MEMORANDUM

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
To: Beatrice Holloway, Responsible Partner; Grace Nakamura, Lead Associate
From: Harrison Caldwell, Of Counsel (Environmental & Land Use)
Date: October 15, 2022
Re: Spill History and Enforcement Review — Allegheny Chemical Coatings, Inc. (All Facilities)
Matter No.: 1006-00003
Client: Crestline Packaging Solutions LLC
Transaction: Proposed Acquisition of Allegheny Chemical Coatings, Inc.
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I. Purpose and Scope
This memorandum provides a chronological review of all reportable releases, spills, and enforcement actions at all four operating facilities of Allegheny Chemical Coatings, Inc. ("ACC" or the "Target") in connection with the environmental due diligence being conducted on behalf of Crestline Packaging Solutions LLC ("Crestline" or "CPS") in support of Crestline's proposed acquisition of one hundred percent (100%) of the outstanding common stock of ACC. The purpose of this review is to identify, analyze, and contextualize the spill and enforcement record of the Target in order to inform the negotiation of environmental representations, warranties, and indemnification provisions in the Stock Purchase Agreement ("SPA"), and to support the broader environmental risk assessment for the transaction.
The scope of this memorandum covers all four ACC operating facilities, specifically:
1.  McKeesport Main Plant, 2200 Iron Works Boulevard, McKeesport, PA 15132 (Allegheny County) — ACC's primary manufacturing facility, where the majority of coating formulation, blending, and packaging operations occur;
2.  Charleroi Specialty Coatings Plant, 450 Industrial Park Road, Charleroi, PA 15022 (Washington County) — a secondary production facility focused on specialty and custom-order coating products;
3.  Clarksburg Resin Blending Facility, 1875 Route 50 West, Clarksburg, WV 26301 (Harrison County) — a leased facility used for resin blending and intermediate product staging; and
4.  Weirton Warehouse & Distribution Center, 600 Commerce Way, Weirton, WV 26062 (Hancock County) — a warehouse and logistics facility used for finished goods storage and distribution.
The sources reviewed in the preparation of this memorandum include the following:
•  ACC internal spill/release logs provided by Carl Johannsen, ACC's Environmental, Health, and Safety ("EHS") Manager, covering the period from 2012 through 2022;
•  Pennsylvania Department of Environmental Protection ("PA DEP") and West Virginia Department of Environmental Protection ("WV DEP") regulatory correspondence, including notices of violation, inspection reports, civil penalty assessments, and no further action determinations;
•  National Pollutant Discharge Elimination System ("NPDES") Discharge Monitoring Reports for the McKeesport facility;
•  Emergency Planning and Community Right-to-Know Act ("EPCRA") Section 312 / Tier II filings for each applicable facility;
•  TerraVerde Environmental Consulting LLC Phase I Environmental Site Assessment ("ESA") reports for each of the four facilities, dated August 15, 2022 (McKeesport), August 18, 2022 (Charleroi), August 22, 2022 (Clarksburg), and August 25, 2022 (Weirton);
•  Data room materials produced by Hargrove, Dalton & Speer LLP (attorneys Franklin Speer and Megan Trask) on behalf of ACC and its shareholders, in response to Calderwood & Harkness's environmental document request list dated July 25, 2022; and
•  A telephone interview conducted by the undersigned with Carl Johannsen on September 8, 2022.
This memorandum feeds into the Comprehensive Environmental Diligence Summary Memorandum, a draft of which is currently targeted for completion on October 22, 2022, and directly informs the environmental representations, warranties, and indemnification provisions currently under negotiation in the draft Stock Purchase Agreement, particularly Article IV, Section 4.18 (Environmental Matters), which is the subject of ongoing markup between Calderwood & Harkness (on behalf of Crestline) and Hargrove, Dalton & Speer (on behalf of ACC's shareholders).
II. Executive Summary
Over the ten-year review period (2012–2022), ACC has experienced two reportable spill/release incidents, both of which occurred at its McKeesport Main Plant. No reportable spills or releases were identified at the Charleroi, Clarksburg, or Weirton facilities during the review period or, to the extent records are available, at any time during ACC's tenancy or ownership of those facilities.
The two McKeesport incidents are as follows:
•  Incident No. 1 — June 14, 2017: Approximately 50 gallons of xylene (mixed xylenes) were released from a ruptured transfer hose during a bulk tanker unloading operation at the outdoor chemical transfer area adjacent to Building A. The release was fully contained within the secondary containment area. PA DEP was notified and issued a "No Further Action" ("NFA") determination. No enforcement action was taken, and no fine or penalty was imposed.
•  Incident No. 2 — February 3, 2020: Approximately 120 gallons of epoxy resin hardener (an amine-based curing agent) were released from a damaged intermediate bulk container ("IBC") after a forklift puncture in the Building B warehouse area. An estimated 80–100 gallons of the material reached the municipal sanitary sewer system through an interior floor drain before the flow was stopped. PA DEP issued a Notice of Violation ("NOV") on March 12, 2020, and assessed a civil penalty of $4,500, which ACC paid in full on April 8, 2020.
One enforcement action resulted from these incidents: the $4,500 civil penalty assessed by PA DEP in connection with the February 2020 epoxy resin hardener release. The penalty has been paid in full, and the matter is closed.
Additionally, a March 2022 NPDES permit exceedance for total suspended solids ("TSS") at the McKeesport facility was self-reported by ACC. While not technically a "spill" or "release," this exceedance is noted here for completeness; it is addressed in greater detail in the separate Clean Water Act / NPDES Compliance Review Memorandum being prepared in parallel with this analysis.
Overall, ACC's spill history is moderate and generally consistent with the nature of its operations as a specialty industrial coatings manufacturer handling volatile organic compounds ("VOCs"), organic solvents, and epoxy-based materials in a production environment. No open or pending enforcement proceedings were identified at any of the four facilities as of the date of this memorandum. Corrective actions for both documented incidents have been completed and appear to have been sustained, as evidenced by the clean inspection history following the February 2020 incident.
However, the spill history creates disclosure obligations under the environmental representations in the SPA and provides important informational context that should be reflected in the Seller's disclosure schedules. Additionally, the existence of a documented enforcement action, combined with Phase II ESA findings suggesting subsurface contamination not fully explained by the known spill history, supports the need for robust environmental indemnification protections for Crestline in the transaction documents.
III. Methodology
The spill and enforcement review documented in this memorandum was conducted using the following methodology:
Document Review. The undersigned reviewed all spill and release documentation provided by ACC through the electronic data room maintained by Hargrove, Dalton & Speer LLP, as well as supplemental materials provided directly by Carl Johannsen (ACC EHS Manager) at the request of Calderwood & Harkness. The materials reviewed included incident reports prepared by ACC personnel at the time of each incident, regulatory notifications filed with PA DEP and other agencies, corrective action plans and completion documentation, post-incident correspondence with regulatory agencies, and internal environmental compliance audit reports to the extent available.
Regulatory Database Cross-Referencing. The documents and information provided by ACC were cross-referenced against publicly available regulatory records, including the PA DEP eFACTS (Environment, Facility, Application, Compliance Tracking System) database records for the McKeesport and Charleroi facilities, and WV DEP records for the Clarksburg and Weirton facilities. This cross-referencing was performed to identify any discrepancies between ACC's self-reported spill history and the regulatory record, and to confirm that all enforcement actions had been disclosed.
Phase I ESA Review. The TerraVerde Environmental Consulting LLC Phase I ESA reports for each of the four facilities were reviewed for findings pertaining to spill and release history, including recognized environmental conditions ("RECs"), historical recognized environmental conditions ("HRECs"), controlled recognized environmental conditions ("CRECs"), and de minimis conditions documented during the site inspections and records review components of the Phase I ESA process.
Personnel Interview. On September 8, 2022, the undersigned conducted a telephone interview with Carl Johannsen, ACC's EHS Manager, to confirm the completeness of the spill log provided by ACC, to discuss any unreported or non-reportable incidents that may have occurred at any of the four facilities, and to obtain additional context regarding the circumstances and corrective actions associated with each documented incident. The interview lasted approximately ninety (90) minutes. Notes of this interview are attached hereto as Appendix H.
Review Period. The primary review period for this analysis is the last ten years (2012–2022), consistent with the Phase I ESA standard (ASTM E1527-21) review period for operational history. However, earlier spills and releases were reviewed to the extent documented in ACC's records or in the regulatory files, including the 1993 underground storage tank ("UST") removal at the McKeesport facility, which occurred outside the primary review period but remains relevant to the environmental due diligence given its classification as an HREC in the Phase I ESA and the associated Phase II investigation findings.
Limitations. This review is necessarily limited by the completeness and accuracy of the records provided by ACC and available in the public regulatory databases. The undersigned is not in a position to independently verify that all spills and releases that occurred at the ACC facilities have been reported and documented. The Phase II investigation results, as discussed in Section VII of this memorandum, suggest that subsurface contamination exists at the McKeesport facility that may not be fully explained by the documented spill history, which underscores the inherent limitations of a records-based spill review.
IV. Chronological Spill and Release History
A. Facility-by-Facility Summary Table
The following table summarizes the reportable spills and releases identified at each ACC facility during the review period:
Note 1 — Clarksburg: A legacy diesel UST release was documented at the Clarksburg property in 2012 by the prior tenant, Valley Freight Lines Inc. (now dissolved). This release is not attributable to ACC and is not an ACC spill or release within the scope of this review. It is addressed separately in the Phase I ESA review and the Clarksburg Lease Environmental Provisions Analysis.
Note 2 — Weirton: A de minimis hydraulic fluid stain (approximately 4 square feet) on the warehouse floor was identified in TerraVerde's Phase I ESA (August 25, 2022). This staining does not constitute a reportable release under any applicable federal or state threshold and was classified by TerraVerde as a de minimis condition, not a REC.
The detailed analysis of each incident follows below.
B. Incident No. 1 — June 14, 2017 Xylene Spill (McKeesport Main Plant)
1. Description of Incident.  On June 14, 2017, a release of approximately fifty (50) gallons of xylene (mixed xylenes) occurred at ACC's McKeesport Main Plant, located at 2200 Iron Works Boulevard, McKeesport, PA 15132, in Allegheny County. The release occurred at the outdoor chemical transfer area adjacent to Building A, which is the primary raw materials receiving area for the facility.
Xylene is a volatile organic compound ("VOC") commonly used as a solvent in solvent-based coating formulations and is one of the principal raw materials handled at the McKeesport facility. Mixed xylenes are listed as a hazardous substance under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq., and are regulated under the Resource Conservation and Recovery Act ("RCRA") as a hazardous waste when discarded (EPA Hazardous Waste No. U239). Mixed xylenes are also a listed substance under EPCRA Section 313, and ACC reports xylene usage and releases in its annual Toxics Release Inventory ("TRI") filings for the McKeesport facility.
The quantity released was approximately fifty (50) gallons, which escaped from a ruptured flexible transfer hose during a routine bulk tanker unloading operation. The transfer hose connected the discharge valve on the bulk tanker truck to the above-ground storage tank ("AST") manifold in the chemical transfer area. According to ACC's internal incident report prepared by Carl Johannsen, the hose ruptured due to wear and age-related degradation, as the hose had not been replaced within the manufacturer's recommended service life. The rupture occurred at a coupling joint on the hose, and the release was rapid but was detected almost immediately by the tanker truck driver and the ACC receiving operator on site.
2. Containment and Response.  The release was fully contained within the secondary containment area surrounding the AST manifold. The secondary containment consists of a concrete bermed pad designed to capture and contain releases from the above-ground storage tanks and associated piping and transfer equipment. Based on ACC's incident report and the PA DEP's subsequent review, no xylene migrated beyond the boundaries of the secondary containment area, and there was no release to soil, surface water, groundwater, or the off-site environment.
ACC's internal spill response team was activated in accordance with the facility's Spill Prevention, Control, and Countermeasure ("SPCC") Plan and Preparedness, Prevention, and Contingency ("PPC") Plan. The response included the deployment of absorbent materials (sorbent pads and granular absorbent) to recover the released xylene from within the bermed containment area. The recovered material and used sorbent materials were placed in drums and managed as hazardous waste in accordance with RCRA regulations. Disposal was handled by ACC's contracted hazardous waste transporter and disposed of at a permitted treatment, storage, and disposal facility ("TSDF").
No evacuation of the facility or surrounding area was required. No injuries were reported in connection with the incident. Air monitoring conducted by ACC's EHS staff during the response indicated that xylene vapor concentrations remained below applicable short-term exposure limits ("STELs") at the facility boundary.
3. Regulatory Notification and Agency Response.  ACC reported the release to the PA DEP Bureau of Environmental Cleanup & Brownfields within twenty-four (24) hours of the incident, in compliance with the notification requirements of the Pennsylvania Land Recycling and Environmental Remediation Standards Act ("Act 2"), 35 P.S. § 6026.101 et seq., and the discharge reporting provisions of 25 Pa. Code § 91.33. The notification was made by telephone and followed up with a written incident report submitted to the PA DEP Southeast Regional Office.
PA DEP acknowledged receipt of the notification. No PA DEP field inspector was dispatched to the facility in response to the reported release, which is consistent with the Department's general approach to fully contained releases that do not result in environmental contamination. PA DEP reviewed ACC's incident report and the containment documentation, and subsequently issued a "No Further Action" ("NFA") determination, finding that the release was fully contained within secondary containment and that no cleanup, remediation, or further investigation was warranted. The NFA determination is attached hereto as Appendix E.
4. Enforcement Action.  None. PA DEP took no enforcement action in connection with the June 14, 2017 xylene spill. No Notice of Violation was issued. No fine, penalty, or other sanctions were imposed. The NFA determination reflects PA DEP's conclusion that the incident was appropriately managed and did not result in any environmental harm or regulatory violation beyond the reportable release itself.
5. Corrective Actions Implemented by ACC.  Following the incident, ACC implemented the following corrective actions:
•  Hose Replacement: The ruptured transfer hose was immediately replaced. In addition, ACC replaced all flexible transfer hoses at the McKeesport facility that were of similar age and vintage, regardless of whether they showed visible signs of wear or degradation. Carl Johannsen reported that a total of seven (7) hoses were replaced facility-wide in the weeks following the incident.
•  Enhanced Hose Inspection Program: ACC implemented a quarterly visual and pressure-testing inspection program for all flexible transfer hoses used in chemical unloading and transfer operations. The inspection protocol includes visual inspection for cracking, bulging, abrasion, and coupling integrity, as well as a hydrostatic pressure test at 1.5 times the rated working pressure of the hose. Inspection records are maintained by the EHS department and were provided in the data room.
•  SPCC Plan Update: ACC updated its SPCC Plan to reflect the enhanced hose inspection program and to incorporate lessons learned from the June 2017 incident. The SPCC Plan update was completed within sixty (60) days of the incident.
6. Current Status.  This incident is closed. The NFA determination has been received from PA DEP. There is no residual contamination associated with the release, as the material was fully contained and recovered. There are no ongoing regulatory obligations specifically related to this incident, and no further action is required. The incident is reflected in ACC's internal spill log and in the TerraVerde Phase I ESA for the McKeesport facility (August 15, 2022), where it was noted as a documented historical release that was fully resolved.
C. Incident No. 2 — February 3, 2020 Epoxy Resin Hardener Release (McKeesport Main Plant)
1. Description of Incident.  On February 3, 2020, a release of approximately one hundred twenty (120) gallons of epoxy resin hardener occurred at ACC's McKeesport Main Plant, located at 2200 Iron Works Boulevard, McKeesport, PA 15132, in Allegheny County. The release occurred in the Building B warehouse area, which is used for the storage of raw materials, intermediates, and packaging supplies.
The released material was an amine-based curing agent (epoxy resin hardener) used in the formulation of two-part epoxy coating systems. This material is classified as a hazardous substance under CERCLA due to its corrosive properties and is regulated as a RCRA hazardous waste exhibiting the characteristic of corrosivity (D002) when discarded. The material has a pH of approximately 12.5–13.0 in its concentrated form. Amine-based hardeners of this type are also classified as Class 8 (Corrosive) materials under U.S. Department of Transportation hazardous materials transportation regulations.
The quantity released was approximately one hundred twenty (120) gallons from a 275-gallon intermediate bulk container ("IBC" or "tote"). The release was caused by a forklift operator who, during routine material handling operations in the warehouse, inadvertently punctured the lower sidewall of the IBC with the forklift tines. The puncture created a breach in the container wall through which the liquid material rapidly escaped onto the warehouse floor. According to ACC's internal incident report, the forklift operator immediately notified the shift supervisor, and the spill response was initiated within minutes of the puncture.
2. Release Pathway and Environmental Impact.  The released material flowed across the warehouse floor and entered an interior floor drain located approximately fifteen (15) feet from the point of release. The floor drain was connected to the municipal sanitary sewer system, specifically the Allegheny County Sanitary Authority ("ALCOSAN") system. This connection was not identified or flagged in ACC's existing environmental management systems or the facility's PPC Plan at the time of the incident.
An estimated eighty to one hundred (80–100) gallons of the epoxy resin hardener reached the sanitary sewer before ACC personnel were able to stop the flow by placing absorbent barriers and sandbags around the floor drain. The remaining approximately twenty to forty (20–40) gallons were contained on the warehouse floor and recovered using absorbent materials.
The discharge to the sanitary sewer constituted a prohibited discharge under the facility's industrial pretreatment program, the ALCOSAN Rules and Regulations, and applicable provisions of the Clean Water Act, 33 U.S.C. § 1251 et seq. Specifically, the discharge of a corrosive material with a pH above 10.0 is prohibited under ALCOSAN's pretreatment requirements and the facility's Industrial Pretreatment Permit.
No release to soil, groundwater, or surface water was confirmed. The release was confined to the interior warehouse floor and the sanitary sewer system. However, the Allegheny County Health Department was notified, and ALCOSAN confirmed that no adverse impact was observed at the downstream wastewater treatment plant. ALCOSAN did note, however, that the discharge exceeded the permissible pH limits for industrial discharge to the sanitary sewer system and constituted a violation of the facility's pretreatment obligations.
3. Regulatory Notification and Agency Response.  ACC reported the release to the following agencies:
•  PA DEP: Notification was made within twenty-four (24) hours of the incident, in compliance with the discharge reporting requirements of 25 Pa. Code § 91.33. The notification was made by telephone to the PA DEP Southwest Regional Office and followed up with a written incident report.
•  Allegheny County Health Department: Notification was made on the same day as the incident (February 3, 2020), as required under the Allegheny County Health Department regulations applicable to releases of hazardous materials.
•  ALCOSAN: Notification was made on the same day as the incident, as required under the terms of the facility's Industrial Pretreatment Permit with ALCOSAN. ALCOSAN's spill notification protocol requires immediate verbal notification followed by a written report within five (5) business days.
PA DEP conducted a field inspection of the McKeesport facility on February 5, 2020, two days after the incident. The PA DEP inspector examined the Building B warehouse area, confirmed the location and configuration of the interior floor drain, documented the discharge pathway from the floor drain to the sanitary sewer connection, and reviewed ACC's initial response and containment measures. The inspector photographed the area and collected documentation from ACC regarding the incident.
Based on the inspection findings, PA DEP issued a Notice of Violation ("NOV") on March 12, 2020, citing violations of 25 Pa. Code § 91.34 (prohibition against discharges of pollutants to waters of the Commonwealth, including through connections to sanitary sewer systems) and the facility's NPDES-related discharge obligations. The NOV is attached hereto as Appendix B.
4. Enforcement Action.  Following the issuance of the NOV, PA DEP assessed a civil penalty of $4,500 against ACC. The penalty was assessed pursuant to PA DEP's civil penalty assessment procedures for violations of the Clean Streams Law, 35 P.S. § 691.1 et seq., and the implementing regulations at 25 Pa. Code Chapter 91. The Civil Penalty Assessment ("CPA") is attached hereto as Appendix C.
ACC paid the $4,500 fine in full on April 8, 2020, without contest. ACC did not exercise its right to appeal the penalty assessment or to request a hearing before the Environmental Hearing Board. The penalty matter was resolved through the CPA process and did not escalate to a consent order, consent decree, or any other form of formal enforcement agreement.
No referral for criminal enforcement was made in connection with this incident. PA DEP's records indicate that the matter was treated as a civil enforcement action only, consistent with the nature of the violation (an inadvertent prohibited discharge resulting from an operational accident, rather than a willful or negligent pattern of non-compliance).
5. Corrective Actions Implemented by ACC.  ACC implemented a comprehensive set of corrective actions in response to the February 2020 incident, organized into immediate, short-term, and long-term measures:
Immediate Actions (completed day of incident and within 48 hours):
•  The affected floor drain in Building B was sealed with an epoxy plug to prevent any future discharges through that drain connection.
•  Temporary secondary containment measures (drip pans and portable containment berms) were placed under all IBC and drum storage positions in Building B as an interim protective measure pending the installation of permanent secondary containment.
•  Remaining released material on the warehouse floor was recovered using absorbent materials and managed as hazardous waste.
Short-Term Actions (completed within 60 days):
•  Permanent secondary containment was installed in the Building B warehouse area, consisting of concrete containment curbing (approximately 6 inches in height) constructed around all IBC and drum storage areas in the warehouse. The containment system was designed to contain a volume equal to 110% of the capacity of the largest container within the containment area, consistent with SPCC Plan requirements.
•  All floor drains in chemical storage areas throughout the McKeesport facility were surveyed, mapped, and assessed for connections to the sanitary sewer or stormwater drainage systems. All floor drains in areas where chemicals are stored, handled, or processed that were found to be connected to the sanitary sewer were permanently sealed. A total of four (4) additional floor drains were sealed as a result of this survey, in addition to the drain involved in the February 2020 incident.
•  ACC conducted a comprehensive retraining program for all forklift operators on hazardous material handling procedures, with a particular emphasis on safe container movement, clearance distances, and spill response protocols. The training was documented and records were maintained by the EHS department.
Long-Term Actions:
•  ACC's SPCC Plan was revised in June 2020 to reflect the floor drain modifications, the installation of permanent secondary containment in Building B, and the results of the facility-wide floor drain survey. Excerpts from the revised SPCC Plan pertaining to these modifications are attached hereto as Appendix F.
•  ACC's Preparedness, Prevention, and Contingency ("PPC") Plan was revised in accordance with PA DEP guidance to address the floor drain configuration changes and to update the spill response procedures for the Building B warehouse area.
•  Carl Johannsen confirmed during the September 8, 2022 interview that all corrective actions were completed and documented, and that the corrective measures have been maintained since their implementation.
The corrective action documentation, including engineering drawings for the containment curbing and photographic documentation of the floor drain sealing, is attached hereto as Appendix D.
6. Current Status.  This incident is closed. The $4,500 civil penalty has been paid in full. All corrective actions identified in ACC's response to the NOV have been completed and documented. There are no ongoing compliance obligations specifically related to this incident, and no further regulatory action is pending or anticipated.
Importantly, PA DEP conducted a RCRA compliance inspection of the McKeesport facility on April 14, 2021 — the most recent PA DEP inspection of the facility — and no violations were noted. This clean inspection result, occurring approximately fourteen (14) months after the February 2020 incident and the implementation of corrective actions, provides some confirmation that the corrective measures have been sustained and that the facility is operating in compliance with applicable RCRA requirements. While a RCRA inspection does not comprehensively evaluate all of the corrective actions implemented (particularly the floor drain modifications, which fall more within the scope of Clean Water Act and Clean Streams Law compliance), the clean inspection result is a positive indicator.
V. Other Reportable Events and Cross-References
A. NPDES TSS Exceedance — March 2022 (McKeesport)
While not technically a "spill" or "release" within the scope of this memorandum's primary focus, the following NPDES permit exceedance is noted here for completeness, as it is a reportable event involving a discharge from the McKeesport facility that exceeds permitted limits.
In its March 2022 Discharge Monitoring Report ("DMR"), ACC reported a total suspended solids ("TSS") concentration of 48 mg/L for stormwater discharge from the McKeesport facility, as compared to the permitted monthly average limit of 40 mg/L under NPDES Permit No. PA0025631. This represents a twenty percent (20%) exceedance of the permitted limit.
ACC self-reported the exceedance to PA DEP as part of its routine DMR submission process. No enforcement action has been taken by PA DEP in connection with this exceedance. ACC implemented corrective actions, including the installation of additional silt fencing and enhanced best management practices ("BMPs") for stormwater management at the facility. The exceedance appears to have been a singular event rather than a recurring pattern, as prior and subsequent DMR data do not reflect similar exceedances.
This event is addressed in full in the separate Clean Water Act / NPDES Compliance Review Memorandum that is being prepared in parallel with this spill history review. That memorandum provides a comprehensive analysis of ACC's NPDES permit compliance history, including a review of all DMR data for the McKeesport facility, and will be incorporated into the Comprehensive Environmental Diligence Summary Memorandum.
B. Legacy UST Releases
Two legacy underground storage tank ("UST") releases are relevant to the environmental due diligence, although neither occurred within the primary ten-year review period and neither constitutes a "spill" in the conventional sense. Both are addressed here because they appear in the Phase I ESA reports and have implications for the environmental representations and risk profile of the transaction.
McKeesport Main Plant — 1993 UST Removal:
Three (3) 10,000-gallon underground storage tanks were removed from the McKeesport Main Plant in 1993 by ACC. The USTs had been used for the storage of No. 2 fuel oil and unleaded gasoline. During the tank removal process, petroleum contamination was identified in the surrounding soils. ACC filed an Act 2 cleanup action with PA DEP in 1994 and conducted a remediation of the affected soils. PA DEP issued a "No Further Action" ("NFA") letter in May 2001 under the Statewide Health Standard for soils, confirming that the soil remediation met the applicable cleanup standards.
TerraVerde classified this historical release as a Historical Recognized Environmental Condition ("HREC") in its Phase I ESA for the McKeesport facility (August 15, 2022). An HREC is defined under ASTM E1527-21 as a past release of hazardous substances or petroleum products that has occurred in connection with the property and has been addressed to the satisfaction of the applicable regulatory authority, such that no further investigation or remediation is warranted. While the HREC classification suggests that the soil contamination has been resolved, this release remains relevant for several reasons:
•  The NFA letter addressed soils only and did not address groundwater. The Phase II ESA conducted at McKeesport following the Phase I identified toluene in groundwater at monitoring well MW-3 at a concentration of 1,420 µg/L, which exceeds the PA Act 2 Statewide Health Standard of 1,000 µg/L by approximately forty-two percent (42%). It is unclear whether this groundwater contamination is residual from the 1993 UST release or is attributable to a separate, undisclosed release. This finding is discussed in greater detail in Section VII.B below.
•  The potential for residual subsurface contamination from the 1993 release, notwithstanding the NFA letter for soils, should be reflected in the environmental representations and disclosure schedules in the SPA.
Clarksburg Resin Blending Facility — 2012 Diesel UST Release (Prior Tenant):
One (1) 15,000-gallon diesel underground storage tank was removed from the Clarksburg property in 2012 by the prior tenant, Valley Freight Lines Inc. (now dissolved). The removal was conducted pursuant to WV DEP regulations, and the site was assigned WV DEP Site ID WVUST-2012-04887. Diesel-range petroleum contamination was identified in soils at the time of tank removal. Valley Freight Lines conducted a limited remediation, and WV DEP issued a closure letter in March 2013, acknowledging the completion of corrective action but noting the presence of residual diesel-range organics in soils at concentrations above unrestricted-use standards. Institutional controls were recorded at the Harrison County Clerk's Office, Book 1245, Page 312, restricting the use of groundwater at the property and requiring that any future subsurface disturbance in the affected area follow specified protocols.
This release is not attributable to ACC. ACC is a tenant at the Clarksburg facility under a lease with the property owner, Mountainview Properties LLC. The release was caused by a prior tenant (Valley Freight Lines Inc.) and occurred before ACC's occupancy of the facility. ACC's lease with Mountainview Properties LLC contains an environmental allocation provision that requires the tenant to remediate only contamination caused by the tenant's own operations; the legacy diesel contamination is allocated to the landlord's responsibility under the lease. This allocation is analyzed in the separate Clarksburg Lease Environmental Provisions Analysis.
TerraVerde classified this legacy UST release as a Controlled Recognized Environmental Condition ("CREC") in its Phase I ESA for the Clarksburg facility (August 22, 2022). A CREC is defined under ASTM E1527-21 as a recognized environmental condition resulting from a past release of hazardous substances or petroleum products that has been addressed to the satisfaction of the applicable regulatory authority with hazardous substances or petroleum products allowed to remain in place subject to implementation of required controls. The institutional controls recorded at the Clarksburg property are the basis for the CREC classification.
While the legacy diesel contamination is not an ACC liability under the current lease, it is relevant to Crestline's due diligence because: (i) Crestline would succeed to ACC's rights and obligations under the Clarksburg lease as part of the stock acquisition; (ii) the institutional controls impose certain restrictions on use of the property; and (iii) there is a risk that the existing contamination could migrate or affect ACC's operations at the facility in ways that could create future costs or liabilities.
C. Non-Reportable Incidents
During the September 8, 2022 telephone interview, Carl Johannsen indicated that ACC has experienced minor, non-reportable spills in the ordinary course of its manufacturing and warehouse operations at various facilities. These incidents involve de minimis quantities of materials that are immediately cleaned up by facility personnel and do not result in any release to the environment (soil, groundwater, surface water, or sewer systems). Such incidents do not trigger any regulatory notification or reporting threshold under federal or state law.
Johannsen confirmed that these minor incidents are documented in ACC's internal spill logs, which are maintained as part of the EHS department's standard operating procedures. The internal spill logs were provided in the data room and are attached hereto as Appendix A. The undersigned reviewed the logs and confirmed that no entries, other than the two reportable incidents described in Section IV above, appear to involve quantities, substances, or release pathways that would have triggered a regulatory reporting obligation.
With respect to the Weirton Warehouse & Distribution Center specifically, TerraVerde's Phase I ESA (August 25, 2022) identified a minor hydraulic fluid stain of approximately four (4) square feet on the warehouse floor. This staining was classified by TerraVerde as a de minimis condition and was not identified as a REC. The staining does not constitute a reportable release under any applicable federal or state threshold. The TerraVerde report recommends that the stain be cleaned up as a housekeeping measure, but does not indicate that any further investigation or regulatory action is warranted.
VI. Enforcement History Summary
A. Summary Table
The following table summarizes all enforcement actions identified at ACC facilities during the review period:
Only one enforcement action was identified across all four ACC facilities during the review period. No other notices of violation, administrative orders, consent orders, consent decrees, civil penalty assessments, or other formal enforcement actions were identified in the regulatory records, the data room materials, or the ACC internal files.
B. Pending Enforcement
As of the date of this memorandum, no open enforcement actions, consent orders, consent decrees, administrative orders, or pending investigations have been identified at any of the four ACC facilities. The undersigned reviewed the PA DEP eFACTS database for the McKeesport and Charleroi facilities and WV DEP records for the Clarksburg and Weirton facilities, and found no pending enforcement matters. Carl Johannsen confirmed during the September 8, 2022 interview that ACC is not aware of any pending or threatened enforcement actions at any of its facilities.
There is no evidence of any criminal referrals or investigations related to environmental matters at any ACC facility. The PA DEP records reviewed do not indicate any referral of any ACC matter to the PA Office of Attorney General or the U.S. Department of Justice for criminal prosecution, and Johannsen confirmed that ACC has never been the subject of a criminal environmental investigation.
C. Historical PA DEP and WV DEP Inspections
The regulatory inspection history for each facility is summarized below:
McKeesport Main Plant:
•  The most recent PA DEP RCRA compliance inspection was conducted on April 14, 2021. The inspection found no violations. ACC is classified as a Large Quantity Generator ("LQG") of hazardous waste under RCRA, with EPA ID No. PAD-098-721-445. ACC's biennial hazardous waste reports are current through the 2021 reporting period. The clean 2021 RCRA inspection is significant in the context of the February 2020 incident, as it indicates that PA DEP did not identify any ongoing compliance deficiencies during its post-incident review of the facility.
•  No record of PA DEP air quality inspections resulting in violations at the McKeesport facility was identified. ACC operates the McKeesport facility under Title V Operating Permit No. TV-0383-0125, which is subject to periodic compliance certifications and has not been the subject of any formal enforcement action.
•  The February 5, 2020 field inspection conducted by PA DEP in response to the epoxy hardener release was a targeted inspection focused on the specific incident, not a comprehensive compliance evaluation. The resulting NOV and $4,500 penalty are the sole enforcement outcome from that inspection.
Charleroi Specialty Coatings Plant:
•  No enforcement actions or inspection violations were identified at the Charleroi facility. PA DEP eFACTS records were reviewed and no violations or enforcement matters were found.
Clarksburg Resin Blending Facility:
•  No enforcement actions or inspection violations attributable to ACC were identified at the Clarksburg facility. WV DEP records were reviewed; the only regulatory activity at this property pertains to the legacy diesel UST release by Valley Freight Lines Inc., which is addressed in Section V.B above.
Weirton Warehouse & Distribution Center:
•  No enforcement actions or inspection violations were identified at the Weirton facility. WV DEP records were reviewed and no violations or enforcement matters were found. The Weirton facility is a warehouse and distribution operation with a limited environmental regulatory profile.
VII. Analysis of Ongoing Liability Exposure
A. Residual Liability from Resolved Incidents
June 2017 Xylene Spill. The June 14, 2017 xylene spill at the McKeesport Main Plant presents minimal residual liability. The release was fully contained within the secondary containment system, and no xylene reached the soil, groundwater, surface water, or any off-site receptor. PA DEP issued an NFA determination, confirming that no further investigation or remediation was required. The corrective actions implemented by ACC (hose replacement, enhanced inspection program, SPCC Plan update) are reasonable and appropriate measures to prevent recurrence. There is no basis for any third-party claim, regulatory reopener, or environmental remediation obligation arising from this incident.
The only residual significance of this incident is its status as a documented reportable release, which must be disclosed in the Seller's disclosure schedules under the environmental representations in the SPA. The incident itself does not represent a material environmental liability.
February 2020 Epoxy Resin Hardener Release. The February 3, 2020 epoxy resin hardener release at the McKeesport Main Plant presents slightly elevated residual risk relative to the 2017 xylene spill, notwithstanding the fact that the $4,500 fine has been paid, the NOV has been resolved, and all corrective actions have been completed. The elevated risk profile is attributable to the following factors:
•  Discharge to Sanitary Sewer. The release involved an actual discharge of a hazardous substance (corrosive material) to the ALCOSAN sanitary sewer system. While ALCOSAN confirmed that no adverse impact was observed at the downstream wastewater treatment plant, the fact that a discharge to the sewer system occurred creates a theoretical basis for third-party claims if downstream impacts were later identified or if a re-evaluation of the impact were to result in a different conclusion. The practical likelihood of such a claim is low, particularly given ALCOSAN's contemporaneous confirmation of no impact, but the possibility cannot be entirely eliminated.
•  Historical Compliance Gap. The incident revealed that, as of early 2020, the McKeesport facility had floor drains in chemical storage areas (Building B) that were directly connected to the sanitary sewer system — a condition that had apparently existed for an extended period without being identified or corrected. This condition represents a historical compliance gap with respect to discharge prohibitions under the Clean Streams Law, the Clean Water Act, and the facility's Industrial Pretreatment Permit. While the condition has since been corrected (through the sealing of all floor drains in chemical storage areas), the existence of this gap for a period of years may be relevant to representations regarding historical compliance with applicable environmental laws and discharge prohibitions. It also raises the question of whether similar discharges may have occurred previously without being detected or reported.
•  Indicator of Latent Risk. The fact that an obvious compliance vulnerability (unsealed floor drains in chemical storage areas) went undetected until an actual release event occurred suggests that ACC's environmental management systems may not have been fully effective in identifying and remediating compliance gaps on a proactive basis. This observation does not constitute a specific liability, but it informs the overall risk assessment and supports the need for robust protective provisions in the SPA.
B. Potential for Undisclosed Releases
The documented spill history — two reportable incidents over a ten-year period — is relatively modest for a specialty industrial coatings manufacturer of ACC's size and scope. However, there are indicators that the documented spill history may not fully account for all releases that have occurred at ACC's facilities, particularly the McKeesport Main Plant:
Phase II Groundwater Findings at McKeesport. The Phase II ESA conducted at the McKeesport Main Plant identified toluene in groundwater at monitoring well MW-3 at a concentration of 1,420 µg/L, which exceeds the PA Act 2 Statewide Health Standard of 1,000 µg/L by approximately forty-two percent (42%). Toluene is a VOC solvent used in ACC's coating formulations and is similar in nature to the xylene that was the subject of the June 2017 spill. The toluene detected in groundwater at MW-3 may be attributable to the 1993 UST removal and associated historical petroleum releases (which could have included toluene as a component of gasoline), or it may represent a separate, undisclosed release of toluene from ACC's manufacturing operations. The source of the contamination has not been conclusively determined.
Additionally, the Phase II ESA identified trichloroethylene ("TCE") in sub-slab soil gas at Building C at a concentration of 42 µg/m³, which exceeds the PA DEP vapor intrusion screening level of 21 µg/m³ by one hundred percent (100%). TCE is a chlorinated solvent that is not known to be currently used in ACC's coating formulations, according to ACC's chemical inventory records. The presence of TCE in sub-slab soil gas at Building C is therefore potentially indicative of either: (i) historical use of TCE or other chlorinated solvents at the facility (which may have occurred before the current management of ACC, or which may represent an undisclosed historical practice); or (ii) a release from an off-site or upgradient source. In either case, the TCE finding represents a potential environmental liability that is not explained by the documented spill history.
These Phase II findings are the subject of a separate, more detailed analysis being conducted by the undersigned and will be incorporated into the Comprehensive Environmental Diligence Summary Memorandum. However, they are referenced here because they suggest that the documented spill history may understate the actual release history at the McKeesport facility.
Pending Clarksburg Phase II Results. The Phase II investigation at the Clarksburg Resin Blending Facility, which was prompted by a REC identified in TerraVerde's Phase I ESA (drum storage staining in the northeast corner of the warehouse), is still in progress. Analytical results from Keystone Analytical Laboratories are pending as of the date of this memorandum. If the Phase II results reveal contamination in excess of applicable WV DEP standards, this may indicate an undisclosed release at the Clarksburg facility that is not reflected in ACC's internal spill logs or the regulatory record.
Limitations of Records-Based Review. It is not possible to confirm the completeness of ACC's spill records based solely on the records provided in the data room and the information obtained through the September 8, 2022 interview with Carl Johannsen. While Johannsen was cooperative and forthcoming during the interview, and while ACC's internal spill logs appear to be well-maintained, the Phase II data suggests that subsurface contamination exists at the McKeesport facility that is not fully explained by the documented spill history. This underscores the inherent limitations of a records-based spill review and reinforces the importance of the Phase II investigation findings in assessing the overall environmental risk profile of the Target.
C. Successor Liability Considerations
As a stock purchase transaction, Crestline's acquisition of 100% of the outstanding common stock of ACC would result in Crestline succeeding to all of ACC's historical environmental liabilities by operation of law, without limitation. Unlike an asset purchase, in which the buyer may be able to structure the transaction to exclude certain liabilities, a stock purchase results in the buyer acquiring the Target entity itself, with all of its assets, liabilities, and obligations — including any and all environmental liabilities arising from past operations, whether known or unknown, disclosed or undisclosed.
This successor liability exposure includes, without limitation:
•  Liability for the costs of investigation and remediation of any contamination at ACC-owned or operated properties, including the groundwater toluene contamination and sub-slab TCE identified at McKeesport;
•  Liability for any future enforcement actions or penalties arising from past violations of environmental laws, to the extent not barred by applicable statutes of limitations;
•  Potential CERCLA liability as an "owner" or "operator" of a facility at which there has been a release or threatened release of a hazardous substance; and
•  Liability for any third-party claims arising from environmental contamination at or from ACC's facilities.
The documented enforcement history — one $4,500 fine and one NFA determination — is relatively modest in the context of a transaction of this size. However, the existence of any enforcement history, combined with the Phase II findings suggesting contamination of unknown origin and extent, supports the need for robust environmental representations, warranties, and indemnification provisions in the SPA to protect Crestline against both known and unknown pre-closing environmental liabilities.
VIII. Relevance to Environmental Representations in Draft SPA
A. Article IV, Section 4.18 Considerations
The draft SPA currently under negotiation between Calderwood & Harkness (on behalf of Crestline) and Hargrove, Dalton & Speer (on behalf of ACC's shareholders) includes environmental representations and warranties in Article IV, Section 4.18 (Environmental Matters). As currently drafted (per Calderwood & Harkness's proposed language), Section 4.18 includes representations regarding:
•  All reportable releases and spills of hazardous substances at or from the Target's facilities;
•  All notices of violation, enforcement actions, fines, penalties, consent orders, and other regulatory actions related to environmental matters;
•  Compliance with all applicable environmental laws, including without limitation discharge prohibitions, permit conditions, and reporting requirements;
•  Disclosure of all environmental reports, assessments, investigations, audits, and remediation records in the possession or control of the Target or its representatives; and
•  The absence of any pending or threatened environmental claims, actions, suits, or proceedings.
The spill and enforcement history documented in this memorandum must be specifically disclosed in the Seller's disclosure schedules against Section 4.18. At a minimum, the disclosure schedules should include:
•  A description of the June 14, 2017 xylene spill, the PA DEP notification, and the NFA determination;
•  A description of the February 3, 2020 epoxy resin hardener release, including the discharge to the sanitary sewer, the NOV, the $4,500 civil penalty, payment thereof, and the corrective actions implemented;
•  The March 2022 TSS exceedance (which may also be disclosed against Clean Water Act-specific representations);
•  The 1993 UST removal and Act 2 filing (NFA for soils issued May 2001), including the HREC classification and the Phase II groundwater findings; and
•  The Clarksburg legacy diesel UST release (CREC classification), to the extent the SPA representations extend to environmental conditions at leased facilities regardless of fault or timing.
Hargrove, Dalton & Speer (Franklin Speer) has proposed knowledge qualifiers (limiting the representations to facts "known to" the Target or its officers) and materiality thresholds (limiting the representations to matters that, individually or in the aggregate, would reasonably be expected to have a "Material Adverse Effect") that would significantly narrow the scope of the disclosure obligations under Section 4.18. Calderwood & Harkness's position should resist overbroad qualifications of the environmental representations, particularly given the Phase II evidence of potentially undisclosed releases. A knowledge qualifier, if accepted at all, should be defined to include constructive knowledge (facts that the Target "knows or reasonably should know") and should apply only to specific, limited representations — not to the blanket disclosure obligations regarding historical releases and enforcement actions.
B. Indemnification and Escrow Implications
The spill and enforcement history documented in this memorandum supports Crestline's negotiating position on the following SPA indemnification provisions:
•  Environmental Escrow. Crestline has proposed a $4.0 million environmental escrow to be established at closing and held for a period of three (3) years to secure the Seller's environmental indemnification obligations. The escrow amount is calibrated to the estimated costs of potential remediation obligations at the McKeesport facility (based on preliminary Phase II findings) and the general environmental risk profile of the Target's operations. The spill history, while not individually generating liabilities approaching this magnitude, contributes to the overall risk profile that justifies the escrow amount.
•  Uncapped Fundamental Environmental Indemnity. Crestline has proposed that the environmental indemnity be treated as a "fundamental" representation not subject to the general indemnification cap, with a seven (7) year survival period following the closing date. The February 2020 incident — which revealed a years-long compliance gap (unsealed floor drains in chemical storage areas) that went undetected until an actual release event occurred — demonstrates the risk that latent environmental liabilities may not be discovered until well after closing. This pattern of latent compliance deficiencies increases the likelihood that other unreported releases or compliance gaps may exist and may not be identified for years, supporting an extended survival period for environmental representations and an uncapped indemnity.
•  General Basket/Deductible. The draft SPA includes a general representation and warranty basket (deductible) of $475,000, below which the Seller has no indemnification obligation. Crestline's position is that the environmental indemnity should not be subject to this general basket, given the range of identified and potential environmental liabilities. The $4,500 fine is de minimis in the context of a $94.5 million transaction, but the potential remediation costs associated with the Phase II findings (toluene in groundwater, TCE in sub-slab soil gas) could be significant. Subjecting the environmental indemnity to the general basket would effectively require Crestline to absorb the first $475,000 of environmental liabilities, which is not appropriate given the identified contamination.
C. Environmental Insurance Considerations
The documented spill history and enforcement action should be disclosed to Ironclad Specialty Insurance Company as part of the Pollution Legal Liability ("PLL") insurance underwriting submission being prepared for this transaction. PLL insurance policies typically contain exclusions or limitations for "known conditions" — that is, contamination or environmental liabilities that are known to the insured at the time of policy inception. The February 2020 epoxy resin hardener release, in particular, may affect underwriting terms or trigger a known-conditions inquiry from the underwriter. Similarly, the Phase II findings at McKeesport (toluene in groundwater, TCE in sub-slab soil gas) will need to be disclosed and may be excluded from coverage or require a higher premium to insure.
Whitfield & Calder Insurance Advisors LLC (Lauren Petrov, Account Manager) has been provided with the TerraVerde Phase I ESA reports for all four facilities. The spill history details set forth in this memorandum should be included in any supplemental underwriting submission to Ironclad Specialty, along with the Phase II investigation results when finalized. It is important that the PLL insurance application be accurate and complete, as material omissions in the application could jeopardize coverage in the event of a future claim.
We recommend coordinating with Whitfield & Calder to prepare a comprehensive environmental disclosure package for the PLL underwriting submission that includes, at a minimum: (i) this spill and enforcement history memorandum; (ii) the Phase I ESA reports (full copies); (iii) the Phase II investigation reports (when finalized); (iv) copies of the NOV, CPA, and NFA determination; and (v) a summary of the corrective actions implemented by ACC.
IX. Recommendations
Based on the foregoing review and analysis, the undersigned makes the following recommendations:
1.  Disclosure Schedules. Ensure that both documented spill incidents — the June 14, 2017 xylene spill and the February 3, 2020 epoxy resin hardener release — are specifically listed and described in the Seller's disclosure schedules against Article IV, Section 4.18 (Environmental Matters) of the draft SPA. The disclosure should include the date, substance, quantity, release pathway, regulatory notifications, enforcement action (if any), corrective actions, and current status for each incident. Failure to specifically schedule these incidents could result in a breach of the environmental representations, notwithstanding their relatively modest nature.
2.  Additional Document Requests. Request from ACC (through Hargrove, Dalton & Speer LLP, Franklin Speer and Megan Trask) any additional internal spill logs, incident reports, environmental compliance audits, or internal environmental assessment reports not yet produced in the data room, with a particular focus on the period 2012–2017 (for which the spill log provided by Johannsen contains limited entries) and on the Charleroi and Clarksburg facilities (for which no reportable incidents have been identified, but for which the completeness of the record has not been independently verified). A supplemental document request letter should be prepared and transmitted promptly.
3.  Integration into Comprehensive Memorandum. Incorporate the spill and enforcement history documented in this memorandum into the Comprehensive Environmental Diligence Summary Memorandum (draft in progress, targeted for October 22, 2022) as part of the overall environmental risk profile for the transaction. The spill history should be presented in the context of the full range of environmental issues identified through the due diligence process, including the Phase II investigation findings, the NPDES compliance analysis, the air permit review, and the hazardous waste management compliance assessment.
4.  Coordination with Phase II Analysis. Coo