1345126--3/9/2010--Compass_Group_Diversified_Holdings

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While we intend to make regular cash distributions to our shareholders, the Company s board of directors has full authority and discretion over the distributions of the Company, other than the profit allocation, and it may decide to reduce or eliminate distributions at any time, which may materially adversely affect the market price for our shares. We will rely entirely on receipts from our businesses to make distributions to our shareholders. The Company s board of directors has the power to change the terms of our shares in its sole discretion in ways with which you may disagree. Certain provisions of the LLC Agreement of the Company and the Trust Agreement make it difficult for third parties to acquire control of the Trust and the Company and could deprive you of the opportunity to obtain a takeover premium for your shares. We may have conflicts of interest with the minority shareholders of our businesses. Our third party credit facility exposes us to additional risks associated with leverage and inhibits our operating flexibility and reduces cash flow available for distributions to our shareholders. Changes in interest rates could materially adversely affect us. We may engage in a business transaction with one or more target businesses that have relationships with our officers, our directors, our Manager or CGI, which may create potential conflicts of interest. We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002. CGI may exercise significant influence over the Company. If, in the future, we cease to control and operate our businesses, we may be deemed to be an investment company under the Investment Company Act of 1940, as amended. Risks Relating to Our Manager Our Chief Executive Officer, directors, Manager and management team may allocate some of their time to other businesses, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs, which may materially adversely affect our operations. Our Manager and its affiliates, including members of our management team, may engage in activities that compete with us or our businesses. Our Manager need not present an acquisition or disposition opportunity to us if our Manager determines on its own that such acquisition or disposition opportunity does not meet the Company s acquisition or disposition criteria. We cannot remove our Manager solely for poor performance, which could limit our ability to improve our performance and could materially adversely affect the market price of our shares. We may have difficulty severing ties with our Chief Executive Officer, Mr. Massoud. If the management services agreement is terminated, our Manager, as holder of the Allocation Interests in the Company, has the right to cause the Company to purchase such Allocation Interests, which may materially adversely affect our liquidity and ability to grow. Our Manager can resign on 90 days notice and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could materially adversely affect our financial condition, business and results of operations as well as the market price of our shares. The liability associated with the supplemental put agreement is difficult to estimate and may be subject to substantial period-to-period changes, thereby significantly impacting our future results of operations. We must pay our Manager the management fee regardless of our performance. We cannot determine the amount of the management fee that will be paid over time with any certainty. We cannot determine the amount of profit allocation that will be paid over time with any certainty. The fees to be paid to our Manager pursuant to the management services agreement, the offsetting management services agreements and transaction services agreements and the profit allocation to be paid to our Manager, as holder of the Allocation Interests, pursuant to the LLC Agreement may significantly reduce the amount of cash available for distribution to our shareholders. Our Manager s influence on conducting our operations, including on our conducting of transactions, gives it the ability to increase its fees and compensation to our Chief Executive Officer, which may reduce the amount of cash flow available for distribution to our shareholders. Fees paid by the Company and our businesses pursuant to transaction services agreements do not offset fees payable under the management services agreement and will be in addition to the management fee payable by the Company under the management services agreement. Our Manager s profit allocation may induce it to make suboptimal decisions regarding our operations. The obligations to pay the management fee and profit allocation, including the put price, may cause the Company to liquidate assets or incur debt. Our shareholders will be subject to tax on their share of the Company s taxable income, which taxes or taxable income could exceed the cash distributions they receive from the Trust. All of the Company s income could be subject to an entity-level tax in the United States, which could result in a material reduction in cash flow available for distribution to holders of shares of the Trust and thus could result in a substantial reduction in the value of the shares. A shareholder may recognize a greater taxable gain (or a smaller tax loss) on a disposition of shares than expected because of the treatment of debt under the partnership tax accounting rules. Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our structure also is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis. Risks Relating Generally to Our Businesses The recent disruption in the overall economy and the financial markets will adversely impact our business. Impairment of our intangible assets could result in significant charges that would adversely impact our future operating results. Our businesses are subject to unplanned business interruptions which may adversely affect our performance. Our businesses rely and may rely on their intellectual property and licenses to use others intellectual property, for competitive advantage. If our businesses are unable to protect their intellectual property, are unable to obtain or retain licenses to use other s intellectual property, or if they infringe upon or are alleged to have infringed upon others intellectual property, it could have a material adverse affect on their financial condition, business and results of operations. The operations and research and development of some of our businesses services and technology depend on the collective experience of their technical employees. If these employees were to leave our businesses and take this knowledge, our businesses operations and their ability to compete effectively could be materially adversely impacted. If our businesses are unable to continue the technological innovation and successful commercial introduction of new products and services, their financial condition, business and results of operations could be materially adversely affected. Our businesses could experience fluctuations in the costs of raw materials as a result of inflation and other economic conditions, which fluctuations could have a material adverse effect on their financial condition, business and results of operations. Our businesses do not have and may not have long-term contracts with their customers and clients and the loss of customers and clients could materially adversely affect their financial condition, business and results of operations. Our businesses are and may be subject to federal, state and foreign environmental laws and regulations that expose them to potential financial liability. Complying with applicable environmental laws requires significant resources, and if our businesses fail to comply, they could be subject to substantial liability. Defects in the products provided by our companies could result in financial or other damages to those customers, which could result in reduced demand for our companies products and/or liability claims against our companies. Some of our businesses are subject to certain risks associated with the movement of businesses offshore. Loss of key customers of some of our businesses could negatively impact financial condition. Our businesses are subject to certain risks associated with their foreign operations or business they conduct in foreign jurisdictions. Risks Related to Advanced Circuits Unless Advanced Circuits is able to respond to technological change at least as quickly as its competitors, its services could be rendered obsolete, which could materially adversely affect its financial condition, business and results of operations. Advanced Circuits customers operate in industries that experience rapid technological change resulting in short product life cycles and as a result, if the product life cycles of its customers slow materially, and research and development expenditures are reduced, its financial condition, business and results of operations will be materially adversely affected. Electronics manufacturing services corporations are increasingly acting as intermediaries, positioning themselves between PCB manufacturers and OEMS, which could reduce operating margins. Risks Related to American Furniture Manufacturing Competition from larger furniture manufacturers may adversely affect American Furniture Manufacturing s business and operating results. Certain of Anodyne s products are subject to regulation by the FDA. A change in Medicare Reimbursement Guidelines may reduce demand for Anodyne s products. Two of Anodyne s largest customers represented approximately 50% of its gross sales in 2009. Growth in popularity of alternative recreational activities may reduce demand for mountain bikes and off road products which would reduce demand for Fox s products. Increases in the portion of existing customers and potential customers buying directly from manufacturers or exclusively over the internet could have a material adverse affect on the business of HALO. The loss of a significant number of account executives could adversely affect the business of HALO. HALO relies on suppliers for the timely delivery of products to end customers. Delays in the delivery of promotional products to customers could adversely affect HALO s results of operations. Staffmark s business depends on its ability to attract and retain qualified staffing personnel that possess the skills demanded by its clients. Customer relocation of positions filled by Staffmark may materially adversely affect Staffmark s financial condition, business and results of operations Staffmark assumes the obligation to make wage, tax and regulatory payments for its employees, and as a result, it is exposed to client credit risks. Staffmark is exposed to employment-related claims and costs and periodic litigation that could materially adversely affect its financial condition, business and results of operations. Staffmark s workers compensation loss reserves may be inadequate to cover its ultimate liability for workers compensation costs. Any significant economic downturn could result in our clients using fewer temporary and contract workers or becoming unable to pay us for our services on a timely basis or at all, which would materially adversely affect our business

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1345126--3/9/2010--Compass_Group_Diversified_Holdings_LLC