and remediation obligations with associated costs.
The risk rating is further supported by the following factors:
•  The absence of any PA DEP enforcement action in response to the March 2022 exceedance suggests that the agency views the event as a minor and non-recurring compliance deviation;
•  The corrective actions implemented by ACC are consistent with industry practice and appear to have been effective;
•  The ongoing Phase II investigation may reveal additional information that could alter the risk assessment; and
•  The stock purchase structure of the Transaction means that Crestline will assume all existing environmental liabilities of ACC, including any liabilities arising from past or ongoing NPDES violations.
C. Specific Recommendations
Based on the analysis set forth in this memorandum, C&H makes the following recommendations to Crestline in connection with the CWA/NPDES compliance matters at the McKeesport Main Plant:
1. Confirm Post-March 2022 Compliance. Crestline should obtain and review all DMRs filed by ACC after the March 2022 reporting period through the most current period available to confirm that TSS and all other monitored parameters have remained within permit limits following the implementation of corrective actions. Mr. Johannsen has represented that subsequent DMR results are in compliance, but this representation should be independently verified through review of the actual DMR filings.
2. Update SWPPP. Post-closing, Crestline should update the SWPPP to address the unlined Eastern Drainage Channel as a potential contaminant migration pathway from the outdoor drum storage area (and the broader REC-2 area) to the NPDES-regulated discharge point at Outfall 001. The updated SWPPP should incorporate the findings from the Phase II ESA, identify appropriate BMPs to address the potential for contaminated stormwater runoff in the eastern boundary area, and include an enhanced inspection and monitoring protocol for the drainage channel.
3. Coordinate with Phase II Remediation Planning. If remediation is required for groundwater or soil contamination in the eastern boundary area (related to REC-2 and the toluene exceedance at MW-3), Crestline should integrate stormwater management considerations into the remediation design. The remediation plan should include measures to prevent cross-contamination of the stormwater discharge during remediation activities (e.g., containment of dewatering effluent, erosion and sediment controls around excavation areas) and should address the long-term protection of the stormwater conveyance system from contaminated groundwater seepage.
4. Calendar NPDES Permit Renewal. Crestline should determine and calendar the exact expiration date of the current NPDES permit (March 14, 2024) and the corresponding renewal application deadline (September 15, 2023, i.e., 180 days prior to expiration). Preparations for the permit renewal application should begin no later than the second quarter of 2023 to allow sufficient time for the preparation and review of the application, including any updates necessitated by the Phase II findings or changes in Facility operations.
5. Monitor PA DEP Communications. Prior to closing, Crestline should review all pending correspondence between ACC and PA DEP regarding the March 2022 exceedance, the February 2020 spill event, or any other stormwater-related matters. Crestline should confirm that there are no open investigations, pending enforcement actions, or unresolved PA DEP inquiries relating to the Facility's NPDES permit. This review should be included as a specific item in the pre-closing diligence checklist and, if appropriate, addressed in the seller's representations and warranties.
6. Include in Environmental Representations. Crestline should ensure that the environmental representations and warranties in the Stock Purchase Agreement (Article IV, Section 4.18) adequately cover the following:
(a) ACC's current NPDES compliance status, including specific disclosure of the March 2022 TSS exceedance, the corrective actions implemented, and the absence of PA DEP enforcement action;
(b) the status of the SWPPP and any pending updates or deficiencies;
(c) ACC's ongoing DMR reporting obligations and the results of all DMRs filed during the representation period;
(d) any pending or threatened regulatory action by PA DEP or EPA relating to water discharges at the Facility; and
(e) the relationship between the Phase II contamination findings and the stormwater discharge pathway, including any potential for future NPDES permit modifications or enhanced monitoring requirements.
The environmental disclosure schedules to the Stock Purchase Agreement should specifically reference the March 2022 TSS exceedance and the corrective actions described in this memorandum.
7. Evaluate in Context of Environmental Liability Estimates. The NPDES compliance matters at the McKeesport Main Plant do not, independently, generate significant additional liability beyond the remediation costs already estimated for the Facility in the Comprehensive Environmental Diligence Summary Memorandum (estimated range of $1.2 million to $2.8 million for McKeesport). However, if PA DEP requires enhanced stormwater treatment infrastructure as a result of contamination in the outfall area — such as the installation of an engineered treatment system for the Eastern Drainage Channel — additional capital expenditure could be required. The estimated cost of such a treatment system, based on comparable projects at similar industrial facilities, could range from approximately $75,000 to $250,000, depending on the nature and extent of the treatment required. This potential cost should be factored into the overall environmental liability range currently estimated at $1.925 million (low) to $4.345 million (high) across all ACC facilities included in the Transaction.
8. Lender Notification. Commonwealth National Bank, N.A. (Victoria Chen, Managing Director, Environmental & Infrastructure Finance Group) has conditioned its $65 million term loan commitment on satisfactory environmental diligence results with no unaddressed recognized environmental conditions. The March 2022 TSS exceedance, while minor and corrected, should be disclosed in the environmental diligence summary provided to the lender. The disclosure should emphasize the isolated and construction-related nature of the exceedance, the corrective actions implemented by ACC, and the absence of PA DEP enforcement. C&H does not believe that this exceedance, standing alone, would cause the lender to find the environmental diligence results unsatisfactory, but transparency in the disclosure is important to maintaining the lender's confidence and to avoiding any post-closing disputes regarding the adequacy of the environmental diligence.
X. Documents Reviewed
In preparing this memorandum, C&H reviewed the following documents:
1.  NPDES Permit No. PA0025631, as issued by PA DEP to Allegheny Chemical Coatings, Inc., effective March 15, 2019, including all amendments and modifications thereto.
2.  Discharge Monitoring Reports (DMRs) submitted by ACC to PA DEP for the McKeesport Main Plant, Outfall 001, for the period from the first quarter of 2017 through the second quarter of 2022 (twenty quarterly reporting periods).
3.  ACC Stormwater Pollution Prevention Plan (SWPPP) for the McKeesport Main Plant, most recent version dated April 2022 (updated following the March 2022 TSS exceedance), including all appendices, site maps, and inspection records.
4.  ACC internal incident report regarding the March 2022 TSS exceedance at Outfall 001, prepared by Carl Johannsen, EHS Manager, dated March 28, 2022.
5.  ACC correspondence with PA DEP regarding the March 2022 DMR filing, including the explanatory narrative submitted with the DMR and PA DEP's routine acknowledgment of receipt.
6.  TerraVerde Environmental Consulting LLC, Phase I Environmental Site Assessment, McKeesport Main Plant, 2200 Iron Works Boulevard, McKeesport, PA 15132, dated August 15, 2022.
7.  TerraVerde Environmental Consulting LLC, Phase II Environmental Site Assessment — Analytical Results and Data Tables, McKeesport Main Plant, 2200 Iron Works Boulevard, McKeesport, PA 15132, received October 10, 2022.
8.  ACC spill/release logs and regulatory correspondence (2012–2022), provided by Carl Johannsen, EHS Manager, during the September 15, 2022 site visit.
9.  PA DEP inspection reports and correspondence for the McKeesport Main Plant facility, including the most recent PA DEP compliance inspection report (dated June 2021) and all follow-up correspondence.
10.  Draft Stock Purchase Agreement by and among Crestline Packaging Solutions LLC (Buyer), ACC shareholders (Sellers), and Allegheny Chemical Coatings, Inc. (the Company), dated August 12, 2022, including Article IV, Section 4.18 (Environmental Representations and Warranties) and the related disclosure schedules.
XI. Conclusion
Based on the review and analysis presented in this memorandum, the McKeesport Main Plant facility's NPDES compliance record is satisfactory. The Facility has maintained substantial compliance with NPDES Permit No. PA0025631 throughout the five-year review period, with a single TSS exceedance in March 2022 that was promptly self-reported to PA DEP and corrected through appropriate remedial measures. PA DEP did not pursue enforcement action in connection with the exceedance, and no NOV, consent order, or civil penalty was issued.
The primary CWA/NPDES risk for Crestline post-closing does not arise from the March 2022 exceedance itself, which appears to be an isolated, construction-related event, but rather from the potential interaction between the subsurface contamination identified in the Phase II Environmental Site Assessment — particularly the toluene exceedance in groundwater at MW-3 — and the stormwater discharge pathway along the Eastern Drainage Channel at the eastern property boundary. If contaminated groundwater or soil in this area is contributing to or has the potential to contribute to the stormwater discharge at Outfall 001, Crestline could face regulatory scrutiny, enhanced monitoring requirements, and potential enforcement exposure under the CWA and the Pennsylvania Clean Streams Law.
This risk is, in C&H's assessment, manageable through the implementation of the recommendations set forth in Section IX.C above, including proactive stormwater monitoring in the eastern boundary area, coordination of stormwater management with any Phase II remediation activities, timely preparation for the NPDES permit renewal, and appropriate documentation in the Transaction agreements. The environmental representations and warranties in the Stock Purchase Agreement, together with the environmental indemnification and escrow provisions currently under negotiation, should be structured to allocate responsibility for pre-closing NPDES compliance matters to the Sellers and to protect Crestline against post-closing liabilities arising from undisclosed or pre-existing environmental conditions.
This memorandum should be incorporated into the Comprehensive Environmental Diligence Summary Memorandum currently in draft form (draft dated October 22, 2022) and made available to the Transaction team, including Beatrice Holloway (Responsible Partner, M&A) and Harrison Caldwell (Of Counsel, Environmental & Land Use), for review and integration into the overall environmental risk assessment for the Transaction. The conclusions and recommendations herein should also be reflected in the environmental diligence summary to be provided to Commonwealth National Bank, N.A., in satisfaction of the lender's environmental diligence condition.
This memorandum is intended solely for the use of Calderwood & Harkness LLP and the client, Crestline Packaging Solutions LLC, in connection with the Transaction. It does not constitute a guarantee of any particular legal or factual outcome and is subject to the limitations and qualifications described herein.
Prepared by:
________________________________________
Grace Nakamura Associate, Real Estate Practice Group Calderwood & Harkness LLP
Date: October 14, 2022
Reviewed by:
________________________________________
Harrison Caldwell Of Counsel, Environmental &

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