(Unaudited)
Year Ended Nine Months Ended
December 31, September 30,

CBS Personnel 2003 2004 2004 2005

($ in thousands)
Statement of Operations Data:

Revenues $ 194,717 $ 315,258 $ 179,256 $ 405,486
Income from operations 3,645 9,450 5,734 11,157
Net income 823 7,413 4,714 4,927

(Unaudited)
At At
December 31, September 30,
2004 2005

($ in thousands)
Balance Sheet Data:

Total assets $ 140,376 $ 142,584
Total liabilities 96,465 93,567
Shareholders’ equity 43,911 49,017

Predecessor Successor (Unaudited)
July 1, 2003 February 10, Quarter Ended
to 2004 to Year Ended
February 9, June 30, June 30, September 26, October 2,
Crosman 2004 2004 2005 2004 2005

($ in thousands)
Statement of Operations Data:

Net sales $ 38,770 $ 24,856 $ 70,060 $ 15,511 $ 20,468
Operating income 6,924 3,142 8,031 1,531 2,358
Net income 3,138 810 489 347 644

(Unaudited)
At At
June 30, October 2,
2005 2005

($ in thousands)
Balance Sheet Data:

Total assets $ 84,183 $ 88,431
Total liabilities 61,837 65,456
Shareholders’ equity 22,346 22,975

Management’s estimated cash available for distribution as of December 31, 2006 is approximately $23.7 million. Cash available for distribution is a non-GAAP measure that we believe provides additional information to evaluate our ability to make anticipated quarterly distributions. The table below details cash receipts and payments that are not reflected on our income statement in order to provide cash available for distribution. Cash available for distribution is not necessarily comparable with similar measures provided by other entities. We believe that cash available for distribution, together with future distributions and cash available from our businesses (net of reserves) will be sufficient to meet our anticipated distributions over the next twelve months. The table below reconciles cash available for distribution to net income and to cash flow provided by operating activities, which we consider to be the most directly comparable financial measure calculated and presented in accordance with GAAP.


	Year Ended
	December 31, 2006
	($ in thousands)

Net loss	$	(19,249	)
Adjustment to reconcile net loss to cash provided by operating activities
Depreciation and amortization		10,290
Supplemental put expense		22,456
Silvue’s in-process R&D expensed at acquisition date		1,120
Advanced Circuit’s loan forgiveness accrual		2,760
Minority interest		2,950
Deferred taxes		(2,281	)
Loss on Ableco debt retirement		8,275
Other		(450	)
Changes in operating assets and liabilities		(5,308	)

Net cash provided by operating activities		20,563
Plus:
Unused fee on delayed term loan(1)		1,291
Changes in operating assets and liabilities		5,308
Less:
Maintenance capital expenditures(2)
CBS Personnel		209
Crosman(3)		1,926
Advanced Circuits		392
Silvue		304
Anodyne		636

Estimated cash flow available for distribution	$	23,695	(a)

Distribution paid July 2006	$	(2,587	)
Distribution paid September 2006		(5,368	)
Distribution paid January 2007		(6,135	)

Total distributions	$	(14,090	)(b)

Distribution Coverage Ratio(a)¸(b)		1.7	x


(1)		Represents the commitment fee on the unused portion of our third-party loans.

(2)		Represents maintenance capital expenditures that were funded from operating cash flow and excludes approximately $2.3 million of growth capital expenditures for the period ended December 31, 2006.

(3)		Crosman was sold on January 5, 2007 (see Note D to the consolidated financial statements).

Cash flows of certain of our businesses are seasonal in nature. Cash flows from CBS Personnel are typically lower in the first quarter of each year than in other quarters due to reduced seasonal demand for temporary staffing services and to lower gross margins during that period associated with the front-end loading of certain taxes and other payments associated with payroll paid to our employees. Cash flows from Halo are typically higher in the fourth quarter of each year than in other quarters due to increased seasonal demands for calendars and other promotional products among other factors.

Predecessor

(Unaudited)
Year Ended Nine Months Ended
December 31, September 30,

Advanced Circuits 2003 2004 2004 2005

($ in thousands)
Statement of Operations Data:

Net sales $ 27,796 $ 36,642 $ 27,465 $ 31,454
Operating income 7,707 12,211 9,254 11,692
Net income 7,534 12,093 9,096 11,296

Predecessor (Unaudited)
At At
December 31, September 30,
2004 2005

($ in thousands)
Balance Sheet Data:

Total assets $ 16,789 $ 79,827
Total liabilities 6,340 54,453
Stockholders’ equity 10,449 25,374

Predecessor Successor (Unaudited)
Predecessor January 1, September 3, Nine Months Ended
Year Ended 2004 to 2004 to September 30,
December 31, September 2, December 31,
Silvue 2003 2004 2004 2004 2005

($ in thousands)
Statement of Operations Data:

Net sales $ 12,813 $ 10,354 $ 6,124 $ 11,859 $ 15,819
Operating income 1,967 1,789 1,295 2,008 3,032
Net income 1,717 1,457 748 1,526 1,517

(Unaudited)
At At
December 31, September 30,
2004 2005

($ in thousands)
Balance Sheet Data:

Total assets $ 25,105 $ 28,096
Total liabilities and cumulative redeemable preferred stock 16,983 18,583
Stockholders’ equity 8,122 9,513

RISK FACTORS

An investment in our shares involves a high degree of risk. You should carefully read and consider all of the risks described below, together with all of the other information contained or referred to in this prospectus, before making a decision to invest in our shares. If any of the following events occur, our financial condition, business and results of operations (including cash flows), may be materially adversely affected. In that event, the market price of our shares could decline, we may be unable to pay distributions on our shares and you could lose all or part of your investment. Throughout this section we refer to our ~~initial~~current businesses and the businesses we may acquire in the future collectively as “our businesses.” ~~For purposes of this section, unless the context otherwise requires, the term Crosman means, together, Crosman and its 50%-owned joint venture, GFP.~~

Risks Related to Our Business and Structure


	*~~We are a new company with no history and we may not be able to successfully manage our initial businesses on a combined basis.~~*

We are a company with limited history and may not be able to continue to successfully manage our businesses on a combined basis.

We were formed on November 18, 2005 and have conducted no operations ~~and have generated no revenues to date. We will use the proceeds of this offering, in part, to acquire and capitalize~~since May 16, 2006. Although our ~~initial businesses for cash from certain subsidiaries of CGI and certain other minority shareholders, which businesses will be managed by our manager. Our~~ management team has collectively 74approximately 75 years of experience in acquiring and managing ~~small and~~ middle market ~~businesses. However, if we do not~~businesses, our failure to continue to develop and maintain effective systems and procedures, including accounting and financial reporting systems, or to manage our operations as a consolidated public company, we may ~~not be able~~negatively impact our ability to ~~manage~~optimize the ~~combined enterprise on a profitable basis,~~performance of the company, which could adversely affect our ability to pay distributions to our shareholders. In ~~addition, the pro forma condensed combined~~that case, our consolidated financial statements ~~of our initial businesses cover periods during which some of our initial businesses were not under common control or management and, therefore, may~~might not be indicative of our ~~future~~ financial condition, business and results of operations.


	*~~We may be unable to remove our manager, which could limit our ability to improve our performance and could adversely affect the market price of our shares.~~*

Our consolidated financial statements will not include meaningful comparisons to prior years.

~~Under~~

Our audited financial statements only include consolidated results of operations and cash flows for the ~~terms~~period from May 16, 2006 through December 31, 2006. Consequently, meaningfulyear-to-year comparisons are not available and will not be available, at the earliest, until the completion of fiscal 2008.

Our future success is dependent on the employees of our manager and the management ~~services agreement, our manager cannot be removed as a result of underperformance. Instead, the company’s board of directors cannot remove our manager unless:~~


	•	~~our manager materially breaches the terms of the management services agreement and such breach continues unremedied for 60 days after notice; or~~

	•	our manager acts with gross negligence, willful misconduct, bad faith or reckless disregard of its duties in carrying out its obligations under the management services agreement or engages in fraudulent or dishonest acts.

In addition, if (i) the management services agreement is terminated at any time other than as a result of our manager’s resignation or (ii) our manager resigns on any date that is at least three years after the closing of this offering, then the manager will have the right, but not the obligation, for one year from the date of termination or resignation, as the case may be, to elect to cause the company to purchase the management interests then owned by the manager for the put price. See the section entitled “Description of Shares — Supplemental Put Agreement” for more information about our manager’s put right and our obligations relating thereto.

~~Furthermore, if we terminate our manager, the trust, the company and all~~teams of our businesses, ~~will be required to cease using~~ the ~~term “Compass” entirely in their business or operations within 30 days~~loss of ~~such termination, including changing their names to remove~~ any ~~reference to the term “Compass”. This may cause the value~~ of ~~the company and the market price of our shares to decline and require increased expenditures relating to creating, marketing and protecting a new name.~~

~~As a result, we may not be able to remove our manager, which~~whom could materially adversely affect our financial condition, business and results of operations.


	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 adversely affect our financial condition, business and results of operations as well as the market price of our shares.

~~Our manager has the right, under the management services agreement, to resign at any time on 90 days’ written notice, whether we have found a replacement or not.~~

If our manager resigns, we may not be able to find a new external manager or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 90 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management, acquisition activities and supervision of our businesses is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our manager and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our businesses may result in additional costs and time delays that may adversely affect our financial condition, business and results of operations.


	*~~Our manager and its affiliates, including members of our management team, may engage in activities that compete with us or our businesses.~~*

The management services agreement does not prohibit our manager or its affiliates from investing in or managing other entities, including those that are in the same or similar line of business as our initial businesses. In this regard, the management services agreement and the obligation to provide management services will not create an exclusive relationship between our manager and the company and our businesses. See the section entitled “Management Services Agreement” for more information about our relationship with our manager and our management team. How such conflicts of interests may be addressed is dependent on the terms of the management services agreement and we may not prevail in all situations. Moreover, our officers and the officers and employees of our manager and its affiliates who provide services to us, including members of our management team, anticipate devoting a portion of their time to the affairs of our manager and its affiliates and performing services for other entities. As a result, there may be conflicts between us, on the one hand, and our manager and its affiliates, including members of our management team, on the other, regarding the allocation of resources to the management of our day-to-day activities. See the section entitled “Certain Relationships and Related Party Transactions” for a complete discussion of the potential conflicts of interest of which you should be aware.


	Our Chief Executive Officer, directors and manager 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 adversely affect our operations.

Our Chief Executive Officer, who is an employee of our manager and seconded to us, directors and manager may also engage in other business activities. This may result in a conflict of interest in allocating their time between our operations and other businesses. Our Chief Executive Officer’s and manager’s other business endeavors may be related to CGI, the Kattegat Trust or other affiliates. Our Chief Financial Officer, who is also an employee of our manager and seconded to us, will be fully dedicated to our operation and we will reimburse our manager for his salary and expenses related to his staff. Conflicts may not be resolved in our favor. See the section entitled “Certain Relationships and Related Party Transactions” for a complete discussion of the potential conflicts of interest of which you should be aware.


	*~~Our manager relies on key personnel with long-standing business relationships, the loss of any of whom could impair our ability to successfully manage the company.~~*

Our future success depends, to a significant extent, on the continued services of the employees of our manager, most of whom have worked together for a number of years. While our manager has employment

agreements with certain of its employees, including our chief financial officer, these employment agreements may not prevent ~~the~~our manager’s employees from leaving our manager or from competing with us in the future. Our manager does not have an employment agreement with our chief executive officer.

In addition, the future success of our businesses also ~~depend upon~~depends on their respective ~~executive~~ management ~~teams.~~teams because we operate our businesses on a stand-alone basis, primarily relying on existing management teams for management of theirday-to-day operations. Consequently, their operational success, as well as the success of our internal growth strategy, will be dependent on the continued efforts of the management teams of the businesses. We seek to provide such persons with equity incentives in their respective businesses and to have employment agreementsand/or non-competition agreements with certain persons we have identified as key to their businesses. ~~We also maintain key man life insurance on certain of these persons.~~ However, these ~~insurance policies would~~measures do not ~~fully offset the loss to~~ensure performance of key personnel, and may not prevent them from departing or competing with our businesses ~~and our organization generally, that would result from our losing~~in the ~~services of these key individuals. As a result, the~~future. The loss of services of one or more members of our ~~senior~~ management team or the management team at one of our businesses could materially adversely affect our financial condition, business and results of operations.


	*~~We must pay our manager the management fee regardless of our performance.~~*

~~Our manager is entitled to receive~~We are a ~~management fee that is based~~holding company with no operations and rely entirely on distributions from our adjusted net assets, as defined in the management services agreement, regardless of the performance of our businesses. As a result, the management fee may incentivize our manager to increase our assets rather than increase the performance of our businesses. This circumstance could adversely affect our abilitybusinesses to make distributions to our shareholders.

If we do not have sufficient liquid assets to pay all of the management fee, including any accrued and unpaid management fees to date, on any management fee payment date, we will be required to liquidate assets or borrow money in order to pay such management fee;~~provided,~~ that our manager may elect on such management fee payment date to defer the payment of the management fee then accrued and unpaid to the next succeeding management fee payment date in order to avoid such liquidation or borrowing.


	Our manager’s discretion in conducting our operations, including conducting transactions, gives it the ability to increase its fees, which may reduce the amount of cash available for distribution to our shareholders.

Under the terms of the management services agreement, our manager is paid a management fee calculated as a percentage of our net assets adjusted for certain items. See the section entitled “Management Services Agreement — Management Fee” for more information about the calculation of the management fee. Our manager may conduct transactions or handle our operations in a manner that, in our manager’s reasonable discretion, are necessary to the future growth of our businesses and are in the best interests of our shareholders. These transactions, however, may increase the amount of fees paid to our manager, which could reduce the amount of cash available for distribution to our shareholders.


	*~~The profit allocation we pay our manager may induce it to make riskier decisions regarding our operations.~~*

Our manager, as holder of 100% of the management interests in the company, will receive a profit allocation reflecting our ability to generate ongoing cash flows and capital gains in excess of a hurdle rate. This profit allocation will be triggered upon the sale of one of our businesses, among other events. As a result, our manager may be incentivized to sell our businesses at a time which is not optimal for our shareholders.

If we do not have sufficient liquid assets to pay all of our manager’s profit allocation, including any accrued and unpaid manager’s profit allocation to date, on any profit allocation payment date, we will be required to liquidate assets or borrow money in order to do pay such manager’s profit allocation;~~provided,~~ that our manager may elect on such profit allocation payment date to defer the payment of our manager’s profit allocation then accrued and unpaid to a date that is 90 days after such profit allocation payment date.


	*~~The trust structure may limit our ability to make distributions to our shareholders because we will rely entirely on distributions from our businesses.~~*

The trust’s only business is holding ~~non-management~~trust interests in the company, which holds controlling interests in our businesses. Therefore, we ~~will be~~are dependent upon the ability of our businesses to generate earnings and cash ~~flows~~flow and distribute them to us in the form of interest and principal payments on ~~debt, payments to our manager~~indebtedness and

distributions or dividends on equity to enable us, first, to satisfy our financial obligations, including payments under our revolving credit facility, the management fee, profit allocation and toput price, and, second, make distributions to our shareholders. The ability of ~~the~~our businesses ~~which we will own and manage,~~ to make distributions to us may be subject to limitations under laws of ~~their respective jurisdictions.~~the jurisdictions in which they are incorporated or organized. If, as a consequence of these various restrictions, we are unable to generate sufficient distributions from our businesses, we may not be able to declare, or may have to delay or cancel payment of, distributions to our ~~shareholders.~~shareholders, which may have a material adverse effect on the market price of our shares. See “Dividend and Distribution Policy — Restrictions on Distribution Payments” for a more detailed discussion of these restrictions.

We do not own 100% of our ~~businesses, and~~businesses. While the company will receive cash payments from our ~~ownership will range at the time of the initial acquisition from 73.0%,~~businesses in the ~~case~~form of ~~Silvue, to 95.6%, in the case of CBS Personnel, of the total equity on a fully diluted basis. Accordingly,~~interest payments, debt repayment and dividends and distributions, if any dividends or distributions are paid by our businesses, they will be shared pro rata with the minority shareholders of our businesses and the amounts of distributions made to minority shareholders will not be available to us for any purpose, including ~~company debt service~~payment of our obligations or distributions to our shareholders. Any proceeds from the sale of a business, after payment of the profit allocation to our manager, will be allocated among us and the minority shareholders of the business that is ~~sold.~~sold; however, we will not necessarily declare a distribution to our shareholders with respect to such proceeds.


	*~~We may have conflicts of interest with the minority shareholders of our businesses.~~*

~~The boards~~While we intend to make regular cash distributions to our shareholders, the company’s board of directors ~~of our respective businesses have fiduciary duties to all their shareholders, including~~has full authority and discretion over the ~~company and minority shareholders. As a result, they may make decisions that are in the best interests of their shareholders generally but which are not necessarily in the best interest~~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 shareholders. In dealings with the company, the directors of our businesses may have conflicts of interest and decisions may have to be made without the participation of directors chosen by the company, and such decisions may be different from those that we would make.shares.


	While we intend to make regular cash distributions to our shareholders, our board of directors has full authority and discretion over the distributions, other than the profit allocation, and it may decide to reduce or eliminate distributions at any time, which may have an adverse affect on the market price for our shares.

To date, we have ~~not~~ declared orand paid ~~any distributions. Although~~quarterly distributions, and although we intend to pursue a policy of paying regular distributions, ~~our~~the company’s board of directors ~~will have~~has full authority and discretion to determine whether or not a distribution by the company should be declared and paid to the trust and in turn to our shareholders, as well as the amount and timing of any distribution. In addition, the management fee, profit allocation, put price and payments under our revolving credit facility, are payment obligations of the company and, as a result, will be paid, along with other company obligations, prior to the payment of distributions to our shareholders. The company’s board of directors may, based on their review of our financial condition and results of operations and pending acquisitions, determine to reduce or eliminate distributions, which may have ana material adverse ~~affect~~effect on the market price of our shares.


	The company’s board of directors will have the power to change the terms of our shares if it determines, in its sole discretion, that such changes are not otherwise materially adverse to you or will not change the characterization of the trust for federal tax purposes. Consequently, our board of directors may change the terms of our shares in ways with which you disagree.

~~As an owner of our shares, you may disagree with changes made to the terms of our shares,~~ See “Dividend and you may disagree with the company’s board of directors’ decision that the changes made to the terms of the shares are not materially adverse to you as a shareholder or that they do not alter the characterization of the trust. Your recourse if you disagree will be limited because our trust agreement gives broad authority and discretion to our board of directors and eliminates or reduces many of the fiduciary duties that our board of directors otherwise would owe to you. In addition, we may change the nature of the shares to raise additional equity and remain a fixed-investment trust for tax purposes.


	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.

The LLC agreement of the company, which we refer to as the LLC agreement, and the trust agreement of the trust, which we refer to as the trust agreement, contain a number of provisions that could make it more difficultDistribution Policy — Restrictions on Distribution Payments” for a ~~third party to acquire, or may discourage a third party from acquiring, control~~more detailed discussion of ~~the trust and the company. These provisions include:~~these restrictions.


	•	restrictions on the company’s ability to enter into certain transactions with our major shareholders, with the exception of our manager, modeled on the limitation contained in Section 203 of the Delaware General Corporation Law, or DGCL;

	•	allowing only the company’s board of directors to fill vacancies, including newly created directorships, for those directors who are elected by our shareholders, and allowing only our manager to fill vacancies with respect to the class of directors appointed by our manager;

	•	~~requiring that directors elected or appointed by our shareholders may be removed with or without cause but only by a vote of 85% of the trust shareholders;~~

	•	~~requiring that only the company’s chairman or board of directors may call a special meeting of our shareholders;~~

	•	~~prohibiting shareholders from taking any action by written consent;~~

	•	requiring advance notice for nominations of candidates for election to the company’s board of directors or for proposing matters that can be acted upon by our shareholders at a shareholders’ meeting;

	•	~~requiring advance notice for a director or group of directors other than our Chief Executive Officer or chairman to call a special meeting of our board of directors;~~

	•	~~having a substantial number of additional authorized but unissued shares;~~

	•	providing the company’s board of directors with certain authority to amend the LLC agreement and the trust agreement, subject to certain voting and consent rights of the holders and non-management interests and management interests; and

	•	~~providing for a staggered board of directors of the company, the effect of which could be to deter a proxy contest for control of the company’s board of directors or a hostile takeover.~~

These provisions, as well as other provisions in the LLC agreement and trust agreement may delay, defer or prevent a transaction or a change in control that might otherwise result in you obtaining a takeover premium for your shares. See the section entitled “Description of Shares” for more information about voting and consent rights and the anti-takeover provisions.


	*~~CGI may exercise significant influence over the company.~~*

Concurrently with this offering, CGI will purchase $96 million or % of our shares in a separate private placement transaction. As a result of this investment, CGI may hold a large percentage of our shares and may have significant influence over the election of directors in the future.


	*We ~~may incur indebtedness, which could expose us to additional risks associated with leverage and inhibit our operating flexibility and funds available for distributions to our shareholders.~~*

We will initially have limited net debt outstanding. However, we expect to increase our level of net debt in the future. The terms of this debt will contain a number of covenants that, among other things, require us to:


	•	~~satisfy prescribed financial ratios specific to each arrangement;~~

	•	~~maintain a minimum level of tangible net worth;~~

	•	~~maintain a minimum level of liquidity; and~~

	•	~~limit the payment of distributions to our shareholders.~~

We expect that such debt will be secured by all or substantially all of our assets. Our ability to meet our debt service obligations and to repay outstanding indebtedness may be affected by events beyond our control and will depend primarily upon cash produced by our businesses. The failure to comply with the terms of our indebtedness could have important consequences, including limiting the payment of distributions to our shareholders.


	~~We may engage in a business transaction with one or more target businesses that have relationships with our officers, directors, CGI or our manager which may create potential conflicts of interest.~~

We may decide to acquire one or more businesses with which our officers, directors, CGI or our manager have a relationship. While we might obtain a fairness opinion from an independent investment banking firm, potential conflicts of interest may still exist with respect to a particular acquisition, and, as a result, the terms of the acquisition of a target business may not be ~~as advantageous~~able to ~~our shareholders as it would have been absent any conflicts~~successfully fund future acquisitions of ~~interest.~~


	The terms of the stock purchase agreement with respect to our initial businesses, the management services agreement and the registration rights agreement with respect to CGI’s and Pharos’ investment were negotiated without independent assessment on our behalf, and these terms may be less advantageous to us than if they had been the subject of arm’s-length negotiations.

~~We intend to enter into a stock purchase agreement with respect to our initial~~new businesses a management services agreement and a registration rights agreement that relates to CGI’s investment of approximately $96 million and Pharos’ investment of approximately $4 million in our shares. The terms of these agreements were negotiated among entities affiliated with CGI and our manager in the overall context of this offering. Although we received a fairness opinion from an independent investment banking firm regarding the fairness, from a financial point of view,due to the unavailability of debt or equity financing at the company level on acceptable terms, which could impede the implementation of ~~such terms~~our acquisition strategy and ~~conditions~~materially adversely impact our financial condition, business and ~~notwithstanding that the acquisitions~~results of the initial businesses and other agreements were approved by our independent directors, the agreements were not negotiated on an arm’s-length basis with unaffiliated third parties. As a result, provisions of these agreements may be less favorable to us than they might have been had they been negotiated through arm’s-length transactions with unaffiliated parties.operations.


	*~~We face competition for acquisitions of businesses.~~*

We face competition for acquisitions of businesses from a range of competitors, many of whom are well-financed, have greater financial resources or access to financing or more favorable terms than we will and may not exercise the same levels of investment discipline that we believe we exercise. These persons could make it more difficult or expensive to make acquisitions of businesses we believe would be potentially attractive acquisitions at appropriate price levels.


	We may not be able to successfully fund future acquisitions of new businesses due to the unavailability of debt or equity financing on acceptable terms, which could impede the implementation of our acquisition strategy and adversely impact our financial condition, business and results of operations.

In order to make future acquisitions, we intend to raise capital ~~for additional acquisitions~~ primarily through debt financing at the company level, additional equity offerings, the sale of stock or assets of our businesses, and by offering equity in the trust or our businesses to the sellers of target businesses or by undertaking a combination of any of the above. Since the timing and size of acquisitions cannot be readily predicted, we may need to be able to obtain funding on short notice to benefit fully from attractive acquisition opportunities. Such funding may not be available on acceptable terms. In addition, the level of our indebtedness may impact our ability to borrow at the company ~~level.~~level and the revolving credit facility or other credit agreements we may enter into in the future may contain terms that prohibit us from making acquisitions that may be otherwise advantageous. Another source of capital for us may be the sale of additional shares, subject to market conditions and investor demand for the shares at prices that we consider to be in the interests of our shareholders. These risks may materially adversely affect our ability to pursue our acquisition strategy ~~successfully.~~


	*~~We face risks with respect to future acquisitions and, as a result, we may not be able to~~ successfully ~~execute our acquisition strategy.~~*

A major component of our strategy is to acquire, at valuations our manager determines to be in our best interest, additional businesses within the industries in which we will initially operate, in industries complementary to our initial businesses and ~~in industries where we will initially have no presence. Acquisitions involve a number of risks, including:~~


	•	~~the time and costs associated with identifying and evaluating potential acquisition targets and their industries;~~

	•	~~the estimates, assumptions and judgments used to evaluate operations, management and market risks with respect to the target business may not be accurate or be realized;~~

	•	~~failure of the acquired business to achieve expected results;~~

	•	~~our or our businesses’ inability to integrate and improve acquired businesses in a cost-efficient manner;~~

	•	~~failure to identify liabilities associated with the acquired business prior to its acquisition;~~

	•	~~diversion of our management’s attention; and~~

	•	~~failure to retain key personnel of the acquired business.~~

~~Some or all of these risks may have a material adverse effect on~~materially adversely affect our financial condition, business and results of operations.

We face risks with respect to the evaluation and management of future platform or add-on acquisitions.

A component of our strategy is to continue to acquire new businesses, which we refer to as new platforms, as well as to acquire add-on businesses to our existing platforms. Generally, because such acquisition targets are held privately, we may experience difficulty in evaluating potential target businesses as the information concerning these businesses is not publicly available. Further, the time and costs associated with identifying and evaluating potential target businesses and their industries may cause a substantial drain on our financial resources and our management team’s attention. In addition, we and our businesses may ~~not be able to integrate~~have difficulty effectively managing or improve acquired businesses after an acquisition without encountering difficulties including, without limitation, loss of key employees and customers, the disruption of our respective ongoing businesses or possible inconsistencies in standards, controls, procedures and policies.integrating acquisitions. We may experience greater than expected costs or difficulties relating to such ~~integration,~~acquisitions, in which case we might not achieve the anticipated returns from any particular acquisition, which may have a material adverse effect on our financial condition, business and results of operations.

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.

As an owner of our shares (or if the trust is dissolved, as a direct owner of trust interests in the company), you may disagree with changes made to the terms of our shares or trust interests in the company, and you may disagree with the company’s board of directors’ decision that the changes made to the terms of the shares or trust interests in the company are not materially adverse to you as a shareholder or that they do not alter the characterization of the trust. Your recourse, if you disagree, will be limited because our trust agreement and the LLC agreement give broad authority and discretion to our board of directors. However, neither the trust agreement nor the LLC agreement relieve the company’s board of directors from any fiduciary obligation that is imposed on them pursuant to applicable law. In addition, we may change the nature of the shares (or if the trust is dissolved, the trust interests in the company) to be issued to raise additional equity.

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.

The amended and restated LLC agreement of the company, which we refer to as the LLC agreement, and the amended and restated trust agreement of the trust, which we refer to as the trust agreement, contain a number of provisions that could make it more difficult for a third party to acquire, or may discourage a third party from acquiring, control of the trust and the company. These provisions include, among others:


	•	restrictions on the company’s ability to enter into certain transactions with our major shareholders, with the exception of our manager, modeled on the limitation contained in Section 203 of the Delaware General Corporation Law, or DGCL;

	•	allowing the chairman of the company’s board of directors to fill vacancies on the company’s board of directors until the 2008 annual meeting of shareholders;

	•	allowing only the company’s board of directors to fill newly created directorships, for those directors who are elected by our shareholders, and allowing only our manager, as holder of the allocation interests, to fill vacancies with respect to the class of directors appointed by our manager;

	•	requiring that directors elected by our shareholders be removed, with or without cause, by a vote of 85% of our shareholders;

	•	requiring advance notice for nominations of candidates for election to the company’s board of directors or for proposing matters that can be acted upon by our shareholders at a shareholders’ meeting;

	•	authorizing a substantial number of additional authorized but unissued shares that may be issued without shareholder action;

	*~~Changes in inflation~~*
	•	providing the company’s board of directors with certain authority to amend the LLC agreement, subject to certain voting and ~~interest rates~~consent rights of the holders of trust interests and allocation interests, and the trust agreement, subject to certain voting and consent rights of the holders of the trust shares;

	•	providing for a staggered board of directors of the company, the effect of which could ~~adversely affect us.~~be to deter a proxy contest for control of the company’s board of directors or a hostile takeover; and

	•	limitations regarding shareholders calling special meetings and acting by written consent.

Changes in inflation could adversely affect the costs and availability of raw materials used in our manufacturing businesses, and changes in fuel costs likely will affect the costs of transporting materials from our suppliers and shipping goods to our customers,

These provisions, as well as other provisions in the ~~effective areas~~LLC agreement and trust agreement, may delay, defer or prevent a transaction or a change in control that might otherwise result in you obtaining a takeover premium for your shares.

We may have conflicts of interest with the minority shareholders of our businesses.

The boards of directors of our respective businesses have fiduciary duties to all their shareholders, including the company and minority shareholders. As a result, they may make decisions that are in the best interests of their shareholders generally but which are not necessarily in the best interest of the company and therefore the best interests of our shareholders. In dealings with the company, the directors of our businesses may have conflicts of interest and decisions may have to be made without the participation of those directors. Such decisions, therefore, may be different from those that we would otherwise make.

Our third party revolving 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.

At February 28, 2007, we had approximately $97.4 million of debt outstanding and we expect to increase our level of debt in the future. The revolving credit facility contains various covenants, including financial covenants, with which we ~~can recruit temporary staffing personnel.~~must comply. The financial covenants include: (i) a requirement to maintain, on a consolidated basis, a fixed coverage ratio of at least 1.5:1, (ii) an interest coverage ratio not to exceed less than 3:1 and (iii) a total debt to earnings before interest, depreciation and amortization ratio not to exceed 3:1. In addition, the revolving credit facility contains limitations on, among other things, certain acquisitions, consolidations, sales of assets and the incurrence of debt. Currently we are in compliance with all covenants. Outstanding indebtedness under the revolving credit facility will mature on November 21, 2011.

If we violate any of these or other covenants, our lender may accelerate the maturity of any debt outstanding and we may be prohibited from making any distributions to our shareholders. Our debt is secured by all of our assets, including the stock we own in our businesses and the rights we have under the loan agreements with our businesses. Our ability to meet our debt service obligations may be affected by events beyond our control and will depend primarily upon cash produced by our businesses. Any ~~debt we incur is likely~~failure to ~~bear~~comply with the terms of our indebtedness could materially adversely affect us.

Changes in interest rates could materially adversely affect us.

Our revolving credit facility bears interest at floating rates which will generally change as interest rates change. We have not hedged our exposure to interest rates on our revolving credit facility but may consider doing so in the future. If we do not hedge such exposure, we bear the risk that the rates we are charged by our ~~lenders and the rates we charge on loans to our businesses~~lender will increase faster than the earnings and cash ~~flows~~flow of

our businesses, which could reduce profitability, adversely affect our ability to service our debt, cause us to breach covenants contained in our revolving credit facility and ~~violate debt service~~reduce cash flow available for distribution, any of which could materially adversely affect us. In addition, the interest rates under our revolving credit facility vary depending on certain financial ratios; therefore, if we fail to achieve these ratios, we will be obligated to pay additional interest.

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 may decide to acquire one or more businesses with which our officers, our directors, our manager or CGI have a relationship. While we might obtain a fairness opinion from an independent investment banking firm, potential conflicts of interest may still exist with respect to a particular acquisition, and, ~~other covenants~~as a result, the terms of the acquisition of a target business may not be as advantageous to our shareholders as it would have been absent any conflicts of interest.

CGI may exercise significant influence over the company.

CGI, through a wholly owned subsidiary, currently owns 7,350,000 or 35.9% of our shares and will purchase an additional shares in a separate private placement transaction. As a result, CGI will own approximately 30.2% of our shares and may have significant influence over the company, including the election of directors, in the ~~related loan agreements.~~future as well as matters requiring the approval of our shareholders, including the removal of our manager.


	*~~We will incur increased costs as a result of being a publicly traded company.~~*

~~As a publicly traded company,~~If in the future we ~~will incur legal, accounting~~cease to control and ~~other expenses, including costs associated with the periodic reporting requirements applicable~~operate our businesses, we may be deemed to abe an investment company ~~whose securities are registered~~ under the ~~Securities Exchange~~Investment Company Act of ~~1934,~~1940, as ~~amended, or~~amended.

Under the ~~Exchange Act, recently adopted corporate governance requirements, including requirements under the Sarbanes-Oxley Act~~terms of 2002, and other rules implemented relatively recently by the Securities and Exchange Commission, or the SEC, and The Nasdaq National Market. We believe that complying with these rules and regulations will increase substantially our legal and financial compliance costs and will make some activities more time-consuming and costly and may divert significant portions of our management team from operating and acquiring businesses to these and related matters. We also believe that these rules and regulations will make it more difficult and more expensive for us to obtain directors and officers’ liability insurance.


	*~~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.~~*

~~Under~~ the LLC agreement, we have the latitude to make investments in ~~companies in which~~businesses that we will not operate or control. If we make significant investments in ~~companies~~businesses that we do not operate or control or cease to operate and control our businesses, we may be deemed to be an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. If we were deemed to be an investment company, we would either have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC or modify our investments or organizational structure or our contract rights to fall outside the definition of an investment company. Registering as an investment company could, among other things, materially adversely affect our financial condition, business and results of operations, materially limit our ability to borrow funds or engage in other transactions involving leverage, ~~and~~ require us to add directors who are independent of us or our manager, divert the attention of our management team and otherwise will subject us to additional regulation that will be costly and time-consuming. In addition, if we are required to register as an investment company we will no longer satisfy the requirements to be treated as a publicly traded partnership exempt from taxation as a corporation for federal income tax purposes.


	Our audited financial statements will not include meaningful comparisons to prior years and may differ substantially from the pro forma condensed combined financial statements included in this prospectus.

Risks Relating to Our Manager

Our ~~audited~~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.

While the members of our management team anticipate devoting a substantial amount of their time to the affairs of the company, only Mr. James Bottiglieri, our chief financial ~~statements~~officer, will ~~include consolidated~~devote 100% of his time to our affairs. Mr. I. Joseph Massoud, our chief executive officer, and our directors, manager and other members of our management team may engage in other business activities. This may result in a conflict of interest in the allocation of their time between their management and operations of our businesses and their management and operations of other businesses. Their other business endeavors may be related to CGI, which will continue to own several businesses that were managed by our management team prior to the IPO, or affiliates of CGI or other parties. Conflicts of interest that arise over the allocation of time may not always be resolved in our favor and may materially adversely affect our operations. See the section entitled “Certain Relationships and Related Party Transactions” for a discussion of the potential conflicts of interest of which you should be aware.

Our manager and its affiliates, including members of our management team, may engage in activities that compete with us or our businesses.

While our management team intends to devote a substantial majority of their time to the affairs of the company, and while our manager and its affiliates currently do not manage any other businesses that are in similar lines of business as our businesses, and while our manager must present all opportunities that meet the company’s acquisition and disposition criteria to the company’s board of directors, neither our management team nor our manager is expressly prohibited from investing in or managing other entities, including those that are in the same or similar line of business as our businesses. In this regard, the management services agreement and the obligation to provide management services will not create a mutually exclusive relationship between our manager and its affiliates, on the one hand, and the company, on the other. Our manager’s or our management team’s investment in or management of businesses that compete with our businesses may result in conflicts of interest that are not resolved in favor of our businesses, which may adversely affect our financial condition, business and results of operations.

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.

Our manager will review any acquisition or disposition opportunity presented to our manager to determine if it satisfies the company’s acquisition or disposition criteria, as established by the company’s board of directors from time to time. If our manager determines, in its sole discretion, that an opportunity fits our criteria, our manager will refer the opportunity to the company’s board of directors for its authorization and approval prior to the consummation thereof. Opportunities that our manager determines do not fit our criteria do not need to be presented to the company’s board of directors for consideration. If such an opportunity is ultimately profitable, we will have not participated in such opportunity. Upon a determination by the company’s board of directors not to promptly pursue an opportunity presented to it by our manager in whole or in part, our manager will be unrestricted in its ability to pursue such opportunity, or any part that we do not promptly pursue, on its own or refer such opportunity to other entities, including its affiliates.

We cannot remove our manager solely for poor performance, which could limit our ability to improve our performance and could materially adversely affect our financial condition, business and results of operations.

Under the terms of the management services agreement, our manager cannot be removed as a result of underperformance. Instead, the company’s board of directors can only remove our manager in certain limited circumstances or upon a vote by the majority of the company’s board of directors and the majority of our shareholders to terminate the management services agreement. If our manager underperforms, this limitation could materially adversely affect our financial condition, business and results of operations.

We may have difficulty severing ties with our chief executive officer, Mr. Massoud.

Under the management services agreement, the company’s board of directors may, after due consultation with our manager, at any time request that our manager replace any individual seconded to the company and our manager will, as promptly as practicable, replace any such individual. However, because Mr. Massoud is the managing member of our manager, we may have difficulty completely severing ties with Mr. Massoud unless we terminate the management services agreement and our relationship with our manager in which case we may be required to purchase the allocation interests of the company held by our manager at a significant cost to us.

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.

If the management services agreement is terminated at any time other than as a result of our manager’s resignation or if our manager resigns on any date that is at least three years after May 16, 2006 (the closing of the IPO), our manager will have the right, but not the obligation, for one year from the date of termination or resignation, as the case may be, to cause the company to purchase the allocation interests for the put price. If our manager elects to cause the company to purchase its allocation interests, we are obligated to do so, such purchase would be a significant expense to us and would adversely affect our financial condition and results of operations, and, until we have done so, our ability to conduct our business, including incurring debt, would be restricted and, accordingly, our liquidity and ability to grow may be adversely affected.

The liability associated with the supplemental put agreement is difficult to estimate and may be subject to substantialperiod-to-period changes, thereby significantly impacting our future results of operations.

The company will record the supplemental put agreement at its fair value at each balance sheet date by recording any change in fair value through its income statement. The fair value of the supplemental put agreement is largely related to the value of the profit allocation that our manager, as holder of allocation interests, would receive in connection with the sale of our businesses or, at our manager’s option, after a controlling interest in a business has been held for five years. At any point in time, the supplemental put liability recorded on the company’s balance sheet is our manager’s estimate of what its allocation interests are worth based upon a percentage of the increase in fair value of our businesses over our basis in those businesses. Because the supplemental put price would be calculated based upon an assumed profit allocation for the sale of all of our businesses, the growth of the supplemental put liability over time is indicative of our manager’s estimate of the company’s unrealized gains on its interests in our businesses. A decline in the supplemental put liability is indicative either of the realization of gains associated with the sale a business and the corresponding payment of a profit allocation to our manager (as with Crosman), or a decline in our manager’s estimate of the company’s unrealized gains on its interests in our businesses. We account for the change in the estimated value of the supplemental put liability on a quarterly basis in our income statement. The expected value of the supplemental put liability effects our results of operation but it does not affect our cash flows ~~only~~or our cash flow available for ~~the period from the date~~distribution. The valuation of the ~~acquisition~~supplemental put agreement requires the use of complex models, which require highly sensitive assumptions and estimates. The impact of over-estimating or under-estimating the value of the supplemental put agreement could have a material effect on operating results. In addition, the value of the supplemental put agreement is subject to the volatility of our ~~initial businesses~~operations which may result in significant fluctuation in the value assigned to ~~year-end. Because we will purchase our initial businesses only after the closing of~~ this ~~offering~~supplemental put agreement.

Our manager can resign on 90 days’ notice and recapitalization of each of them, we anticipate that our audited financial statements will not contain full-year consolidated results of operations and cash flows until the end of our 2007 fiscal year. Consequently, meaningful year-to-year comparisons will not be available, at the earliest, until two fiscal years following the completion of this offering.

We may not be able to complete our consolidated financial statements for the year ended December 31, 2005 in time to file our initial annual report on Form 10-K in a timely fashion and, as a result the shares of the trust may be delisted due to our inability to comply with the Nasdaq National Market listing requirements which may materially adversely affect the market for and the price of our shares.

~~Given the complexity of preparing our consolidated financial statements,~~ we may not be able to ~~provide information timely enough~~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.

Our manager has the right, under the management services agreement, to ~~allow~~resign at any time on 90 days’ written notice, whether we have found a replacement or not. If our ~~auditor to~~manager resigns, we may not be able to ~~complete its audit~~contract with a new manager or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 90 days, or at all, in which case our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our ~~year-end financial statements in time for us~~shares may decline. In addition, the coordination of our internal management, acquisition activities and supervision of our businesses is likely to ~~meet our initial periodic reporting obligations. In the event~~suffer if we are unable to ~~timely file~~identify and reach an agreement with a single institution or group of executives having the expertise possessed by our ~~initial annual report on Form 10-K,~~manager and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and

their lack of familiarity with our ~~shares~~businesses may ~~be delisted as a~~ result in additional costs and time delays that could materially adversely affect our financial condition, business and results of operations.

We must pay our manager the management fee regardless of our ~~inability~~performance.

Our manager is entitled to ~~comply with~~receive a management fee that is based on our adjusted net assets, as defined in the ~~Nasdaq National Market listing requirements.~~management services agreement, regardless of the performance of our businesses. The calculation of the management fee is unrelated to the company’s net income. As a result, the ~~market price~~management fee may incentivize our manager to increase the amount of our assets, through, for example, the acquisition of additional assets or the incurrence of third party debt rather than increase the performance of our businesses. In addition, if the performance of the ~~shares~~company declines, assuming adjusted net assets remains the same, management fees will increase as a percentage of the company’s net income.

We cannot determine the amount of the management fee that will be paid over time with any certainty.

The management fee for the year ended December 31, 2006, was $4.4 million. The management fee is calculated by reference to the company’s adjusted net assets at the end of each fiscal quarter, which will be impacted by the acquisition or disposition of businesses, which can be significantly influenced by our manager, as well as the performance of our businesses. Changes in adjusted net assets and in the resulting management fee could be significant, resulting in a material adverse effect on the company’s results of operations.

We cannot determine the amount of profit allocation that will be paid over time with any certainty.

Because the profit allocation is triggered by the sale of one or our businesses or, at our manager’s election, ownership of one of our businesses for a period of five years, we cannot determine the amount of profit allocation that will be paid over time with any certainty. Such determination would be dependent on the potential sale proceeds received for any of our businesses and the performance of the company and its businesses over a multi-year period of time, among other factors that cannot be predicted with certainty at this time. Such factors may have a significant impact on the amount of any profit allocation to be paid. Likewise, such determination would be dependent on whether certain hurdles were surpassed giving rise to a payment of profit allocation. Any amounts paid in respect of the profit allocation are unrelated to the management fee earned for performance of services under the management services agreement.

The fees to be paid to our manager pursuant to the management services agreement, the offsetting management services agreements and transaction services agreements, the profit allocation and put price to be paid to our manager as holder of the allocation interests, pursuant to the LLC agreement may significantly ~~decline~~reduce the amount of cash flow available for distribution to our shareholders.

Under the management services agreement, the company will be obligated to pay a management fee to, and, subject to certain conditions, reimburse the ~~market for~~costs andout-of-pocket expenses of, our ~~shares~~manager incurred on behalf of the company in connection with the provision of services to the company. Similarly, our businesses will be obligated to pay fees to and reimburse the costs and expenses of our manager pursuant to any offsetting management services agreements entered into between our manager and one of our businesses, or any transaction services agreements to which such businesses are a party. In addition, our manager, as holder of the allocation interests, will be entitled to receive profit allocations and may be ~~materially adversely affected,~~entitled to receive the put price upon the occurrence of certain trigger events. While it is difficult to quantify with any certainty the actual amount of any such payments in the future, we do expect that such amounts could be substantial. See the sections entitled “Our Manager — Our Relationship with Our Manager” and ~~you~~“— Supplemental Put Agreement” and “Certain Relationships and Related Party Transactions” for more information about these payment obligations of the company. The management fee, profit allocation and put price will be payment obligations of the company and, as a result, will be paid, along with other company obligations, prior to the payment of distributions to shareholders. As a result, the payment of these amounts may ~~be unable~~significantly reduce the amount of cash flow available for distribution to ~~sell your shares at a price greater than the offering price, if at all.~~our shareholders.

~~Risks Related~~Our manager’s influence on conducting our operations, including on our engaging in acquisition or disposition transactions, gives it the ability to ~~Taxation~~increase its fees and compensation to our chief executive officer, which may reduce the amount of cash available for distribution to our shareholders.


	*~~Our shareholders may be subject to taxation on their share of the company’s taxable income, whether or not they receive cash distributions from the trust.~~*

~~Our shareholders may be subject to U.S. federal income taxation and, in some cases, state, local and foreign income taxation on their share~~Under the terms of the management services agreement, our manager is paid a management fee calculated as a percentage of the company’s ~~taxable income, whether or not they receive cash distributions from the trust. There~~adjusted net assets for certain items and is ~~a risk that the shareholders may not receive cash distributions sufficient~~unrelated to ~~satisfy their portion of our taxable~~net income or ~~even~~any other performance base or measure. Our manager, which our chief executive officer, Mr. Massoud, controls, may advise us to consummate transactions, incur third party debt or conduct our operations in a manner that, in our manager’s reasonable discretion, are necessary to the tax liability that results from that income. This risk is attributable to a number of variables such as results of operations, unknown liabilities, government regulation, financial covenants of the debt of the company, funds needed for acquisitions and to satisfy short- and long-term working capital needsfuture growth of our businesses ~~discretion~~ and ~~authority~~are in the best interests of our shareholders. These transactions, however, may increase the amount of fees paid to our manager. In addition, Mr. Massoud’s compensation is paid by our manager from the management fee it receives from the company. Our manager’s ability to increase its fees, through the influence it has over our operations, may increase the compensation paid by our manager to Mr. Massoud. Our manager’s ability to influence the management fee paid to it by us could 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 and by our businesses under offsetting management services agreements.

The management services agreement provides that our businesses may enter into transaction services agreements with our manager pursuant to which our businesses will pay fees to our manager. See the section entitled “Certain Relationships and Related Party Transactions” for more information about these agreements. Unlike fees paid under the offsetting management services agreements, fees that are paid pursuant to such transaction services agreements will not reduce the management fee payable by the company. Therefore, such fees will be in addition to the management fee payable by the company.

The fees to be paid to our manager pursuant to these transaction service agreements will be paid prior to any principal, interest or dividend payments to be paid to the company by our businesses, which will reduce the amount of cash flow available for distributions to shareholders.

Our manager’s profit allocation may induce it to make suboptimal decisions regarding our operations.

Our manager, as holder of 100% of the allocation interests in the company, will receive a profit allocation based on ongoing cash flows and capital gains in excess of a hurdle rate upon the sale of one of our businesses. As a result, our manager may be incentivized to recommend the sale of one or more of our businesses to the company’s board of directors at a time that may not optimal for our shareholders.

The obligations to pay ~~distributions because~~the management fee, profit allocation or put price may cause the company to liquidate assets or incur debt.

If we ~~rely upon~~do not have sufficient liquid assets to pay the management fee, profit allocation or put price, when such payments ~~of interest~~are due, we may be required to liquidate assets or incur debt in order to make such payments. This circumstance could materially adversely affect our liquidity and ~~principal on loans we~~ability to make distributions to our ~~businesses, management fees~~shareholders.

Risks Related to Taxation

The status of the trust for tax purposes is uncertain in light of a recent Internal Revenue Service pronouncement and ~~cost reimbursement distributions from our businesses, and upon the distribution payment policies~~certain actions of the company in response thereto.

The Internal Revenue Service, which ~~policies are subject~~we refer to ~~change in~~as the ~~discretion of the company’s board of directors. In addition, if the company were to invest in the stock of~~IRS, has recently issued a ~~controlled foreign corporation (or if one of the corporations in which the company were to invest becomes~~pronouncement stating its position that a ~~controlled foreign corporation, an event that we cannot control), the company may recognize taxable income, which the holders of shares of the~~grantor trust ~~will be required to take into account in determining their own taxable income, without a corresponding receipt of cash from the foreign company.~~


	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 distributions to holders of shares of the trust and thus could result in a substantial reduction in the value of the shares.

~~Our shareholders generally will be treated as beneficial owners of the non-management~~owning interests in ~~the~~a limited liability company, ~~held by the trust. Accordingly, the company may be regarded as a publicly-traded partnership, which, under the federal tax laws,~~on facts very similar to our current structure, would be treated as a ~~corporation. A publicly traded~~ partnership ~~will not be characterized as a corporation~~ for ~~U.S.~~ federal income tax purposes, ~~so long~~and not as ~~90% or more of its gross income~~a

grantor trust. The rationale for ~~each taxable year constitutes “qualifying income” within~~this position is that the ~~meaning of section 7704(d)~~overall arrangement permits a variance in the investment of the ~~Code. The~~shareholders, even though the trustees of the trust do not have that power directly.

In light of this development, the company expects to ~~realize sufficient passive-type, or qualifying, income~~submit to ~~qualify~~its shareholders for approval an ~~exception from being so treated.~~amendment to the trust agreement that would permit our board to amend the trust agreement to provide that the trust be treated as a tax partnership effective January 1, 2007, and has also initiated discussions with the IRS with respect to a closing agreement that would permit the trust to be treated as a grantor trust with respect to the 2006 taxable year, and possibly a portion of the 2007 taxable year if shareholder approval is not obtained. See “Material U.S. Federal Income Tax Considerations.” If the company ~~were~~is not able to ~~fail~~satisfactorily conclude a closing agreement, the IRS may challenge the tax status of the trust for 2006 and the portion of 2007 that it is in existence and if successful the trust may lose an opportunity to ~~satisfy~~effectively make an election under Section 754 of the ~~“qualifying income” exception, all~~Internal Revenue Code of ~~its~~1986, as amended, which we refer to as the Code, although it intends to take actions to minimize this risk.

All of the company’s income ~~will~~could be subject to ana corporate entity-level tax in the United States, which could result in a material reduction in ~~distributions~~cash flow available for distribution to holders of shares of the trust and ~~would likely~~thus could result in a substantial reduction in the value of ~~or adversely affect~~ the ~~market price of, our~~ shares.

~~Under current law and assuming full compliance with~~

It is expected that either the terms of the LLC agreement (and other relevant documents) and based upon factual representations made by the manager on behalf of the company, Sutherland Asbill & Brennan LLP has delivered an opinion thattrust or the company will be ~~classified~~treated as a publicly traded partnership ~~for U.S. federal income tax purposes. The factual representations made by us upon which Sutherland Asbill & Brennan LLP has relied are: (a)~~exempt from taxation as a corporation and thus neither the trust nor the company ~~has not elected and~~ will ~~not elect~~be subject to a corporate entity-level tax in the United States. See “Material U.S. Federal Income Tax Considerations.” If the trust or the company fails to satisfy the “qualifying income” tests or any other requirements to be treated as a publicly traded partnership exempt from taxation as a corporation, for U.S. federal income tax purposes; and (b) for each taxable year, more than 90% of the company’s gross income will be qualifying income within the meaning of section 7704(d) of the Code. If the company fails to satisfy this “qualifying income” exception, the companyit will be treated as a corporation for U.S. federal (and certain state and local) income tax purposes, and ~~shareholders of the trust would be treated as shareholders in a corporation. The company~~ would be required to pay income tax at regular corporate ~~rates. In addition,~~rates on its income. Under the qualifying income tests, the trust or company would ~~likely~~ be ~~liable for state and local~~treated as a corporation unless each year more than 90% of the gross income ~~and/or franchise taxes on all of such income. Distributions to the shareholders~~ of the trust ~~would constitute ordinary dividend~~or the company, as the case may be, will consist of dividends, interest (other than interest derived in the conduct of a financial or insurance business or interest the determination of which depends in whole or in part on the income ~~taxable to such holders to~~or profits of any person) and gains from the ~~extent~~sale of stock or debt instruments which are held as capital assets. Taxation of the ~~company’s earnings and profits. Taxation of~~trust or the company as a corporation could result in a material reduction in distributions to our shareholders and, ~~after-tax return and,~~ thus, would likely result in a ~~substantial~~ reduction in the value of, or materially adversely affect the market price of, the shares of the trust.


	If the trust were determined not to be a grantor trust, the trust may itself be regarded as a partnership for U.S. federal income tax purposes, and the trust’s items of income, gain, loss, and deduction would be reportable to the shareholders of the trust on IRS Schedules K-1.

~~A fixed-investment~~

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.

For so long as the company or the trust ~~can~~(if it is treated as a tax partnership) qualifies to be treated as a ~~grantor trust, such that~~publicly traded partnership exempt from taxation as a corporation, shareholders will be allocated their share of the ~~beneficial owners of trust interests are treated as~~company’s taxable income, whether or not the ~~owners of undivided interests in~~shareholders receive distributions from the ~~trust assets. Based upon~~trust. See the discussion in ~~the~~ “Material U.S. Federal Income Tax ~~Considerations” section,~~Considerations.” In that case our shareholders will be subject to U.S. federal income tax and, possibly, state, local and foreign income 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.There is, accordingly, a risk that our shareholders may not receive cash distributions equal to their portion of our taxable income or sufficient in amount even to satisfy their personal tax liability that results from that income. This may result from gains on the sale or exchange of stock or debt of subsidiaries that will be allocated to shareholders who hold (or are deemed to hold) shares on the day such gains were realized if there is no corresponding distribution of the proceeds from such sales, or where a shareholder disposes of shares after an allocation of gain but before proceeds (if any) are distributed by the trust. Shareholders may also realize income in excess of distributions due to the company’s use of cash from operations or sales proceeds for uses other than to make distributions to shareholders, including to fund acquisitions, satisfy short- and long-term working capital needs of our businesses, or satisfy known or unknown liabilities. In addition, certain financial covenants with the company’s lenders may limit or prohibit the distribution of cash to shareholders. The company’s board of directors is also free to change the company’s distribution policy. The company is under no obligation to

make distributions to shareholders equal to or in excess of their portion of our taxable income or sufficient in amount even to satisfy the tax liability that results from that income.

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.

We may incur debt for a variety of reasons, including for acquisitions as well as other purposes. Under partnership tax accounting principles, debt of the company generally will be allocable to our shareholders, who will realize the benefit of including their allocable share of the debt in the ~~opinion~~tax basis of ~~Sutherland Asbill & Brennan LLP,~~their investment in shares. At the time a shareholder later sells shares, the selling shareholder’s amount realized on the sale will include not only the sales price of the shares but also the shareholder’s portion of the company’s debt allocable to his shares (which is treated as proceeds from the sale of those shares). Depending on the nature of the company’s activities after having incurred the debt, and the utilization of the borrowed funds, a later sale of shares could result in a larger taxable gain (or a smaller tax loss) than anticipated.

Our structure involves complex provisions of U.S. federal income tax law for which ~~states~~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.

The U.S. federal income tax treatment of holders of our shares depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. You should be aware that the ~~opinion is not free from doubt,~~U.S. federal income tax rules are constantly under review by persons involved in the ~~trust will~~legislative process, the IRS, and the U.S. Treasury Department, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations. The present U.S. federal income tax treatment of an investment in our shares may be modified by administrative, legislative or judicial interpretation at any time, and any such action may affect investments and commitments previously made. For example, changes to the U.S. federal tax laws and interpretations thereof could make it more difficult or impossible to meet the qualifying income exception for us to be treated as a ~~grantor trust in which the trustees have no power to vary the trust’s investments. If the trust were not so treated, it would be regarded~~publicly traded partnership exempt from taxation as a ~~partnership for~~corporation, affect or cause us to change our investments and commitments, affect the tax considerations of an investment in us and adversely affect an investment in our shares. Our organizational documents and agreements permit our board to modify our operating agreement from time to time, without the consent of the holders of our shares, in order to address certain changes in U.S. federal income tax ~~purposes, which would affect the manner in which the trust reports to~~regulations, legislation or interpretation. In some circumstances, such revisions could have a material adverse impact on some or all of the holders of ~~shares~~our shares. Moreover, we will apply certain assumptions and conventions in an attempt to comply with applicable rules and to report income, gain, deduction, loss and credit to holders in a manner that reflects such holders’ beneficial ownership of partnership items, taking into account variation in ownership interests during each taxable year because of trading activity. However, these assumptions and conventions may not be in compliance with all aspects of applicable tax requirements. It is possible that the IRS will assert successfully that the conventions and assumptions used by us do not satisfy the technical requirements of the ~~trust.~~Codeand/or Treasury regulations and could require that items of income, gain, deductions, loss or credit, including interest deductions, be adjusted, reallocated, or disallowed, in a manner that adversely affects holders of our shares.


	If the Trust makes one or more new equity offerings, the subsequent investors participating in those offerings will be allocated a portion of any built-in gains (or losses) that exist at the time of the additional offerings.

The terms of the LLC agreement provide that all members share equally in any capital gains after payment of any profit allocation to the manager. As a result, if one of the businesses owned by the company had appreciated in value and was sold after an additional equity offering in the trust, the resulting gain from the sale of the business (after any profit allocation) would be allocated to all members, and in turn, to all shareholders, including both shareholders that purchased shares in this offering and those shareholders that purchased their shares in the trust in the later offering.

Risks Relating Generally to Our Businesses


	*~~Our results of operations may vary from quarter to quarter, which could adversely impact the market price of our shares.~~*

Our businesses are or may be vulnerable to economic fluctuations and seasonal factors as demand for their products and services tends to decrease as economic activity slows.

~~Our results of operations may experience significant quarterly fluctuations because of various factors, many of which are outside of our control. These factors include, among others:~~


	•	~~the general economic conditions of the industry and regions in which each of our businesses operate;~~

	•	~~employment levels in various markets served by CBS Personnel;~~

	•	~~seasonal increases and decreases in demand for products and services offered by certain of our businesses;~~

	•	~~the general economic conditions of the customers and clients of our businesses’ products and services;~~

	•	~~the mix of products sold and services ordered;~~

	•	~~the timing and market acceptance of new products and services introduced by our businesses;~~

	•	~~regulatory actions; and~~

	•	~~the timing of our acquisitions of other businesses and the sale of our businesses.~~

Based on the foregoing, quarter-to-quarter comparisons of our consolidated results of operations and the results of operations of each of our businesses may adversely impact the market price of our shares. In addition, historical results of operations may not be a reliable indication of future performance for our businesses.


	*~~Our businesses are or may be vulnerable to economic fluctuations as demand for their products and services tend to decrease as economic activity slows.~~*

Demand for the products and services provided by our businesses is ~~and businesses we acquire in the future may be,~~ sensitive to changes in the level of economic activity in the regions and industries in which

they do business. For example, as economic activity slows down, companies often reduce their use of temporary employees and their research and development spending. In addition, ~~consumer~~ spending on ~~recreational activities~~capital equipment may also ~~decreases~~decrease in an economic slow down. Regardless of the industry, pressure to reduce prices of goods and services in competitive industries

increases during periods of economic downturns, which may cause compression on our businesses’ financial margins. ACertain of our businesses are subject to fluctuations in demand due to seasonal factors, which may cause the results of operations to vary significantly from quarter to quarter. In addition, economic downturns may negatively impact the demands or ability to pay of customers of our businesses. As a result, a significant economic downturn could have a material adverse effect on the business, results of operations and financial condition of each of our businesses and therefore on our financial condition, business and results of operations.


	Our businesses are or may be dependent upon the financial and operating conditions of their customers and clients. If the demand for their customers’ and clients’ products and services declines, demand for their products and services will be similarly affected and could have a material adverse effect on their financial condition, business and results of operations.

The ~~success~~operations and research and development of some of our businesses’ ~~customers’~~services and ~~clients’ products~~technology depend on the collective experience of their technical employees. If these employees were to leave our businesses and ~~services in the market~~take this knowledge, our businesses’ operations and ~~the strength~~their ability to compete effectively could be materially adversely affected.

The future success of the markets in which these customers and clients operate affect our businesses. Our businesses’ customers and clients are subject to their own business cycles, thus posing risks to these businesses that are beyond our control. These cycles are unpredictable in commencement, severity and duration. Due to the uncertainty in the markets served by mostsome of our ~~businesses’ customers~~businesses depends upon the continued service of their technical employees who have developed and ~~clients,~~continue to develop their technology and products. If any of these employees leave our businesses, ~~cannot accurately predict~~ the ~~continued demand for their customers’ and clients’ products and services and the demands~~loss of their ~~customers~~technical knowledge and ~~clients~~experience may materially adversely affect the operations and research and development of current and future services. We may also be unable to attract technical employees with comparable experience because competition for such employees is intense. If our businesses are not able to replace their ~~products and services.~~technical employees with new employees or attract additional technical employees, their operations may suffer as they may be unable to keep up with innovations in their respective industries. As a result, ~~of this uncertainty, past operating results, earnings~~their ability to continue to compete effectively and ~~cash flows~~their operations may ~~not~~ be ~~indicative of~~materially adversely affected.

Our businesses rely on their intellectual property and licenses to use others’ intellectual property, for competitive advantage. If our ~~future operating results, earnings and cash flows. If the demand for~~businesses are unable to protect their ~~customers’ and clients’ products and services declines, demand for their products and services will be similarly affected and~~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 ~~effect~~affect on their financial condition, business and results of operations.


	*~~The industries in which our businesses compete or may compete are highly competitive and they may not be able to compete effectively with competitors.~~*

Our businesses face substantial competition from a number of providers of similar services and products. Some industries in which our businesses compete are highly fragmented and characterized by intense competition and low margins. They compete with independent businesses and service providers. Many of their competitors have substantially greater financial, manufacturing, marketing and technical resources, have greater name recognition and customer allegiance, operate in a wider geographic area and offer a greater variety of products and services. Increased competition from existing or potential competitors could result in price reductions, reduced margins, loss of market share results of operations and cash flows.

In addition, current and prospective customers and clients continually evaluate the merits of internally providing products or services currently provided by our businesses and their decision to do so would materially adversely effect the financial condition, business and results of operations of our businesses.


	Our businesses are and may be, dependent on certain key personnel, and the loss of key personnel, or the inability to retain or replace qualified employees, could have an adverse affect on our financial condition, business and results of operations.

We intend to operate our businesses on a stand-alone basis, primarily relying on existing management teams for day-to-day operations and augmenting the existing management teams, on an as needed basis. Consequently, their operational success, as well as the success of our internal growth strategy, will be dependent on the continued efforts of the management teams of our businesses, who have extensive experience in the day-to-day operations of these businesses. Furthermore, we will likely be primarily dependent on the operating management teams of businesses that we may acquire in the future. The loss of key personnel, or the inability to retain or replace key personnel or qualified employees, could have an adverse effect on our financial condition, business and results of operations.

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.

~~Each~~ businesses’ success depends in part on their, or licenses to use others’, brand names, proprietary technology and manufacturing techniques. ~~These~~Our businesses rely on a combination of patents, trademarks, copyrights, trade secrets, confidentiality procedures and contractual provisions to protect their intellectual property rights. The steps they have taken to protect their intellectual property rights may not prevent third parties from using their intellectual property and other proprietary information without their authorization or independently developing intellectual property and other proprietary information that is similar. In addition, the laws of foreign countries may not protect our businesses’ intellectual property rights effectively or to the same extent as the laws of the United States. Stopping unauthorized use of their proprietary information and intellectual property, and defending claims that they have made unauthorized use of others’ proprietary information or intellectual property, may be difficult, time-consuming and costly. The use of their intellectual property and other proprietary information by others ~~and the use by others of their intellectual property and proprietary information,~~ could reduce or eliminate any competitive advantage they have developed, cause them to lose sales or otherwise harm their business.

Confidentiality agreements entered into by our businesses with their employees and third parties could be breached and may not provide meaningful protection for their unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets. Adequate remedies may not be available in the event of an unauthorized use or disclosure of their trade secrets and manufacturing expertise. Violations by others of their confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our businesses’ competitive position and cause sales and operating results to decline.

Our businesses may become involved in legal proceedings and claims in the future either to protect their intellectual property or to defend allegations that they have infringed upon others’ intellectual property rights. These claims and any resulting litigation could subject them to significant liability for damages and invalidate their property rights. In addition, these lawsuits, regardless of their merits, could be time consuming and expensive to resolve and could divert management’s time and attention. ~~Any potential intellectual property litigation alleging infringement of a third-party’s intellectual property also could force them or their customers and clients to:~~


	•	~~temporarily or permanently stop producing products that use the intellectual property in question;~~

	•	~~obtain an intellectual property license to sell the relevant technology at an additional cost, which license may not be available on reasonable terms, or at all; and~~

	•	~~redesign those products or services that use the technology or other intellectual property in question.~~

The costs associated with any of these actions could be substantial and 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 and take this knowledge, our businesses’ operations may suffer and their ability to compete could be adversely impacted.

The future success of some of our businesses depends and may depend upon the continued service of their technical personnel who have developed and continue to develop their technology and products. Some of

If our businesses are ~~dependent on a small number~~unable to continue the technological innovation and successful commercial introduction of ~~employees involved in~~new products and services, their ~~operations. If any of these employees leave our businesses, our~~ financial condition, business and results of operations would be adversely affected. Competition for such technical personnel is intense, and our businesses may experience difficulties in attracting and retaining the required number of such individuals. If our businesses are not

able to replace technical personnel with new employees with comparable experience, their operations may suffer as they may be unable to keep up with innovations in their respective industries. In addition, as these businesses grow, they will need to hire additional qualified personnel, and may not be able to do so. As a result, they may not be able to continue to compete effectively and their operations maycould be materially adversely affected.


	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.

The industries in which our businesses ~~operate, or may~~ operate experience periodic technological changes and ongoing product improvements. Their results of operations depend significantly on the development of commercially viable new products, product ~~grades~~upgrades and applications, as well as production technologies and their ability to integrate new technologies. Our future growth will depend on their ability to gauge the direction of the commercial and technological progress in all key end-use markets and upon their ability to successfully develop, manufacture and market products in such changing end-use markets. In this regard, they must make ongoing capital investments.

In addition, their customers may introduce new generations of their own products, which may require new or increased technological and performance specifications, requiring our businesses to develop customized products. Our businesses may not be successful in developing new products and technology that satisfy their customers’ ~~demand~~demands and their customers may not accept any of their new products. If our businesses fail to keep pace with evolving technological innovations or fail to modify their products in response to their customers’ needs in a timely manner, then their financial condition, business and results of operations could be materially adversely affected as a result of reduced sales of their products and sunk developmental costs. ~~These developments may require our personnel staffing business to seek better educated and trained workers, who may not be available in sufficient numbers.~~

Some of our businesses rely and may rely on suppliers for the timely delivery of materials used in manufacturing their products. Shortages or price fluctuations in component parts specified by their customers could limit their ability to manufacture certain products, delay product shipments, cause them to breach supply contracts and materially adversely affect our financial condition, business and results of operations.

Our results of operations could be adversely affected if our businesses are unable to obtain adequate supplies of raw materials in a timely manner. Strikes, fuel shortages and delays of providers of logistics and transportation services could disrupt our businesses and reduce sales and increase costs. Many of the products our businesses manufacture require one or more components that are supplied by third parties. Our businesses ~~generally~~ do not have ~~any~~ long-term ~~supply agreements. At various times, there are shortages~~contracts with their customers and clients and the loss of some of the components that they used, as a result of strong demand for those components or problems experienced by suppliers. Suppliers of these raw materials may from time to time delay delivery, limit supplies or increase prices due to capacity constraints or other factors, whichcustomers and clients could adversely affect our businesses ability to deliver products on a timely basis. In addition, supply shortages for a particular component can delay production of all products using that component or cause cost increases in the services they provide. Our businesses inability to obtain these needed materials may require them to redesign or reconfigure products to accommodate substitute components, which would slow production or assembly, delay shipments to customers, increase costs and reduce operating income. In certain circumstances, our businesses may bear the risk of periodic component price increases, which could increase costs and reduce operating income.

In addition, our businesses may purchase components in advance of their requirements for those components as a result of a threatened or anticipated shortage. In this event, they will incur additional inventory carrying costs, for which they may not be compensated, and have a heightened risk of exposure to inventory obsolescence. If they fail to manage their inventory effectively, our businesses may bear the

~~risk of fluctuations in materials costs, scrap and excess inventory, all of which may~~ materially adversely affect their financial condition, business and results of operations.


	~~Our businesses could experience fluctuations in the costs of raw materials, which fluctuations could have a material adverse effect on their financial condition, business and results of operations.~~

Some of our businesses results of operations are and may be directly affected by the cost of raw materials. For example, for Advanced Circuits, the principal raw materials consist of copper and glass and represent approximately 38.7% of its total raw material purchases volume and approximately 9.8% of its total cost of goods sold in 2004. Prices for these key raw materials may fluctuate during periods of high demand. The ability by these businesses to offset the effect of increases in raw material prices by increasing their prices is uncertain. If these businesses are unable to cover price increases of these raw materials, their financial condition, business and results of operations could be materially adversely affected.


	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,~~ based primarily upon individual orders and sales with their customers and clients. Our businesses historically have not entered into long-term supply contracts with their customers and clients. As such, their customers and clients could cease using their services or buying their products from them at any time and for any reason. The fact that they do not enter into long-term contracts with their customers and clients means that they have no recourse in the event a customer or client no longer wants to use their services or purchase products from them. If a significant number of their customers or clients elect not to use their services or purchase their products, it could materially adversely affect their financial condition, business and results of operations.


	Damage to our businesses’ or their customers’ and suppliers’ offices and facilities could increase costs of doing business and materially adversely affect their ability to deliver their services and products on a timely basis as well as decrease demand for their services and products, which could materially adversely affect their financial condition, business and results of operations.

Our businesses ~~have offices~~are subject to federal, state and ~~facilities located throughout the United States, as well as in Europe~~foreign environmental laws and ~~Asia. The destruction or closure of these offices~~regulations that expose them to potential financial liability. Complying with applicable environmental laws requires significant resources, and ~~facilities or transportation services, or the offices or facilities of~~if our customers or suppliers for a significant period of time as a result of fire; explosion; act of war or terrorism; labor strikes; trade embargoes or increased tariffs; floods; tornados; hurricanes; earthquakes; tsunamis; or other natural disastersbusinesses fail to comply, they could ~~increase our businesses’ costs of doing business and harm their ability~~be subject to deliver their products and services on a timely basis and demand for their products and services and, consequently, materially adversely affect their financial condition, business and results of operations.substantial liability.


	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.

Some of the facilities and operations of our businesses are ~~and may be~~ subject to a variety of federal, state and foreign environmental laws and regulations ~~which require~~including laws and ~~will continue~~regulations pertaining to ~~require significant expenditures to remain in compliance~~the handling, storage and transportation of raw materials, products and wastes. Compliance with such laws and regulations currently in place and those that may be enacted in the ~~future.~~future will require significant expenditures. Compliance with current and future environmental laws is a major consideration for our ~~businesses.~~businesses as any material violations of these laws can lead to substantial liability, revocations of discharge permits, fines or penalties. Because some of ~~them~~our businesses use hazardous materials and generate hazardous wastes in their operations, they may be subject to potential financial liability for costs associated with the investigation and remediation of their own sites, or sites at which they have arranged for the disposal of hazardous wastes, if such sites become contaminated. Even if they fully comply with applicable environmental laws and are not directly at fault for the contamination, ~~they~~our businesses may still be liable. ~~Although our businesses estimate their potential~~

liability with respect to violations or alleged violations and reserve funds for such liability, such accruals may not be sufficient to cover the actual costs incurred as a result of these violations or alleged violations. In addition, any material violations of these environmental laws can lead to material liability, revocations of discharge permits, fines or penalties.

The identification of presently unidentified environmental conditions, more vigorous enforcement by regulatory agencies, enactment of more stringent laws and regulations, or other unanticipated events may arise in the future and give rise to material environmental liabilities, higher than anticipated levels of operating expenses and capital investment or, depending on the severity of the impact of the foregoing factors, costly plant relocation, all of which could have an adverse effect on our financial condition, business and results of operations.

See the section entitled “— Risks Related to Crosman — Current and new environmental laws and regulations may materially adversely affect Crosman’s operations” for a discussion of consent orders with the New York State Department of Environmental Conservation (“DEC”) signed by Crosman concerning the investigation and remediation of soil and groundwater contamination at its facility in East Bloomfield, New York.


	The operations of some of our businesses are and may be subject to operating risks associated with handling, storage and transportation of raw materials, products and wastes that subject them to operating risks that may not be covered by insurance and could have a material adverse effect on our financial condition, business or results of operations.

~~The operations of some of our businesses are and may be subject to operating risks~~Costs associated with ~~handling, storage and transportation of raw materials, products and wastes. Risks related to the potential leaks, explosions and fires, and discharge of~~ these ~~hazardous materials into the surrounding areas exist. These operating~~ risks can cause personal injury, property damage and environmental contamination, and may result in the shutdown of affected facilities and the imposition of civil or criminal penalties. The occurrence of any of these events may disrupt production and have a material adverse effect on the productivity and profitability, operating results and cash flows of a particular manufacturing facility.

Although these businesses maintain property, business interruption and casualty insurance that is in accordance with customary industry practices, this insurance may not be adequate to fully cover all potential hazards incidental to their business. Certain occurrences also may require the payment of substantial deductibles or other contributions, and may result in increased premiums or cancellation of insurance. As a result of market conditions, premiums and deductibles for certain insurance policies may increase substantially and, in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. In addition, insurers may successfully challenge coverage for certain claims. If our businesses were to incur a significant liability for which they were not fully insured, it could have a material adverse effect on our financial condition, business and results of operations.

Our businesses are and may be subject to a variety of federal, state and foreign laws and regulations concerning employees health and safety. Failure to comply with governmental laws and regulations could subject them to, among other things, potential financial liability, mandatory product recalls, penalties and legal expenses which could have a material adverse effect on our financial condition, business and results of operations.

Our businesses are and may be subject to regulation by various federal, state and foreign governmental agencies concerning employment, health and safety. In addition, some of our businesses’ products and services may be regulated by federal, state and foreign laws and regulations. Compliance with these laws and regulations, which in some jurisdictions may be more stringent than in others, is a major consideration for our businesses. Government regulators generally have considerable discretion to change or increase regulation of our operations, or implement additional laws or regulations that could adversely affect our businesses. Noncompliance with applicable regulations and requirements could subject our businesses to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of

~~profits, fines, damages, civil~~
Some of our businesses rely and ~~criminal penalties~~may rely on suppliers for the timely delivery of materials used in manufacturing their products. Shortages or ~~injunctions. Any~~price fluctuations in component parts specified by their customers could limit their ability to manufacture certain products, delay product shipments, or cause them to breach supply contracts, all of ~~these actions, or if we do not prevail in any possible civil or criminal litigation, could~~which may materially adversely affect our financial condition, business and results of operations. ~~In addition, responding~~
Our financial condition, business and operations could be materially adversely affected if our businesses are unable to ~~any action will likely result~~obtain adequate supplies of raw materials in a ~~diversion~~timely manner. Strikes, fuel shortages and delays of providers of logistics and transportation services could disrupt our ~~manager’s~~businesses and reduce sales and increase costs. Many of the products our ~~management teams’ attention and resources from our operations.~~
Some of our businesses are and may be operated pursuant to government permits, licenses, leases, concessions or contracts that are generally complex and may result in a dispute over interpretation or enforceability. Our failure to comply with regulations or concessions could subject us to monetary penalties or result in a revocation of our rights to operate the affected business.
businesses manufacture require one or more components that are supplied by third parties. Our businesses ~~are and may be,~~generally do not have any long-term supply agreements. Therefore our businesses’ suppliers could cease supplying materials to varying degrees, subject to regulation by governmental agencies. In addition, their operations rely and may, in the future, rely on government permits, licenses, concessions, leases or contracts that are generally complex, require significant expenditures and attention of management to comply with, and may result in a dispute, including arbitration or litigation, over interpretation or enforceability. If our businesses ~~fail to comply with these regulations or contractual obligations,~~at any time, which would require our businesses to find new suppliers, resulting in possible manufacturing delays and increased costs. At various times, there are shortages of some of the components that they use, as a result of strong demand for those components or problems experienced by suppliers. Suppliers of these raw materials may from time to time delay delivery, limit supplies or increase prices due to capacity constraints or other factors, which could ~~be subject to monetary penalties or lose their rights to operate the affected businesses, or both. Further,~~materially adversely affect our businesses’ ability to ~~grow their~~deliver products on a timely basis. In addition, supply shortages for a particular component can delay production of all products using that component or cause cost increases in those products. Our businesses’ inability to obtain these needed materials may require them to acquire supplies at higher costs or redesign or reconfigure products to accommodate substitute components, which would slow production or assembly, delay shipments to customers, increase costs and reduce operating income. Our businesses may ~~often require consent~~bear the risk of ~~government regulators. These consents~~periodic component price increases, which could increase costs and reduce operating income.
In addition, our businesses may ~~be costly to obtain and we~~purchase components in advance of their requirements for those components as a result of a threatened or anticipated shortage. In this event, they will incur additional inventory carrying costs, for which they may not be ~~able~~compensated, and have a heightened risk of exposure to ~~obtain them~~inventory obsolescence. If they fail to manage their inventory effectively, our businesses may bear the risk of fluctuations in materials costs, scrap and excess inventory, all of which may materially adversely affect their financial condition, business and results of operations.
Our businesses could experience fluctuations in the costs of raw materials as a ~~timely fashion, if at all. Failure~~result of inflation and other economic conditions, which could have a material adverse effect on their financial condition, business and results of operations.
Changes in inflation could materially adversely affect the costs and availability of raw materials used in our manufacturing businesses, and changes in fuel costs likely will affect the costs of transporting materials from our suppliers and shipping goods to our customers, as well as the effective areas from which we can recruit temporary staffing personnel. For example, for Advanced Circuits, the principal raw materials consist of copper and glass and represent approximately 13.4% of the total cost of goods sold in 2006. Prices for key raw materials such as these may fluctuate during periods of high demand. The ability by our businesses to offset the effect of increases in raw material prices by increasing their prices is uncertain. If our businesses are unable to cover price increases of these raw materials, their financial condition, business and results of operations could be materially adversely affected.
Defects in the products provided by our businesses could result in financial or other damages to their customers, which could result in reduced demand for our businesses’ productsand/or liability claims against our businesses.
Some of the products our businesses produce could potentially result in product liability suits against them. Some of our businesses manufacture products to ~~obtain any~~customer specifications that are highly complex and critical to customer operations. Defects in products could result in customer dissatisfaction or a reduction in or cancellation of future purchases or liability claims against our businesses. If these defects occur frequently, our reputation may be impaired. Defects in products could also result in financial or other

24

damages to customers, for which our businesses may be asked or required ~~consents~~to compensate their customers. Any of these outcomes could ~~limit~~negatively impact our ~~ability~~financial condition, business and results of operations.

Some of our businesses are subject to ~~achieve~~certain risks associated with the movement of businesses offshore.

Some of our ~~growth strategy.~~businesses are potentially at risk of losing business to competitors operating in lower cost countries. An additional risk is the movement offshore of some of our businesses’ customers, leading them to procure products or services from more closely located companies. Either of these factors could negatively impact our financial condition, business and results of operations.


	*~~Our businesses are subject to certain risks associated with their foreign operations or business they conduct in foreign jurisdictions.~~*

Loss of key customers of some of our businesses could negatively impact our financial condition, business and results of operations.

Some of our businesses have significant exposure to certain key customers, the loss of which could negatively impact our financial condition, business and ~~may~~results of operations.

Our businesses are subject to certain risks associated with their foreign operations or business they conduct in foreign jurisdictions.

Some of our businesses have operations or conduct business ~~in Europe and Asia.~~outside the United States. Certain risks are inherent in operating or conducting business in foreign jurisdictions, including: exposure to local economic conditions; difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; longer payment cycles for foreign customers; adverse currency exchange controls; exposure to risks associated with changes in foreign exchange rates; potential adverse changes in political environments; withholding taxes and restrictions on the withdrawal of foreign investments and earnings; export and import restrictions; difficulties in enforcing intellectual property rights; and required compliance with a variety of foreign laws and regulations. These risks individually and collectively have the potential to negatively impact our financial condition, business and results of operations.


	•	~~exposure to local economic conditions;~~

	•	~~difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;~~

	•	~~longer payment cycles for foreign customers;~~

	•	~~adverse currency exchange controls;~~

	•	~~exposure to risks associated with changes in foreign exchange rates;~~

	•	~~potential adverse changes in the political environment of the foreign jurisdictions or diplomatic relations of foreign countries with the United States;~~

	•	~~withholding taxes and restrictions on the withdrawal of foreign investments and earnings;~~

	•	~~export and import restrictions;~~

	•	~~labor relations in the foreign jurisdictions;~~

	•	~~difficulties in enforcing intellectual property rights; and~~

	•	~~required compliance with a variety of foreign laws and regulations.~~


	*~~Employees of our businesses may join unions, which may increase our businesses’ costs.~~*

~~None of our~~Our businesses have ~~employees currently subject to collective bargaining agreements. However, employees~~recorded a significant amount of goodwill and other identifiable intangible assets, which may form or join a union. The unionization of our businesses’ workforce could result in increased labor costs. Any work stoppages or other labor disturbances by our businesses’ employees could increase labor costs and disrupt production and the occurrence of either of these events could have a material adverse effect on the its business, financial condition, results of operations and cash available for distributions.never be fully realized.


	*~~Our initial businesses have recorded a significant amount of goodwill and other identifiable intangible assets, which may never be fully realized.~~*

Our ~~initial~~ businesses collectively ~~have,~~had, as of ~~September 30, 2005, $309.2~~December 31, 2006, $288.0 million of goodwill and ~~other~~ intangible assets ~~on a pro forma basis. On a consolidated basis, this is 67.5%~~or 55.5% of our total ~~assets on a pro forma basis.~~assets. In connection with the acquisitions of Aeroglide and Halo, we anticipate recording additional goodwill and other intangible assets. In accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards, ~~(“SFAS”)~~or SFAS, No. 142,“Goodwill and Other Intangible Assets,” we are required to evaluate goodwill and other intangibles for impairment at least annually. Impairment may result from, among other things, deterioration in the performance of these businesses, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products and services sold by these businesses, and a variety of other factors. Depending on future circumstances, it is possible that we may never realize the full value of these intangible assets. The amount of any quantified impairment must be expensed immediately as a charge to results of operations. Any future determination of impairment of a material portion of goodwill or other identifiable intangible assets could have a material adverse effect on these businesses’ financial condition and operating results, and could result in a default under our ~~debt covenants~~revolving credit facility.

The internal controls of our businesses have not yet been integrated and ~~could adversely affect~~we have only recently begun to examine the internal controls that are in place for each business. As a result, we may fail to comply with Section 404 of the Sarbanes-Oxley Act or our ~~distributions to our shareholders.~~


	*~~The operational objectives and business plans of our businesses may conflict with our operational and business objectives or with the plans and objective of another business we own and operate.~~*

Our businesses operate in different industries and face different risks and opportunities depending no market and economic conditions in their respective industries and regions. A business’ operational objectives and business plansauditors may not be similar to the objectives and plans of another business as well as our objectives and plans. This could create competing demands for resources, such as management attention and funding needed for operations or acquisitions,report a material weakness in the ~~future.~~effectiveness of our internal control over financial reporting.


	The internal controls of our initial businesses have not yet been integrated and we have only recently begun to examine the internal controls that are in place for each business. As a result, we may fail to comply with Section 404 of the Sarbanes-Oxley Act or our auditors may report a material weakness in the effectiveness of our internal controls over financial reporting.

We are required under applicable law and regulations to integrate the various systems of internal ~~controls~~control over financial reporting of our ~~initial~~ businesses. Beginning with our ~~Annual Report~~annual report for the year ending December 31, ~~2006,~~2007, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, (“which we refer to as

Section ~~404”),~~404, we will be required to include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. Additionally, our independent registered public accounting firm will be required to issue a report on management’s assessment of our internal control over financial reporting and a report on their evaluation of the operating effectiveness of our internal control over financial reporting.

We are evaluating our ~~initial~~ businesses’ existing internal controls in light of the requirements of Section 404. During the course of our ongoing evaluation and integration of the internal controls of our ~~initial~~ businesses, we may identify areas requiring improvement, and may have to design enhanced processes and controls to address issues identified through this review. Since our ~~initial~~ businesses were not subject to the requirements of Section 404 before ~~this offering,~~being acquired by us, the evaluation of existing controls and the implementation of any additional procedures, processes or controls may be costly. Our initial compliance with Section 404 could result in significant delays and costs and require us to divert substantial resources, including management time and attention, from other activities and hire additional accounting staff to address Section 404 requirements. In addition, under Section 404, we are required to report all significant deficiencies to our audit committee and independent ~~auditors~~auditor and all material weaknesses to our audit committee and ~~auditors~~independent auditor and in our periodic reports. We may not be able to successfully complete the procedures, certification and attestation requirements of Section 404 and we or our ~~auditors~~independent auditor may have to report material weaknesses in connection with the presentation of our ~~December 31, 2006~~ financial statements.

If we fail to comply with the requirements of Section 404 or if our auditors report such a significant deficiency or material weakness, the accuracy and timeliness of the filing of our annual report may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have ana material adverse effect on the ~~trading~~market price of the shares.

Risks Related to ~~CBS Personnel~~Advanced Circuits


	*~~CBS Personnel’s business depends its ability to attract and retain qualified employees.~~*

~~The success of CBS Personnel’s business depends on~~Unless Advanced Circuits is able to respond to technological change at least as quickly as its ~~ability to attract and retain qualified personnel who possess the skills and experience necessary to meet the requirements of~~competitors, its customers or to successfully bid for new customer projects. CBS Personnel must continually evaluate and upgrade its base of available qualified personnel through recruiting and training programs to keep pace with changing customer needs and emerging technologies. CBS Personnel’s ability to attract and retain qualified personnelservices could be impaired by rapid improvement in economic conditions resulting in lower unemployment and increases in compensation. During periods of economic growth, CBS Personnel faces increasing competition for retaining and recruiting qualified personnel,rendered obsolete, which ~~in turn leads to greater advertising and recruiting costs and increased salary expenses. If CBS Personnel cannot attract and retain qualified employees, the quality of its services may deteriorate and~~could materially adversely affect its financial condition, business and results of ~~operations may be adversely affected.~~


	*~~Any significant economic downturn could result in clients of CBS Personnel using fewer temporary employees, which would materially adversely affect the business of CBS Personnel.~~operations.*

Because demand for temporary staffing services is sensitive to changes in the level of economic activity, CBS Personnel’s business may suffer during economic downturns. As economic activity begins to slow, companies tend to reduce their use of temporary employees before undertaking any other restructuring efforts, which may include reduced hiring and changed pay and working hours of their regular employees, resulting in decreased demand for temporary personnel. Significant declines in demand, and thus in revenues, can result in lower profit levels.


	*~~Customer relocation of positions filled by CBS Personnel may materially adversely affect CBS Personnel’s financial condition, business and results of operations.~~*

Many companies have built offshore operations, moved their operations to offshore sites that have lower employment costs or outsourced certain functions. If CBS Personnel’s customers relocate positions filled by CBS Personnel this would have an adverse effect on the financial condition, business and results of operations of CBS Personnel.


	*~~CBS Personnel assumes the obligation to make wage, tax and regulatory payments for its employees, and as a result, it is exposed to client credit risks.~~*

CBS Personnel generally assumes responsibility for and manages the risks associated with its employees’ payroll obligations, including liability for payment of salaries and wages (including payroll taxes), as well as group health and retirement benefits. These obligations are fixed, whether or not its clients make payments required by services agreements, which exposes CBS Personnel to credit risks, primarily relating to uncollateralized accounts receivables. If CBS Personnel fails to successfully manage its credit risk, its financial condition, business and results of operations may be materially adversely affected.


	*~~CBS Personnel is exposed to employment-related claims and costs and periodic litigation that could materially adversely affect its financial condition, business and results of operations.~~*

~~employer of record of its temporary employees, it incurs a risk of liability to its temporary employees and clients for various workplace events, including:~~


	•	~~claims of misconduct or negligence on the part of its employees, discrimination or harassment claims against its employees, or claims by its employees of discrimination or harassment by its clients;~~

	•	~~immigration-related claims;~~

	•	~~claims relating to violations of wage, hour and other workplace regulations;~~

	•	~~claims relating to employee benefits, entitlements to employee benefits, or errors in the calculation or administration of such benefits; and~~

	•	~~possible claims relating to misuse of customer confidential information, misappropriation of assets or other similar claims.~~

CBS Personnel may incur fines and other losses and negative publicity with respect to any of the situations listed above. Some the claims may result in litigation, which is expensive and distracts management’s attention from the operations of CBS Personnel’s business.

CBS Personnel maintains insurance with respect to many of these claims. CBS Personnel, however, may not be able to continue to obtain insurance at a cost that does not have a material adverse effect upon it. As a result, such claims (whether by reason of it not having insurance or by reason of such claims being outside the scope of its insurance) may have a material adverse effect on CBS Personnel’s financial condition, business and results of operations.


	*~~CBS Personnel’s workers’ compensation loss reserves may be inadequate to cover its ultimate liability for workers’ compensation costs.~~*

CBS Personnel self-insures its workers’ compensation exposure for certain employees. The calculation of the workers’ compensation reserves involves the use of certain actuarial assumptions and estimates. Accordingly, reserves do not represent an exact calculation of liability. Reserves can be affected by both internal and external events, such as adverse developments on existing claims or changes in medical costs, claims handling procedures, administrative costs, inflation, and legal trends and legislative changes. As a result, reserves may not be adequate.

~~If reserves are insufficient to cover the actual losses, CBS Personnel would have to increase its reserves and incur charges to its earnings that could be material.~~

~~Risks Related to Crosman~~


	*~~Crosman is dependent on key retailers, the loss of which would materially adversely affect its financial conditions, businesses and results of operations.~~*

Crosman’s 10 largest retailers accounted for approximately 71.3% of its gross sales, excluding GFP, for the fiscal year ended June 30, 2005 and its largest retailer, Wal-Mart, accounted for approximately 35.7% of its gross sales, excluding GFP, in such period. Crosman may be unable to retain listings of its products at certain existing retailers, or may only be able to retain or increase product listings at lower prices, reducing profitability at these key retailers. Specifically, the decision to list products with specific retailers is not made solely by Crosman and may be based upon factors beyond its control. Accordingly, its listings with its current retailers may not extend into the future, or if extended, the product prices or other terms may not be acceptable to it. Moreover, the retail customers who purchase its products may not continue to do so. Any negative change involving any of its largest retailers, including but not limited to a retailer’s financial condition, desire to carry the their products or desire to carry the overall airgun, paintball or larger encompassing category (e.g. sporting goods) would likely have a material adverse effect on Crosman’s financial condition, business and results of operations.


	*~~Current and new environmental laws and regulations may materially adversely affect Crosman’s operations.~~*

Crosman’s facilities and operations are subject to federal, state and local environmental laws and regulations relating to the protection of the environment, pollutant discharges into the air and water, managing and disposing of hazardous substances, and cleaning up contaminated sites. Some of Crosman’s operations require permits and environmental controls to prevent or reduce air and water pollution. These permits are subject to modification, renewal, and revocation by the issuing authorities. Compliance with federal, state and local environmental laws and permit requirements requires and will continue to require significant expenditures to remain in compliance with such laws and regulations currently in place and in the future. Because Crosman uses hazardous materials and generates hazardous wastes in its operations, it may be subject to potential financial liability for costs associated with the investigation and remediation of its own sites, or sites at which it has arranged for the disposal of hazardous wastes, if such sites become contaminated. Even if it fully complies with applicable environmental laws and is not directly at fault for the contamination, Crosman may still be liable. Any material violations of these laws can lead to material liability, revocations of discharge permits, fines or penalties.

Crosman has signed consent orders with the DEC to investigate and remediate soil and groundwater contamination at its facility in East Bloomfield, New York. Pursuant to a contractual indemnity and related agreements, the costs of investigation and remediation have been paid by a third-party successor to the prior owner and operator of the facility, which also has signed the consent orders with the DEC. In 2002, the DEC indicated that additional remediation of groundwater may be required. Crosman and the third party have engaged in discussions with the DEC regarding the need for additional remediation. To date, the DEC has not required any additional remediation. The third party may not have the financial ability to pay or may discontinue defraying future site remediation costs, which could have a material adverse effect on Crosman if the DEC requires additional groundwater remediation.


	*~~Crosman’s products are subject to governmental regulations in the United States and foreign jurisdictions.~~*

In the United States, recreational airgun and paintball products are within the jurisdiction of the Consumer Products and Safety Commission (“CPSC”). Under federal statutory law and CPSC regulations, a manufacturer of consumer goods is obligated to notify the CPSC if, among other things, the manufacturer becomes aware that one of its products has a defect that could create a substantial risk of injury. If the manufacturer has not already undertaken to do so, the CPSC may require a manufacturer to recall a product, which may involve product repair, replacement or refund. Crosman’s products may also be subject to recall pursuant to regulations in other jurisdictions where its products are sold. Any recall of its products may expose them to product liability claims and have a material adverse effect on its reputation, brand, and image and on its financial condition, business and results of operations. On a state level, Crosman is subject to state laws relating to the retail sale and use of certain of its products.

The American Society of Testing Materials (“ASTM”), a non-governmental self-regulating association, has been active in developing and periodically reviewing, voluntary standards regarding airguns, airgun ammunition, paintball fields, paintball face protection, paintball markers and recreational airguns. Any failure to comply with any current or pending ASTM standards may have a material adverse effect on its financial condition, business and results of operations.

Adverse publicity relating to shooting sports or paintball, or publicity associated with actions by the CPSC or others expressing concern about the safety or function of its products or its competitor’s products (whether or not such publicity is associated with a claim against it or results in any action by it or the CPSC), could have a material adverse effect on their reputation, brand image, or markets, any of which could have a material adverse effect on Crosman, its financial condition, results of operations.

Certain jurisdictions outside of the U.S. have legislation that prohibit retailers from selling, or places restrictions on the sale of, certain product categories that are or may be sufficiently broad enough to include recreational airguns or paintball markers. Although Crosman is not aware of any state or federal

~~initiatives to enact comparable legislation, aside from those state laws relating to retail sale and use of certain of its products, such legislation may be enacted in the future.~~

Many jurisdictions outside of the United States, including Canada, have legislation limiting the power, distribution and/or use of Crosman’s products. Crosman works with its distributors in each jurisdiction to ensure that it is in compliance with the applicable rules and regulations. Any change in the laws and regulations in any of the jurisdictions where its products are sold that restricts the distribution, sale or use of its products could have a material adverse effect on them, their financial condition and results of operations.


	*~~The airgun and paintball industries are seasonal which could materially adversely affect Crosman’s financial condition, business and results of operations.~~*

The airgun and paintball industries are subject to seasonal variations in operations. Specifically, approximately 25% of its products are sold during October and November as part of the holiday retail season. The success of sales in the holiday retail season is dependent upon a number of factors including, but not limited to, the ability to continue to obtain promotional listings and the overall retail and consumer spending macro-economic environment.

The months following the holiday season are the winter months in North America, which typically result in lower sales of certain outdoor products. As a result, many outdoor consumer products companies, other than those focused on outdoor winter products, historically experience a significant decline in operating income from January to March. The second quarter operating results are typically above Crosman’s annual average and the third fiscal quarter operating results are typically lower than its annual average. The seasonal nature of sales requires disproportionately higher working capital investments from September through January. In addition, borrowing capacity under its revolving credit facility is impacted by the seasonal change in receivables and inventory. Consequently, interim results are not necessarily indicative of the full fiscal year and quarterly results may vary substantially, both within a fiscal year and between comparable fiscal years. The effects of seasonality could have a material adverse impact on its financial condition, business and results of operations.


	*~~Crosman’s products are subject to product safety and liability lawsuits, which could materially adversely affect its financial condition, business and results of operations.~~*

As a manufacturer of recreational airguns, Crosman, other than GFP, is involved in various litigation matters that occur in the ordinary course of business. Since the beginning of 1994, Crosman has been named as a defendant in 56 lawsuits and has been the subject of 89 other claims made by persons alleging to have been injured by its products. To date, 92 of these cases have been terminated without payment and 25 of these cases have been settled at an aggregate settlement cost of approximately $1,125,000. As of the date of this prospectus, Crosman is involved in 23 product liability cases brought against Crosman by persons alleging to have been injured by its products.

In addition, GFP has been the subject of three claims made by persons alleging to be injured by its products. Two of these claims have been resolved without payment and, as of the date of this prospectus, the third has not been resolved and remains active.

Crosman’s management believes that, in most cases, these injuries have been sustained as a result of the misuse of the product, or the failure to follow the safety instructions that accompanied the product or the failure to follow well-recognized common sense rules for recreational airgun safety. In the last two years, expenses incurred in connection with the defense of product liability claims have averaged less than $500,000.

If any unresolved lawsuits or claims are determined adversely they could have a material adverse effect on Crosman, its financial condition, business and results of operations. As more of Crosman’s products are sold to and used by consumers, the likelihood of product liability claims being made against it increases.

Although Crosman provides information regarding safety procedures and warnings with all of its product packaging materials, not all users of its products will observe all proper safety practices. Failure to observe proper safety practices may result in injuries that give rise to product liability and personal injury claims and lawsuits, as well as claims for breach of contract, loss of profits and consequential damages against both companies.

In addition, the running of statutes of limitations in the United States for personal injuries to minor children typically is suspended during the children’s legal minority. Therefore, it is possible that accidents resulting in injuries to minors may not give rise to lawsuits until a number of years later.

While Crosman maintains product liability insurance to insure against potential claims, there is a risk such insurance may not be sufficient to cover all liabilities incurred in connection with such claims and the financial consequences of these claims and lawsuits will have a material adverse effect on its business, financial condition, liquidity and results of operations.


	Crosman relies on a limited number of suppliers and as a result, if suppliers are unable to provide materials on a timely basis, Crosman’s financial condition, business and results of operations may be materially adversely affected.

Crosman is aware of only five manufacturers of the gelatin-encapsulated paintballs necessary for paintball play. Crosman believes that the cost of equipment and the knowledge required for the encapsulation process have historically been significant barriers to the entry of additional paintball suppliers. Accordingly, additional paintball suppliers may not exist in the future. Because Crosman does not manufacture its own paintballs, it has entered into a joint venture with a major paintball producer. Despite the existence of contractual arrangements, it is possible that the current supplier will not be able to supply sufficient quantities of its products in order to meet Crosman’s current needs or to support any growth in Crosman’s sales in the future.

Crosman does not currently have long-term contracts with any of its suppliers, nor does it currently have multiple suppliers for all parts, components, tooling, supplies and services critical to its manufacturing process. Its success will depend, in part, on its and Crosman’s ability to maintain relationships with its current suppliers and on the ability of these and other suppliers to satisfy its product requirements. Failure of a key supplier to meet its product needs on a timely basis or loss of a key supplier could have a material adverse effect on its financial condition, business and results of operations.


	Crosman cannot control certain of its operating expenses and as a result, if it is unable to pass on its cost increases, its financial condition, business and results of operations may be materially adversely affected.

Certain costs including, but not limited to, steel, plastics, labor and insurance may escalate. Although Crosman has the ability to pass on some price increases to customers, significant increases in these costs could significantly decrease the affordability of its products. The cost of maintaining property, casualty, products liability and workers’ compensation insurance, for example, is significant. As a producer of recreational airguns and paintball products, Crosman is exposed to claims for personal injury or death as a result of accidents and misuse or abuse of its products. Generally, its insurance policies must be renewed annually. Its ability to continue to obtain insurance at affordable premiums also depends upon its ability to continue to operate with an acceptable safety record. Crosman could experience higher insurance premiums as a result of adverse claims experience or because of general increases in premiums by insurance carriers for reasons unrelated to its own claims experience. A significant increase in the number of claims against it, the assertion of one or more claims in excess of policy limits or the inability to obtain adequate insurance coverage at acceptable rates, or at all, could have a material adverse effect on its financial condition, business and results of operations.


	*~~The members agreement governing GFP has certain covenants that may have important consequences to Crosman.~~*

Under the terms of the members agreement governing GFP, Crosman is subject to certain non-competition and non-solicitation covenants restricting its participation in the paintball industry for a period of three years from the date it terminates its interests in GFP. These covenants restrict its ability, among other things, to:


	•	engage in, have any equity or profit interest in, make any loan to or for the benefit of, or render services to any business that engages in providing goods or services provided by GFP in the relevant territory;

	•	~~employ any person who was employed by GFP and has not ceased to be employed for a period of at least one year;~~

	•	~~solicit any current or previous customer of GFP; and~~

	•	~~directly or indirectly engage in the manufacture of paintballs.~~

Crosman is restricted in their ability to engage in certain activities within a defined geographic scope for a period of three years following termination of its interest in GFP, and such restrictions could have a material adverse effect on its financial condition, business and results of operations.

~~Risks Related to Advanced Circuits~~


	Defects in the products that Advanced Circuits produces for their customers could result in financial or other damages to those customers, which could result in reduced demand for Advanced Circuits’ services and liability claims against Advanced Circuits.

Some of the products Advanced Circuits produces could potentially result in product liability suits against Advanced Circuits. While Advanced Circuits does not engage in design services for its customers, it does manufacture products to their customers’ specifications that are highly complex and may at times contain design or manufacturing defects, errors or failures, despite its quality control and quality assurance efforts. Defects in the products it manufactures, whether caused by a design, manufacturing or materials failure or error, may result in delayed shipments, customer dissatisfaction, or a reduction in or cancellation of purchase orders or liability claims against Advanced Circuits. If these defects occur either in large quantities or frequently, its business reputation may be impaired. Defects in its products could result in financial or other damages to its customers.

If a person were to bring a product liability suit against Advanced Circuits’ customers, such person may attempt to seek contribution from Advanced Circuits. Product liability claims made against any of these businesses, even if unsuccessful, would be time consuming and costly to defend. A customer may also bring a product liability claim directly against Advanced Circuits. A successful product liability claim or series of claims against Advanced Circuits in excess of its insurance coverage, and for which it is not otherwise indemnified, could have a material adverse effect on its financial condition, business or results of operations. Although Advanced Circuits maintains a warranty reserve, this reserve may not be sufficient to cover its warranty or other expenses that could arise as a result of defects in its products.


	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.

The market for Advanced Circuits’ services is characterized by rapidly changing technology and continuing process development. The future success of its business will depend in large part upon its ability to maintain and enhance its technological capabilities, retain qualified engineering and technical personnel, develop and market services that meet evolving customer needs and successfully anticipate and respond to technological changes on a cost-effective and timely basis. Advanced Circuits’ core manufacturing capabilities are for 2 to 12 layer printed circuit boards. Trends towards miniaturization and increased

performance of electronic products are dictating the use of printed circuit boards with increased layer counts. If this trend continues Advanced Circuits may not be able to effectively respond to the technological requirements of the changing market. If it determines that new technologies and equipment are required to remain competitive, the development, acquisition and implementation of these technologies may require significant capital investments. It may be unable to obtain capital for these purposes in the future, and investments in new technologies may not result in commercially viable technological processes. Any failure to anticipate and adapt to its customers’ changing technological needs and requirements or retain qualified engineering and technical personnel 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.

Advanced Circuits’ customers operate in industries that experience rapid technological change that cause 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.

Advanced Circuits’ customers compete in markets that are characterized by rapidly changing technology, evolving industry standards and continuous improvement in products and services. These conditions frequently result in short product life cycles. As professionals operating in research and development

departments represent the majority of Advanced Circuits’ net sales, the rapid development of electronic products is a key driver of Advanced Circuits’ sales and operating performance. Any decline in the development and introduction of new electronic products could slow the demand for Advanced Circuits’ services and could have a material adverse effect on its financial condition, business and results of operations.


	*~~The continued trend of technology companies moving their operations offshore may materially adversely affect Advanced Circuits’ financial conditions, business and results of operations.~~*

Electronics manufacturing services corporations are increasingly acting as intermediaries, positioning themselves between PCB manufacturers and OEMs, which could reduce operating margins.

There is increasing pressure on technology companies to lower their cost of production. Many have responded to this pressure by relocating their operations to countries that have lower production costs. Despite Advanced Circuits’ focus on quick-turn and prototype manufacturing, its operations, as well as the electronics manufacturing industry as a whole, may be materially adversely affected by U.S. companies moving their operations offshore.


	*~~Electronics manufacturing services corporations are increasingly acting as intermediaries, positioning themselves between PCB manufacturers and OEMS, which could reduce operating margins.~~*

Advanced Circuits’ OEM customers are increasingly outsourcing the assembly of equipment to third party manufacturers. These third party manufacturers typically assemble products for multiple customers and often purchase circuit boards from Advanced Circuits in larger quantities than ~~OEM manufacturers.~~OEMs. The ability of Advanced Circuits to sell products to these customers at margins comparable to historical averages is uncertain. Any material erosion in margins could have a material adverse effect on Advanced Circuits’ financial condition, business and results of operations.

Risks Related to Aeroglide

Aeroglide requires additional manufacturing capacity to maintain its current level of growth; failure to add capacity or broaden its outsourcing relationships could adversely affect Aeroglide’s financial condition, business and results of operations.

Aeroglide’s facilities are at or near capacity. Aeroglide will need to either increase its manufacturing capacity or add outsourced manufacturing capacity in order to materially grow the business. Aeroglide’s failure to add capacity or broaden its outsourcing relationships could adversely affect its financial condition, business and results of operations.

Risks Related to Anodyne

Anodyne recently acquired its first three businesses and faces risks associated with consolidation and integration.

Anodyne recently acquired its first three businesses and faces risks associated with consolidation and integration. Anodyne was formed in early 2006 to acquire SenTech Medical Systems, Inc. which we refer to as SenTech, and AMF Support Surfaces, Inc., which we refer to as AMF. On October 5, 2006, Anodyne acquired Anatomic Gobal, Inc., which we refer to as Anatomic. In addition to SenTech, AMF, and Anatomic, Anodyne intends to acquire other businesses in the medical mattress and support surface sector. Anodyne’s operating results will be influenced by the ability of Anodyne’s management to integrate these other businesses.

Anodyne’s business could be materially impacted by fluctuations in raw material costs, such as foam, vinyl or fabric.

Anodyne’s results of operations could be materially impacted by fluctuations in the cost of raw materials such as foam, vinyl or fabric. In particular, fluctuations in the cost of polyurethane foam could have a material effect on profitability. Since August 2005, the cost of polyurethane foam has increased significantly, in some cases by over 40%. There can be no assurance that increases in the costs of raw materials such as polyurethane foam can be passed along to customers. Any inability to pass on increases in the costs of raw materials could materially impact Anodyne’s profitability.

Certain of Anodyne’s products are subject to regulation by the FDA.

Certain of Anodyne’s mattress products are Class II devices within Section 201(h) of the Federal Food, Drug and Cosmetic Act (21 USC §321(h)), which we refer to as the FDCA, and, as such, are subject to the requirements of the FDCA and certain rules and regulations of the Food and Drug Administration which we refer to as the FDA. Prior to our acquisition of Anodyne, one of its subsidiaries

received a warning letter from the FDA in connection with certain deficiencies identified during a regular FDA audit, including noncompliance with certain design control requirements, certain good manufacturing practice regulations and certain record keeping requirements. Anodyne’s subsidiary has undertaken corrective measures to address the deficiencies and continues to fully cooperate with the FDA. The FDA has the authority to inspect without notice, and to take any disciplinary action that it sees fit, any one of which may have a material adverse effect on Anodyne’s financial condition, business or results of operations.

A change in Medicare Reimbursement Guidelines may reduce demand for Anodyne’s products.

Certain changes in Medicare Reimbursement Guidelines if and when effective may reduce the amount of Medicare funds available for purchasing certain products, which could in turn reduce demand for medical support surfaces and have a material adverse effect on Anodyne’s financial condition, business or results of operations. We cannot predict when any such change in the Guidelines may be effected, or the effect of such changes on Anodyne’s business and operations.

Risks Related to CBS Personnel

CBS Personnel’s business depends on its ability to attract and retain qualified staffing personnel that possess the skills demanded by its clients.

As a provider of temporary staffing services, the success of CBS Personnel’s business depends on its ability to attract and retain qualified staffing personnel who possess the skills and experience necessary to meet the requirements of its clients or to successfully bid for new client projects. CBS Personnel must continually evaluate and upgrade its base of available qualified personnel through recruiting and training programs to keep pace with changing client needs and emerging technologies. CBS Personnel’s ability to attract and retain qualified staffing personnel could be impaired by rapid improvement in economic conditions resulting in lower unemployment, increases in compensation or increased competition. During periods of economic growth, CBS Personnel faces increasing competition for retaining and recruiting qualified staffing personnel, which in turn leads to greater advertising and recruiting costs and increased salary expenses. If CBS Personnel cannot attract and retain qualified staffing personnel, the quality of its services may deteriorate and its financial condition, business and results of operations may be materially adversely affected. Moreover, evolving technological innovations may require CBS Personnel to seek better educated and trained workers, who may not be available in sufficient numbers.

Customer relocation of positions filled by CBS Personnel may materially adversely affect CBS Personnel’s financial condition, business and results of operations.

Many companies have built offshore operations, moved their operations to offshore sites that have lower employment costs or outsourced certain functions. If CBS Personnel’s customers relocate positions filled by CBS Personnel, this would have a material adverse effect on the financial condition, business and results of operations of CBS Personnel.

CBS Personnel assumes the obligation to make wage, tax and regulatory payments for its employees, and as a result, it is exposed to client credit risks.

CBS Personnel generally assumes responsibility for and manages the risks associated with its employees’ payroll obligations, including liability for payment of salaries and wages (including payroll taxes), as well as group health and retirement benefits for its leased employees. These obligations are fixed, whether or not its clients make payments required by services agreements, which exposes CBS Personnel to credit risks of its clients, primarily relating to uncollateralized accounts receivables. If CBS Personnel fails to successfully manage its credit risk, its financial condition, business and results of operations may be materially adversely affected.

CBS Personnel is exposed to employment-related claims and costs and periodic litigation that could materially adversely affect its financial condition, business and results of operations.

The temporary services business entails employing individuals and placing such individuals in clients’ workplaces. CBS Personnel’s ability to control the workplace environment of its clients is limited. As the employer of record of its temporary employees, it incurs a risk of liability to its temporary employees and clients for various workplace events, including: claims of misconduct or negligence on the part of its employees; discrimination or harassment claims against its employees, or claims by its employees of discrimination or harassment by its clients; immigration-related claims; claims relating to violations of wage, hour and other workplace regulations; claims relating to employee benefits, entitlements to employee benefits, or errors in the calculation or administration of such benefits; and possible claims relating to misuse of customer confidential information, misappropriation of assets or other similar claims. CBS Personnel may incur fines and other losses and negative publicity with respect to any of these situations. Some the claims may result in litigation, which is expensive and distracts management’s attention from the operations of CBS Personnel’s business. Furthermore, while CBS Personnel maintains insurance with respect to many of these items, it, may not be able to continue to obtain insurance at a cost that does not have a material adverse effect upon it. As a result, such claims (whether by reason of it not having insurance or by reason of such claims being outside the scope of its insurance) may have a material adverse effect on CBS Personnel’s financial condition, business and results of operations.

CBS Personnel’s workers’ compensation loss reserves may be inadequate to cover its ultimate liability for workers’ compensation costs.

Risks Related to Halo

Increases in the portion of end customers buying directly from manufacturers could have a material adverse effect on the business of Halo.

The promotional products industry supply chain is comprised of multiple levels. As a distributor, Halo does not manufacture or decorate the promotional products it sells. Though management believes distributors play a valuable role in the industry, increases in the portion of end customers buying directly from manufacturers could have a material adverse effect on the financial condition, business and results of operations of Halo.

The loss of a significant number of account executives could adversely affect the business of Halo.

Halo relies on its large staff of account executives to develop and maintain relationships with end customers. Halo’s sales force is comprised of both full time employees andsub-contractors. These professionals have relationships with customers of varying sizes and profitability. Though management believes its compensation structure and support of its sales forces is comparable or better than many industry participants, there can be no assurances that Halo will be able to retain their continuing services. 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.

Halo often relies on many of its suppliers to ship directly to its end customers. Delays in the shipment of products or supply shortages in promotional products in high demand could affect Halo’s reputation and standing with its end customers and adversely affect Halo’s results of operations.

Risks Related to Silvue


	Silvue derives a significant portion of their revenue from the eyewear industry. Any economic downturn in this market or increased regulations by the Food and Drug Administration, would adversely affect its operating results and financial condition.

Silvue derives a significant portion of its revenue from the eyewear industry. Any economic downturn in this market or increased regulations by the FDA, would materially adversely affect its operating results and financial condition.

Silvue’s management estimates that in 2006 approximately 88% of its net sales were from the premium eyewear industry. Because Silvue’s customers are concentrated in the eyewear industry, so the economic factors impacting this industry also impact its operations and revenues. In 2004, Silvue’s management approximates that 70% of its net sales were from the premium eyewear industry. Silvue’s management estimates that it had approximately 40% share of this market as of 2004. Any ~~economic~~ downturn in this market ~~or increased regulations by the Food and Drug Administration,~~ would materially adversely affect its operating results and financial condition.

Further, Silvue’s coating technology is ~~utilized~~used primarily on mid and high value lenses. A decline in the ophthalmic and sunglass lens industry in general, or a ~~switch~~change in consumers’ preferences from mid and high value lenses to low value lenses within the industry, may have a material adverse effect on its financial condition, business and results of operations.


	Silvue’s technology is compatible with certain substrates and processes and competes with a number of products currently sold on the market. A change in the substrate, process or competitive landscape could have a material adverse affect on its financial condition, business and results of operations.

Silvue’s technology is compatible with certain substrates and processes and competes with a number of products currently sold on the market. A change in the substrate, process or competitive landscape could have a material adverse affect on its financial condition, business and results of operations.

Silvue provides material for the coating of polycarbonate, acrylic, glass, metals and other surfaces. Its business is dependent upon the continued use of these substrates and the need for its products to be applied to these substrates. In addition, Silvue’s products are compatible with certain application techniques. New application techniques designed to improve performance and decrease costs are being developed that may be incompatible with Silvue’s coating technologies. Further, Silvue competes with a number of large and small companies in the research, development, and production of coating systems. A competitor may develop a coating system that is technologically superior and render Silvue’s products less competitive. Any of these conditions may have a material adverse effect on its financial condition, business and results of operations.


	*~~Silvue has international operations and is exposed to general economic, political and regulatory conditions and risks in the countries in which they have operations.~~*

Silvue has facilities located in United Kingdom and Japan. Conditions such as the uncertainties associated with war, terrorist activities, social, political and general economic environments in any of the countries in which Silvue or its customers operate could cause delays or losses in the supply or delivery of raw materials and products as well as increased security costs, insurance premiums and other expenses. Moreover, changes in laws or regulations, such as unexpected changes in regulatory requirements (including trade barriers, tariffs, import or export licensing requirements), or changes in the reporting requirements of United States, European and Asian governmental agencies, could increase the cost of doing business in these regions. Furthermore, in foreign jurisdictions where laws differ from those in the United States, it may experience difficulty in enforcing agreements. Any of these conditions may have a material adverse effect on its financial condition, business and results of operations.


	*~~Changes in foreign currency exchange rates could materially adversely affect Silvue’s financial condition, business and results of operations.~~*

Approximately half of Silvue’s net sales are in foreign currencies. Changes in the relative strength of these currencies can materially adversely affect Silvue’s financial condition, business and results of operations.


	Silvue relies upon valuable intellectual property rights that could be subject to infringement or attack. Infringement of these intellectual property rights by others could have a material adverse affect on its financial condition, business and results of operations.

As a leading developer of proprietary high performance coating systems, Silvue relies upon the protection of its intellectual property rights. In particular, Silvue derives a majority of its revenues from products incorporating patented technology. Infringement of these intellectual property rights by others, whether in the United States or abroad (where protection of intellectual property rights can vary widely from jurisdiction to jurisdiction), could have a material adverse effect on Silvue’s financial condition, business and results of operations. In addition, in the highly competitive hard coatings market, there can be no guarantee that Silvue’s competitors would not seek to invalidate or modify Silvue’s proprietary rights, including its 11 patents. While any such effort would be met with vigorous defense, the defense of any such matters could be costly and distracting and no assurance can be given that Silvue would prevail.

Risks Related to this Offering


	There is no public market for our shares. You cannot be certain that an active trading market or a specific share price will be established, and you may not be able to resell your shares at or above the initial offering price.

We have broad discretion in using the net proceeds of this offering. Our failure to effectively use these proceeds could adversely affect our ability to earn profits.

~~An application~~

We will receive net proceeds in this offering of approximately $ . We intend to use the net proceeds to repay existing indebtedness and for general corporate purposes, including the acquisition of other businesses. If we fail to identify desirable acquisition targets, or fail to effectively consummate such acquisitions, or ability to earn profits could be adversely affected.

Our shares are thinly traded and you may not be able to sell the securities at all or when you want to do so.

Our shares currently are quoted on the NASDAQ Global Select Market and currently are thinly traded. Since the closing of the IPO, the weekly trading volume for our shares has been ~~filed to quote our~~as low as shares onper week and as high as shares per week as reported by NASDAQ. Our average daily trading volume was 51,054 for the ~~Nasdaq National Market. However, there currently is no~~quarter ended March 31, 2007 as reported by NASDAQ. Because of the limited public ~~trading~~ market for our shares, ~~and an active trading market~~you may ~~not develop upon completion of this offering or continue~~be unable to ~~exist if it does develop. The market price of~~sell our shares when you want to do so.

Future sales of shares may also decline below the initial public offering price. The initial public offering price per share will be determined by agreement among us and the representatives of the underwriters, and may not be indicative ofcause the market price of our shares ~~after our public offering.~~to decline.


	*~~Future sales of shares may affect the market price of our shares.~~*

We cannot predict what effect, if any, future sales of our shares, or the availability of shares for future sale, will have on the market price of our shares. Sales of substantial amounts of our shares in the public market following ~~our initial public~~this offering, or the perception that such sales could occur, could materially adversely affect the market price of our shares and may make it more difficult for you to sell your shares at a time and price which you deem appropriate. A decline below the ~~initial public~~ offering price, in the future, is possible. After the consummation of this offering and the separate private placement transaction, there will be shares of the trust issued and outstanding ( shares if the underwriters exercise their over-allotment option in full). The shares sold in this offering ( shares if the underwriters exercise their over-allotment option in full) will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, by persons other than our affiliates within the meaning of Rule 144 under the Securities Act. In addition, under the terms of the registration rights agreements with CGI and Pharos, we will be required to file a shelf registration statement under the Securities Act relating to the resale of all shares owned by such holders (subject to the restrictions contained in those agreements) as soon as reasonably possible following May 16, 2007, the one year anniversary of our IPO. See ~~the section entitled “Securities Eligible for Future Sale” for further information regarding circumstances under which additional shares may be sold.~~“Certain Relationships and Related Party Transaction — Contractual Relationships with Related Parties — Registration Rights Agreements.”

We, CGI, Pharos I LLC, which we refer to as Pharos, the employees of our manager ~~CGI, Pharos~~ and ~~participants in the directed share program~~our officers and directors have agreed that, with limited exceptions, we and they will not directly or indirectly, without the prior written consent of ~~Ferris, Baker Watts, Incorporated,~~Citigroup Global Markets Inc., on behalf of the underwriters, offer to sell, sell or otherwise dispose of any ~~of our~~ shares for a period of ~~180~~90 days after the date of this prospectus.


	*~~We may issue debt and equity securities which are senior to our shares as to distributions and in liquidation, which could materially adversely affect the market price of our shares.~~*

We may issue additional debt and equity securities which are senior to our shares as to distributions and in liquidation, which could materially adversely affect the market price of our shares and result in dilution to our shareholders.

In the future, we may attempt to increase our capital resources by entering into additional debt or debt-like financing that is secured by all or up to all of our assets, or issuing debt or equity securities, which could include issuances of commercial paper, medium-term notes, senior notes, subordinated notes or ~~shares.~~equity securities, including preferred securities. Specifically, we do intend to issue our shares as consideration for future acquisitions. In the event of our liquidation, our lenders and holders of our debt securities would receive a distribution of our available assets before distributions to ~~the holders of~~ our ~~shares. Our~~shareholders. Any preferred securities, if issued, may have a preference with respect to distributions and upon liquidation, which could further limit our ability to make distributions to our shareholders. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financing. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future. Thus, you will bear the risk of our future offerings reducing the value of your shares and diluting your interest in us. In addition, we can change our leverage strategy from time to time without shareholder approval, which could materially adversely affect the market share price of our shares.


	*Our earnings and cash distributions may affect the market price of our shares.* Generally, the market price ~~of our shares.~~

~~Generally, the market value~~ of our shares may be based, in part, on the market’s perception of our growth potential and our current and potential future cash distributions, whether from operations, sales, acquisitions or refinancings, and on the value of our businesses. For that reason, our shares may trade at prices that are higher or lower than our net asset value per share. Should we retain operating cash flow for investment purposes or working capital reserves instead of distributing the cash flows to our shareholders, the retained funds, while increasing the value of our underlying assets, may materially adversely affect the market price of our shares. Our failure to meet market expectations with respect to earnings and cash distributions could materially adversely affect the market price of our shares.

If the market price of our shares declines, you may be unable to resell your shares at or above the ~~initial~~ public offering price. We cannot assure you that the market price of our shares will not fluctuate or decline significantly, including a decline below the ~~initial~~ public offering price, in the future.


	The market price, trading volume and marketability of our shares may, from time to time, be significantly affected by numerous factors beyond our control, which may materially adversely affect the market price of your shares and our ability to raise capital through future equity financings.

The market price, trading volume and marketability of our shares may, from time to time, be significantly affected by numerous factors beyond our control, which may materially adversely affect the market price of your shares and our ability to raise capital through future equity financings.

The market price and trading volume of our shares may fluctuate significantly. Many factors that are beyond our control may significantly affect the market price and marketability of our shares and may materially adversely affect our ability to raise capital through equity financings. These factors ~~include~~include: price and volume fluctuations in the ~~following:~~stock markets generally which create highly variable and unpredictable pricing of equity securities; significant volatility in the market price and trading volume of securities of companies in the sectors in which our businesses operate, which may not be related to the operating performance of these companies and which may not reflect the performance of our businesses; changes and variations in our earnings and cash flows; any shortfall in revenue or net income or any increase in losses from levels expected by securities analysts; changes in regulation or tax law; operating performance of companies comparable to us; general economic trends and other external factors including inflation, interest rates, and costs and availability of raw materials, fuel and transportation; and loss of a major funding source.


	•	~~price and volume fluctuations in the stock markets generally which create highly variable and unpredictable pricing of equity securities;~~

	•	significant volatility in the market price and trading volume of securities of companies in the sectors in which our businesses operate, which may not be related to the operating performance of these companies and which may not reflect the performance of our businesses;

	•	~~changes and variations in our earnings and cash flows;~~

	•	~~any shortfall in revenue or net income or any increase in losses from levels expected by securities analysts;~~

	•	~~changes in regulation or tax law;~~

	•	~~operating performance of companies comparable to us;~~

	•	~~general economic trends and other external factors including inflation, interest rates, and costs and availability of raw materials, fuel and transportation; and~~

	•	~~loss of a major funding source.~~

All of our shares sold in this offering will be freely transferable by persons other than our affiliates and those persons subject tolock-up agreements, without restriction or further registration under the Securities ~~Act of 1933, as amended, or the Securities~~ Act.

FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” and elsewhere contains forward-looking statements. We may, in some cases, use words such as “project,” “predict,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” or “may” or other words that, convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this prospectus are subject to a number of risks and uncertainties, some of which are beyond our control, including, among other things:
• our ability to successfully operate our ~~initial~~current businesses on a combined basis, and to effectively integrate and improve any future acquisitions;

• our ability to remove our manager ~~for underperformance~~ and our manager’s right to resign;

• our trust and ~~holding company~~organizational structure, which may limit our ability to meet our dividend and distribution policy;

• our ability to service and comply with the terms of our indebtedness;

• our cash flow available for distribution after the ~~acquisition price~~closing of ~~each initial business~~this offering and our ability to make distributions in the ~~loan amounts~~future to ~~each initial business;~~our shareholders;

• ~~decisions made by persons who control~~ our ~~initial businesses, including decisions regarding dividend policies;~~ability to pay the management fee, profit allocation and put price when due;

• our ability to make and finance future ~~acquisitions, including, but not limited to, the acquisitions described in this prospectus;~~acquisitions;

• our ability to implement our acquisition and management strategies;

• the regulatory environment in which our ~~initial~~ businesses operate;

• trends in the industries in which our ~~initial~~ businesses operate;

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	•	changes in general economic or business conditions or economic or demographic trends in the United States and other countries in which we have a presence, including changes in interest rates and inflation;

	•	environmental risks ~~pertaining to~~affecting the business or operations of our ~~initial~~current businesses;

	•	our and our manager’s ability to retain or replace qualified ~~employees;~~employees of our current businesses and our manager;

	•	costs and effects of legal and administrative proceedings, settlements, investigations and claims; and

	•	extraordinary or force majeure events affecting the ~~facilities~~business or operations of our ~~initial~~current businesses.

Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. A description of some of the risks that could cause our actual results to differ appears under the section “Risk Factors” and elsewhere in this prospectus. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ.

In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this prospectus may not occur. These forward-looking statements are made as of the date of this prospectus. We undertake no obligation to publicly update or revise any forward-looking statements after the completion of this offering, whether as a result of new information, future events or otherwise, except as required by law.

USE OF PROCEEDS

We estimate that our net proceeds from the sale of           shares in this offering will be approximately ~~$231.9~~$      million (or approximately $      million if the underwriters’ overallotment option is exercised in full), based on the ~~initial~~ public offering price of $      per share ~~(which is the midpoint of the estimated initial public offering price range set forth on the cover page on this prospectus)~~ and after deducting underwriting discounts and ~~commissions.~~commissions of approximately $      million (or approximately $      million if the underwriters’ overallotment option is exercised in full), but without giving effect to the payment of public offering costs of approximately $      million. In addition, CGI ~~and Pharos have each~~has agreed to purchase in a separate private placement ~~transactions~~transaction to close in conjunction with the closing of this offering a number of shares in the trust having an aggregate purchase price of approximately ~~$96~~$30 million ~~and $4 million, respectively,~~ at a per share price equal to the ~~initial~~ public offering price.
We intend to use approximately $      of the net proceeds from this offering and from the separate private placement ~~transactions to:~~
• ~~Pay the purchase price and related costs of the acquisition of our initial business of approximately $161.6 million;~~
• ~~Make loans to each of our initial businesses to refinance outstanding debt in an aggregate principal amount of $153.5 million;~~
• ~~Pay the transaction costs related to this offering of approximately $4.5 million; and~~
• ~~Provide funds for general corporate purposes of approximately of $12.3~~transaction to repay borrowings under our revolving credit facility and any remaining amounts for general corporate purposes, including to fund acquisitions, if and when identified and consummated. Our revolving credit facility has been used to provide funding for our acquisitions and loans to our businesses. Our revolving credit facility permits borrowings up to $255 million with an option to increase the facility by $45 million.
The ~~table below summarizes~~revolving credit facility allows for loans at either base rate or LIBOR. Base rate loans bear interest at a fluctuating rate per annum equal to the ~~expected sources~~greater of (i) the prime rate of interest published by the Wall Street Journal and ~~uses~~(ii) the sum of the ~~proceeds~~Federal Funds Rate plus 0.5% for the relevant period, plus a margin ranging from ~~this offering~~1.50% to 2.50% based upon the company’s ratio of total debt to adjusted consolidated earnings before interest expense, tax expense, and depreciation and amortization expenses for such period (the “total debt to EBITDA ratio”). LIBOR loans bear interest at a fluctuating rate per annum equal to the London Interbank Offer Rate, or LIBOR, for the relevant period plus a margin ranging from 2.50% to 3.50% based on the company’s total debt to EBITDA ratio. As of          , 2007, there was an aggregate of $      million of base rate loans and $      of LIBOR loans outstanding under the revolving credit facility. As of          , 2007 the interest rate for base rate loans was    % and the ~~separate private placement transactions:~~interest rate for LIBOR loans was    %. Outstanding indebtedness under the revolving credit facility will mature on November 21, 2011. We are required to pay commitment fees ranging between 0.75% and 1.25% per annum on the unused portion of the revolving credit facility.

Sources of Funds

($ in millions)
Net proceeds from initial public offering $ 231.9
Investment of Pharos 4.0
Investment of CGI 96.0

Total Sources
$ 331.9

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Uses of Funds

($ in millions)
Purchase of Equity:
CBS Personnel $ 87.7 ⁽¹⁾
Crosman 23.3
Advanced Circuits 27.5
Silvue 23.1
Loans to initial businesses:⁽²⁾

CBS Personnel 37.4 ⁽³⁾
Crosman 50.1
Advanced Circuits 51.3
Silvue 14.7
Transactional costs related to this offering⁽⁴⁾
4.5
General corporate purposes 12.3

Total Uses
$ 331.9

PRICE RANGE OF SHARES
⁽¹⁾ Of this amount, approximately $54.9 million will be the purchase price of the equity interests in CBS Personnel and approximately $32.8 million will be in the form of a capitalization loan made to CBS Personnel, as discussed in footnote 3 below. See the section entitled “The Acquisition of and Loans to Our Initial Businesses” for more information about our purchase of equity in each of the initial businesses.
⁽²⁾ See the liquidity and capital resources discussion for each initial business in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information about the outstanding debt of each initial business that will be refinanced in connection with this offering.
⁽³⁾ The company will actually loan to CBS Personnel approximately $70.2 million, which will be comprised of approximately $64.0 million in term loans, approximately $31.2 million of which will be used to pay down third party debt and approximately $32.8 million of which represents a capitalization loan and, therefore, considered part of the purchase price of equity interests in CBS Personnel, as discussed in footnote 1 above, and an approximately $42.5 million revolving loan commitment, approximately $6.2 million of which will be funded to CBS Personnel in conjunction with the closing of this offering. See the section entitled “The Acquisition of and Loans to Our Initial Businesses” for more information about the loans to each of the initial businesses.
⁽⁴⁾ This amount will be reimbursed by the company to the manager in conjunction with the closing of this offering. See the section entitled “Management Services Agreement—Reimbursement of Offering Expenses” and “Certain Relationships and Related Party Transactions” for more information about the reimbursement of offering expenses.
     ~~See~~Our shares trade on the ~~section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information about~~NASDAQ Global Select Market under the ~~terms of existing loans for each business. See~~symbol “CODI.” On April  , 2007, the ~~sections entitled “The Acquisitions of and Loans to Our Initial Businesses” and “Certain Relationships and Related Party Transactions” for information about the acquisition~~last reported sale price of our ~~initial businesses.~~shares on the NASDAQ Global Select Market was $      per share. The following table sets forth, for the periods indicated, the high and low sales prices of the shares as reported on the NASDAQ Global Select Market.

High Low

2006:

Second Quarter (from May 16, 2006) $ 15.10 $ 14.27
Third Quarter 15.36 13.45
Fourth Quarter 17.67 15.70
2007:

First Quarter $ 18.46 $ 16.65
Second Quarter (through          , 2007) $ $
As of March 31, 2007 we had 20,450,000 of our shares outstanding that were held by fewer than ten holders of record; however, we believe the number of beneficial owners of our shares is approximately 5,500.

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47
DIVIDEND AND DISTRIBUTION POLICY
~~To date, we have not declared or paid any distributions. However, we intend~~
The company’s board of directors intends to ~~pursue a policy of paying~~declare and pay regular quarterly cash distributions on ~~our~~all outstanding shares. On July 18, 2006, the trust paid a pro rata distribution of $0.1327 per share to holders of record on July 11, 2006 for the quarter ended June 30, 2006. On October 19, 2006, the trust paid a distribution of $0.2625 to holders of record as of October 13, 2006 for the quarter ended September 30, 2006. On January 24, 2007, the trust paid a distribution of $0.30 to holders of record as of January 18, 2007 for the quarter ended December 31, 2006. The company’s board of directors intends to set each distribution on the basis of the current results of operations of our businesses and other resources available to the company, including the third party credit facility, and the desire to provide sustainable levels of distributions to our shareholders.
Our distribution policy is based on the ~~liquidity~~predictable and ~~capital~~stable cash flows of our ~~initial~~ businesses and on our intention to ~~pay out as~~provide sustainable levels of distributions to our shareholders ~~the majority of cash resulting from the ordinary operation~~while reinvesting a portion of our cash flows in our businesses or in the acquisition of new businesses. If we successfully implement our strategy, we expect to maintain and ~~not to retain significant cash balances in excess~~increase the level of what is prudent for the company or the businesses that it owns, or as may be prudent for the consummation of attractive acquisition opportunities. We intend to finance our acquisition strategy primarily through a combination of issuing new equity and incurring debt. We expect all or most of the new debt to be incurred at the company level. We expect our distributions to ~~reflect our businesses’ financial condition~~shareholders in the future.
The declaration and ~~results~~payment of ~~operations.~~
any future distribution will be subject to the approval of a majority of the company’s board of directors. The board of directors will at all times include a majority of independent directors. The company’s board of directors will ~~review~~take into account such matters as general business conditions, our financial condition, ~~and~~ results of operations, capital requirements and any contractual, legal and regulatory restrictions on ~~a quarterly basis and determine whether or not a distribution should be declared and paid~~the payment of distributions by us to our shareholders or by our subsidiaries to us, and any other factors that the ~~amount~~board of ~~that distribution.~~directors deems relevant. However, even in the event that the company’s board of directors were to decide to declare and pay distributions, our ability to pay such distributions ~~will~~may be adversely impacted due to unknown liabilities, government regulations, financial covenants of the debt of the company, funds needed for acquisitions and to satisfy short- and long-term working capital needs of our businesses, or if our ~~initial~~ businesses do not generate sufficient earnings and cash flow to support the payment of such distributions. In particular, we may incur debt in the future to acquire new businesses, which debt will have substantial payment obligations, which must be satisfied before we can make distributions. These factors could affect our ability to continue to make distributions.

We may use cash ~~flows~~flow from our ~~initial~~ businesses, the capital resources of the company, including borrowings under the company’s third party credit facility, or a reduction in equity to pay a distribution. ~~Depending on which source is used for distributions and the characterization of those distributions, the tax treatment for shareholders may vary.~~ See the section entitled “Material U.S. Federal Income Tax Considerations” for ~~further information.~~more information about the tax treatment of distributions to our shareholders.
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~~THE ACQUISITIONS OF AND LOANS TO OUR INITIAL BUSINESSES~~
~~Overview~~Restrictions on Distribution Payments

We ~~will use part~~are dependent upon the ability of our businesses to generate earnings and cash flow and to make distributions to us in the ~~proceeds~~form of ~~this offering~~interest and principal payments on indebtedness and distributions on equity to enable us to, first, satisfy our financial obligations, including payments under our revolving credit facility, the ~~related private placement transactions~~management fee, profit allocation and put price, and, second, make distributions to ~~acquire controlling interests in~~ our ~~initial businesses in a transaction for cash from the sellers. In addition,~~shareholders. There is no guarantee that we will ~~use the proceeds of this offering, and the related private placement transactions,~~continue to make ~~loans~~quarterly distributions. Our ability to each of our initial businesses. The acquisition of each of the initial businesses will be conditioned upon the closing of this offering. The terms and pricing of the stock purchase agreement and related documents pursuant to which we acquire our initial businesses, which agreement and related documents we refer to collectively as the stock purchase agreement in this section, were negotiated among CGI affiliates in the overall context of this offering.
      The composition of the board of directors of each of the initial businesses will remain the same following our acquisition of such business. In addition, the composition of the management team of each of the initial businesses will remain the same following our acquisition of such business.
      The terms and conditions of the stock purchase agreement and of the loan agreements between the company and each of our initial businesses were reviewed and approved by the independent directors of the company. While this process of review and approval is designed to ensure that the terms of the loans are fair to the initial businesses, they are not necessarily designed to protect you. We believe the terms and conditions of the loans will be substantially similar to those that the initial businesses would be able to obtain from an unaffiliated third party. In addition, we believe the terms of the loans will be fair and reasonable given the leverage and risk profiles of each of our initial businesses. Although we received a fairness opinion from an independent investment banking firm regarding the fairness, from a financial point of view, to the company of such terms and conditions, and notwithstanding that the acquisitions of the initial businesses were approved by our independent directors, neither the stock purchase agreement nor the loan agreements were negotiated on an arm’s-length basis. As a result, such terms and conditionsmake quarterly distributions may be ~~less favorable~~subject to us than they might have been had they been negotiated on at arm’s-length with unaffiliated persons. See the section entitled “Certain Relationships and Related Party Transactions — CGI” for more information.certain restrictions, including:
~~CBS Personnel~~
~~Acquisition~~
      In conjunction with the closing of this offering, we will lend approximately $70.2 million to CBS Personnel and acquire approximately 98.1% on a primary basis of the equity of CBS Personnel for approximately $54.9 million. On a fully diluted basis, the company will own approximately 95.6% of CBS Personnel. The proceeds of our debt and equity investments will be used to:
• ~~retire approximately $37.4 million~~the operating results of ~~existing CBS Personnel debt at an approximately $0.4 million premium for early redemption;~~our businesses which are impacted by factors outside of our control including competition, inflation and general economic conditions;

• ~~purchase,~~the ability of our businesses to make distributions to us, which may be subject to limitations under laws of the jurisdictions in ~~the aggregate, approximately $62.9 million of equity from Compass CS Partners, L.P. and Compass CS II Partners, L.P., subsidiaries of CGI~~ which ~~we together refer to as Compass CS Partners;~~they are incorporated or organized;

• ~~purchase approximately $22.9 million of equity from unaffiliated minority shareholders;~~insufficient cash to pay distributions due to increases in our general and administrative expenses, including the quarterly management fee we pay our manager, principal and interest payments on our outstanding debt, tax expenses or working capital requirements;

• ~~provide funds~~the obligation to ~~allow CBS Personnel~~pay our manager a profit allocation upon the occurrence of a trigger event;
• the obligation to ~~make bonus or dividend payments aggregating approximately $1.5 million~~pay our manager the put price pursuant to ~~members of CBS Personnel’s management team, none of whom are selling capital stock of CBS Personnel as part of~~ the ~~contemplated transactions, in respect of their CBS Personnel common stock or options.~~supplemental put agreement;
      We will acquire from Compass CS Partners 2,830,909 shares of CBS Personnel’s Class A common stock and 2,297,509 of shares of CBS Personnel’s Class B common stock. In addition, we will acquire 2,197,325 shares of Class B common stock from Robert Lee Brown, the founder of a predecessor to CBS

35
49
Personnel and a member of CBS Personnel’s board since October 13, 2000 and who we refer to as Mr. Brown, and 65,000 shares of CBS Personnel’s Class C common stock from certain directors and former directors of CBS Personnel. Our ownership interest may be diluted by future options, if any, granted at the discretion of the CBS Personnel board of directors.
~~As of November 25, 2005, the issued and outstanding capital of CBS Personnel consisted of:~~
• ~~2,830,909 shares~~the company’s board of ~~Class A common stock, all~~directors’ election to keep a portion of ~~which were held by Compass CS Partners;~~the operating cash flow in the businesses or to use such funds for the acquisition of new businesses;

• ~~3,548,384 shares of Class B common stock, 2,274,052 of~~restrictions on distributions under our revolving credit facility which ~~were held by Compass CS Partners and 1,274,332 of which were held by Mr. Brown;~~contains financial covenants that we will have to satisfy in order to make quarterly or annual distributions;

• ~~181,699 shares~~any dividends or distributions paid by our businesses pro rata to the minority shareholders of ~~Class C common stock, all~~our businesses, which portion will not be available to us for any purpose, including for the purpose of ~~which were held by members of CBS Personnel’s management team and certain other investors in CBS Personnel;~~making distributions to our shareholders;

• ~~warrants to acquire 23,457.15 shares~~possible future issuances of ~~Class B common stock,~~debt or debt-like financing arrangements that are secured by all or substantially all of our assets, or issuing debt or equity securities, which ~~were held by Compass CS Partners and are expected to be exercised prior to~~could include issuances of commercial paper, medium-term notes, senior notes, subordinated notes or preferred securities, which obligations will have priority over distributions on the ~~closing of this offering;~~
• ~~warrants to acquire 922,993.45 shares of Class B common stock, all of which were held by Mr. Brown and are expected to be exercised prior to the closing of this offering;~~shares; and

• ~~options~~in the future, the company may issue preferred securities and holders of such preferred securities may have a preference with respect to ~~purchase 573,051 shares of Series C commons stock, all of~~distributions, which ~~were held by members of CBS Personnel’s management team and certain other investors.~~could limit our ability to make distributions to our shareholders.
~~The rights~~
As a consequence of ~~the holders~~these various restrictions, we may not be able to declare, or may have to delay or cancel payment of, ~~such Class A, Class B and Class C shares are substantially identical except that each holder of Class A common stock is entitled~~distributions to ~~10 votes per share, whereas each holder of Class B common stock and Class C common stock is entitled to only one vote per share.~~our shareholders.
~~Each holder~~
Because the company’s board of ~~Class C common stock is party~~directors intends to ~~a shareholder agreement among such holder, CBS Personnel~~continue to declare and ~~Compass CS Partners. Upon~~pay regular quarterly cash distributions on all outstanding shares, our ~~acquisition of a controlling interest in CBS Personnel,~~growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations. We expect that we will ~~become party to each such shareholder agreement~~rely upon external financing sources, including issuances of debt or debt-like financing arrangements and ~~will have the benefit of drag-along rights that would enable us to cause the complete disposition of CBS Personnel.~~
      Pursuant to the stock purchase agreement, CGI and Compass CS Partners make certain representations, warranties and covenants for our benefit and provide us with certain rights to receive indemnification. See the section below entitled “— Additional Acquisition Terms” for a more detailed discussion of such terms and provisions of the stock purchase agreement.
~~Term Loans~~
      In connection with the acquisition and concurrently with the closing of this offering, the company will make term loans to CBS Personnel under a senior secured term loan in the amount of approximately $30.0 million and a senior subordinated secured term loan in the amount of approximately $34.0 million, both pursuant to a credit agreement entered into by and between the company and CBS Personnel. The proceeds of the term loans will be used to refinance all of the outstanding debt obligations of CBS Personnel, to pay a dividend and bonus, aggregating approximately $1.5 million, to shareholders and option holders of CBS Personnel, including CBS Personnel’s management team, who are not selling their shares to us pursuant to the stock purchase agreement and a portion of which will be treated as a capitalization loan. Interest on the senior term loan and the senior subordinated term loan will accrue at rates of LIBOR plus 3.5% per annum and LIBOR plus 10.0%, respectively, and interest on both will be payable monthly in arrears the last day of each calendar month. The senior term loan will have a bullet maturity at the end of the 60^th ~~month subsequent to the funding of the loan and the senior subordinated term loan will have a bullet maturity at the end of the 72~~^nd month subsequent to the funding of the loan, but are prepayable, without premium or penalty, at the option of CBS Personnel. The credit agreement will contain customary covenants and events of default. The terms of the loans require that a substantial portion of any excess cash flow generated by CBS Personnel will be applied to repay the senior and senior subordinated term loans and then to repay any amount outstanding under the revolving credit facility.
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      The aggregate principal amount of term loans will be adjusted to give effect to payments made by or other borrowings of CBS Personnel from September 30, 2005 until the closing of this offering, and may be adjusted to achieve a specific leverage with respect to CBS Personnel.
      ~~See the section below entitled “— Collateralization of Our Loans to Our Initial Businesses” for a description of the collateral securing our loans to our initial businesses.~~
~~Revolving Loan~~
      Concurrently with the closing of this offering, the company will make a secured revolving loan commitment to CBS Personnel in the amount of approximately $42.5 million, of which approximately $6.2 million will be funded and approximately $20.0 million will support the issuance of ~~letters-of-credit, pursuant~~debt and equity securities, to fund our acquisitions and expansion of capital expenditures. As a revolving credit facility entered into by and between the company and CBS Personnel. Interest on outstanding loans will accrue at a rate of LIBOR plus 3.5% per annum and will be payable monthly in arrears on the last day of each calendar month. CBS Personnel will be charged a fee equal to 3.5% of the face amount of all letters-of-credit issued and outstanding. CBS Personnel will be charged a commitment fee equal to 0.5% per annum on the unused balance of the revolving loan commitment amount. The revolving credit facility will expire and revolving loans will mature at the end of the 60^th ~~month subsequent~~result, to the ~~effective date of the commitment, but~~extent we are prepayable, without premium or penalty, at the option of CBS Personnel. The revolving credit facility will contain customary covenants and events of default. The revolving credit facility will replace an existing revolving credit facility provided by a third party lending group. CBS Personnel will use this revolving credit facilityunable to finance ~~its working capital needs~~growth externally, our decision to declare and ~~for general corporate purposes.~~pay regular quarterly distributions will significantly impair our ability to grow.
~~The revolving loan commitment~~
Our decision to incur debt and issue securities in future offerings will ~~be adjusted to give effect to payments made by~~depend on market conditions and other factors beyond our control. Therefore, we cannot predict or ~~other borrowings of CBS Personnel from September 30, 2005 until~~estimate the ~~closing of this offering, and may be adjusted to achieve a specific leverage with respect to CBS Personnel.~~
      ~~See the section below entitled “— Collateralization of Our Loans to Our Initial Businesses” for a description of the collateral securing our loans to our initial businesses.~~
~~Crosman~~
~~Acquisition~~
      In conjunction with the closing of this offering, we will lend approximately $50.1 million to Crosman and acquire approximately 75.4% on a primary and fully diluted basis of the equity of Crosman for approximately $23.3 million. The company is purchasing approximately $22.9 million of equity from Compass Crosman Partners, LP, a subsidiary of CGI which we refer to as Compass Crosman Partners, and approximately $0.4 million from individuals affiliated with the manager.
      We will acquire from Compass Crosman Partners 428,292 shares of Crosman common stock and certain contingent, invested warrants. In addition, we will acquire 6,825 shares of common stock owned by employeesamount, timing or nature of our ~~manager~~future offerings and ~~a former director~~debt financings. Likewise, holders of ~~Crosman. Our ownership interest in Crosman~~our shares may be diluted ~~by future options, if any, granted at the discretion of the Crosman board of directors.~~
      ~~As of November 25, 2005, the issued and outstanding capital stock of Crosman consisted of:~~
• 577,360 shares of a single class of common stock, 428,292 of which were held by Compass Crosman Partners and the balance of which were held by members of Crosman’s management team and certain other investors in Crosman; and
• ~~options to purchase 30,000 additional shares of Crosman’s common stock, all of which were held by a member of Crosman’s management team.~~
      Each holder of Crosman common stock is party to a shareholder agreement among such holders and Crosman. Upon acquisition of a controlling interest in Crosman, we will become a party to the shareholder agreement, and we will have the benefit of drag-along rights that would enable us to cause the complete
51
disposition of Crosman. In addition, we anticipate obtaining an amendment to that agreement to expressly permit us to pledge our controlling interest in Crosman as collateral for any loans to the company.
      Pursuant to the stock purchase agreement, CGI and Compass Crosman Partners make certain representations, warranties and covenants for our benefit and provide us with certain rights to receive indemnification. See the section below entitled “— Additional Acquisition Terms” for a more detailed discussion of such terms and provisions of the stock purchase agreement.
~~Term Loans~~
      In connection with the acquisition and concurrently with the closing of this offering, the company will make term loans to Crosman under a senior secured term loan in the amount of approximately $32.7 million and a senior subordinated secured term loan in the amount of approximately $15.1 million, both pursuant to a credit agreement entered into by and between the company and Crosman. The proceeds of the term loans will be used to refinance all of the outstanding debt obligations of Crosman. Interest on the senior term loan and the senior subordinated term loan will accrue at a floating rate of LIBOR plus 3.5% per annum and a fixed rate of 16.5% per annum, respectively, and interest on both will be payable monthly in arrears the last day of each calendar month. The senior term loan will have a bullet maturity at the end of the 60^th ~~month subsequent to the funding of the loan and the senior subordinated term loan will have a bullet maturity at the end of the 72~~^nd month subsequent to the funding of the loan, but are prepayable, without premium or penalty, at the option of Crosman. The credit agreement will contain customary covenants and events of default. The terms of the loans require that a substantial portion of any excess cash flow generated by Crosman will be applied to repay the senior and senior subordinated term loans and then to repay any amounts outstanding under the revolving credit facility.
      ~~The aggregate principal amount of term loans will be adjusted to give effect to payments made by or other borrowings of Crosman from October 2, 2005 until the closing of this offering.~~
      ~~See the section below entitled “— Collateralization of Our Loans to Our Initial Businesses” for a description of the collateral securing our loans to our initial businesses.~~
~~Revolving Loan~~
      Concurrently with the closing of this offering, the company will make a secured revolving loan commitment to Crosman in the amount of approximately $15.0 million, of which approximately $2.3 million will be funded, pursuant to a revolving credit facility entered into by and between the company and Crosman. Interest on outstanding loans will accrue at a rate of LIBOR plus 3.5% per annum, and will be payable monthly in arrears on the last day of each calendar month. Crosman will be charged a commitment fee equal to 0.5% per annum on the unused balance of the revolving loan commitment amount. The revolving credit facility will expire and the revolving loans will mature at the end of the 60^th month subsequent to the effective date of the commitment, but are prepayable, without premium or penalty, at the option of Crosman. The revolving credit facility will contain customary covenants and events of default. The revolving credit facility will replace an existing revolving credit facility provided by a third party lending group. Crosman will use this revolving credit facility to finance its working capital needs and for general corporate purposes.
      ~~The revolving loan commitment will be adjusted to give effect to payments made by or other borrowings of Crosman from October 2, 2005 until the closing of this offering.~~
      ~~See the section below entitled “— Collateralization of Our Loans to Our Initial Businesses” for a description of the collateral securing our loans to our initial businesses.~~
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~~Advanced Circuits~~
~~Acquisition~~
      ~~In conjunction with the closing of this offering, we will lend approximately $51.3 million to Advanced Circuits and acquire approximately 85.7% on a primary basis of the~~additional equity of Advanced Circuits for approximately $27.5 million. If, as expected, options to purchase an additional 87,253 shares of Series A common stock are issued, and all 196,366 then issued and outstanding options are exercised, prior to closing of this offering, we will acquire approximately 73.2% of the equity of Advanced Circuits on a fully diluted basis for approximately $27.5 million. The company is purchasing approximately $24.8 million of equity from Compass AC Partners, L.P., a subsidiary of CGI which we refer to as AC Partners, approximately $0.3 million from individuals affiliated with the manager and approximately $2.3 million from an unaffiliated minority shareholder.issuances.
      We will acquire from Compass AC Partners 882,120 shares of Advanced Circuits’ Series B common stock. In addition, we will acquire 11,880 shares of Series B common stock from an entity owned by employees of our manager and 80,000 shares of Advanced Circuits’ Series A common stock from certain lenders to Advanced Circuits. Our ownership interest may be diluted by future options, if any, granted at the discretion of the Advanced Circuits board of directors.

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      ~~As of November 25, 2005, the issued and outstanding capital of Advanced Circuits consisted of:~~
• ~~232,363 shares of Series A common stock, all of which were held by members of Advanced Circuits’ management team and certain other investors in Advanced Circuits;~~
• ~~904,000 shares of Series B common stock, 882,120 of which were held by Compass AC Partners, and the balance of which were held by certain other investors; and~~
• ~~options to purchase 106,113 shares of Series A common stock.~~
      Prior to the closing of this offering, Advanced Circuits will issue additional options to purchase 87,253 shares of its Series A common stock and all 196,366 of the then outstanding options are expected to be exercised.
      The rights of all holders of common stock are substantially identical except that each holder of Series A common stock is entitled to only one vote per share, whereas each holder of Series B common stock is entitled to ten votes per share.
      Each holder of Advanced Circuits common stock is party to a shareholder agreement among such holders and Advanced Circuits. Upon acquisition of a controlling interest in Advanced Circuits, we will become a party to the shareholder agreement and we will have the benefit of drag-along rights that would enable us to cause the complete disposition of Advanced Circuits. In addition, we anticipate obtaining an amendment to that agreement to expressly permit us to pledge our controlling interest in Advanced Circuits as collateral for any loans to the company.
      Pursuant to the stock purchase agreement, CGI and Compass AC Partners make certain representations, warranties and covenants for our benefit and provide us with certain rights to receive indemnification. See the section below entitled “— Additional Acquisition Terms” for a more detailed discussion of such terms and provisions of the stock purchase agreement.
~~Term Loans~~
      In connection with the acquisition and concurrently with the closing of this offering, the company will make term loans to Advanced Circuits under a senior secured term loan in the amount of approximately $35.0 million and a senior subordinated secured term loan in the amount of approximately $15.5 million, both pursuant to a credit agreement entered into by and between the company and Advanced Circuits. The proceeds of the term loans will be used to refinance all of the outstanding debt obligations of Advanced Circuits. Interest on the senior term loan and the senior subordinated term loan will accrue at rates of LIBOR plus 3.75% per annum and LIBOR plus 7.5%, respectively, and interest on both will be
53
~~payable monthly in arrears the last day of each calendar month. The senior term loan will have a bullet maturity at the end of the 60~~^th ~~month subsequent to the funding of the loan and the senior subordinated term loan will have a bullet maturity at the end of the 72~~^nd month subsequent to the funding of the loan, but are prepayable, without premium or penalty, at the option of Advanced Circuits. The credit agreement will contain customary covenants and events of default. The terms of the loans require that a substantial portion of any excess cash flow generated by Advanced Circuits will be applied to repay the senior and senior subordinated term loans and then to repay any amounts outstanding under the revolving credit facility.
      ~~The aggregate principal amount of term loans will be adjusted to give effect to payments made by or other borrowings of Advanced Circuits from September 30, 2005 until the closing of this offering.~~
      ~~See the section below entitled “— Collateralization of Our Loans to Our Initial Businesses” for a description of the collateral securing our loans to our initial businesses.~~
~~Revolving Loan~~
      Concurrently with the closing of this offering, the company will make a secured revolving loan commitment to Advanced Circuits in the amount of approximately $4.0 million, of which approximately $0.8 million will be funded, pursuant to a revolving credit facility entered into by and between the company and Advanced Circuits. Interest on outstanding loans will accrue at a rate of LIBOR plus 3.75% per annum and will be payable monthly in arrears on the last day of each calendar month. Advanced Circuits will be charged a commitment fee equal to 0.5% per annum on the unused balance of the revolving loan commitment amount. The revolving credit facility will expire and revolving loans will mature at the end of the 60^th month subsequent to the effective date of the commitment, but are prepayable, without premium or penalty, at the option of Advanced Circuits. The revolving credit facility will contain customary covenants and events of default. The revolving credit facility will replace an existing revolving credit facility provided by a third party lending group. Advanced Circuits will use this revolving credit facility to finance its working capital needs and for general corporate purposes.
      ~~The revolving loan commitment will be adjusted to give effect to payments made by or other borrowings of Advanced Circuits from September 30, 2005 until the closing of this offering.~~
      ~~See the section below entitled “— Collateralization of Our Loans to Our Initial Businesses” for a description of the collateral securing our loans to our initial businesses.~~
~~Silvue~~
~~Acquisition~~
      In conjunction with the closing of this offering, we will lend approximately $14.7 million to Silvue and acquire common and preferred equity securities of Silvue, representing approximately 73.0% interest in Silvue’s equity capital, after giving effect to the conversion of preferred stock of Silvue to be acquired by us, for approximately $23.1 million. The Company is purchasing approximately $21.9 million of such equity from Compass Silvue Partners, L.P., a subsidiary of CGI, which we refer to as Compass Silvue Partners, approximately $0.4 million from individuals affiliated with the manager and approximately $0.8 million from unaffiliated minority investors.
      We will acquire from Compass Silvue Partners 1,716 shares of Silvue’s Series A common stock, 4,901.4 shares of Silvue’s Series B common stock and 21,521.85 shares of Silvue’s Series A convertible preferred stock. In addition, we will acquire 1,465.72 shares of Silvue’s Series A common stock, 98.6 shares of Silvue’s Series B common stock and 552.42 shares of Silvue’s Series A convertible preferred stock from an entity owned by employees of our manager, a retiring manager of Silvue and certain individuals affiliated with an investment banking firm. Such shares of common stock to be acquired by us will represent, on both a primary and fully diluted basis, approximately 43.0% of the then issued and outstanding shares, approximately 73.0% of the issued and outstanding shares, after giving effect to the
54
conversion of preferred stock of Silvue to be acquired by us, and approximately 87.0% of the voting power of all series of stock of Silvue, after giving effect to the conversion of preferred stock of Silvue to be acquired by us. Our ownership interest may be diluted by future options, if any, granted at the discretion of the Silvue board of directors.
      ~~As of November 25, 2005, Silvue’s issued and outstanding capital consisted of:~~
• ~~14,036.72 shares of Series A common stock, all of which were held by members of Silvue’s management team and other investors in Silvue;~~
• ~~5,000 shares of Series B common stock, 4,901.4 of which were held by Compass Silvue Partners and the remainder of which were held by certain other investors in Silvue;~~
• ~~22,432.23 shares of Series A convertible preferred stock, 21,521.85 of which were held by CGI’s subsidiary and the remainder of which were held by certain other investors in Silvue; and~~
• ~~4,500 shares of Series B redeemable preferred stock, all of which were held by members of Silvue’s management team.~~
      Prior to the closing of this offering, Compass Silvue Partners will acquire 1,716 shares of Silvue’s Series A common stock from a retiring Silvue manager. In addition, as of November 25, 2005, certain members of the management team, employees and directors of Silvue held options to purchase 1,581 additional shares of Series A common stock of Silvue, all of which were unvested.
      The rights of all holders of common stock are substantially identical except that each holder of Series A common stock is entitled to only one vote per share, whereas each holder of Series B common stock is entitled to ten votes per share. Among other rights, each share of Series A convertible preferred stock is convertible into both (i) one share of Series A common stock and (ii) that number of shares of Series B redeemable preferred stock which equals the~~product~~ ~~of (x) the~~~~product~~ ~~of (A) 15.714 multiplied by (B) the number of shares of Series A convertible preferred stock,~~~~multiplied by~~ (y) 1.13, reflecting a 13% return compounded annually, from the date of issuance of such shares to the date of conversion. In each following year, the number of shares of Series B redeemable preferred stock would equal the~~product~~ ~~of (x) prior years calculated number of Series B redeemable preferred stock,~~~~multiplied~~by (y) 1.13. Among other rights, each share of Series B redeemable preferred stock is entitled to a redemption preference equal to the face amount of the shares plus a 13% return, compounded annually, from the date of issuance of such share to the date of redemption.
      Upon our acquisition of a controlling interest in Silvue, we will become party to the shareholder agreement among all the holders of Silvue shares and Silvue and we will have the benefit of drag-along rights that would enable us to cause the complete disposition of Silvue. In addition, we anticipate obtaining an amendment to that agreement to expressly permit us to pledge our controlling interest in Silvue as collateral for any loans to the company.
      Pursuant to the stock purchase agreement, CGI and CGI’s subsidiary make certain representations, warranties and covenants for our benefit and provide us with certain rights to receive indemnification. See the section below entitled “— Additional Acquisition Terms” for a more detailed discussion of such terms and provisions of the stock purchase agreement.
~~Term Loans~~
      In connection with the acquisition and concurrently with the closing of this offering, the company will make term loans to Silvue under a senior secured term loan in the amount of approximately $11.3 million and a senior subordinated secured term loan in the amount of approximately $3.0 million, both pursuant to a credit agreement entered into by and between the company and Silvue. The proceeds of the term loans will be used to refinance all of the outstanding debt obligations of Silvue. Interest on the senior secured term loan and the senior subordinated secured term loan will accrue at rates of LIBOR plus 3.0% per annum and LIBOR plus 8.5%, respectively, and interest on both will be payable monthly in arrears the last day of each calendar month. The senior secured term loan will have a bullet maturity at the end of the
55
60^th ~~month subsequent to the funding of the loan and the senior subordinated secured term loan will have a bullet maturity at the end of the 72~~^nd month subsequent to the funding of the loan, but are prepayable, without premium or penalty, at the option of Silvue. The credit agreement will contain customary covenants and events of default. The terms of the loans require that a substantial portion of any excess cash flow generated by Silvue will be applied to repay the senior secured and senior subordinated secured term loans and then to repay any amounts outstanding under the revolving credit facility.
      ~~The aggregate principal amount of term loans will be adjusted to give effect to payments made by or other borrowings of Silvue from September 30, 2005 until the closing of this offering.~~
      ~~See the section below entitled “— Collateralization of our Loans to Our Initial Businesses” for a description of the collateral securing our loans to our initial businesses.~~
~~Revolving Loan~~
      Concurrently with the closing of this offering, the company will make a secured revolving loan commitment to Silvue in the amount of approximately $4.0 million, of which approximately $0.4 million will be funded, pursuant to a revolving credit facility entered into by and between the company and Silvue. Interest on outstanding loans will accrue at a rate of LIBOR plus 3.0% per annum and will be payable monthly in arrears on the last day of each calendar month. Silvue will be charged a commitment fee equal to 0.5% per annum on the unused balance of the revolving loan commitment amount. The revolving credit commitment will expire and revolving loans will mature at the end of the 60^th month subsequent to the effective date of the commitment, but are prepayable, without premium or penalty, at the option of Silvue. The credit facility will contain customary covenants and events of default. The revolving credit facility will replace an existing revolving credit facility provided by a third party lending group. Silvue will use this revolving credit facility to finance its working capital needs and for general corporate purposes.
      ~~The revolving loan commitment will be adjusted to give effect to payments made by or other borrowings of Silvue from September 30, 2005 until the closing of this offering.~~
      ~~See the section below entitled “— Collateralization of our Loans to Our Initial Businesses” for a description of the collateral securing our loans to our initial businesses.~~
~~Additional Acquisition Terms~~
      Pursuant to our stock purchase agreement, with respect to our acquisition of each of the initial businesses, CGI and the selling CGI subsidiary or subsidiaries, as the case may be, jointly and severally represent and warrant to us, among other matters, as to the due organization, valid existence and good standing of such businesses, their authority to enter into the stock purchase agreement and their legal, valid, binding and enforceable obligations thereunder, the capitalization of such businesses and ownership of the shares, the accuracy of the financial statements of such businesses, the good and marketable title of such business to their assets and properties, the good condition and sufficiency of the assets and properties of such businesses, compliance by such businesses with applicable legal requirements, and the absence of any material adverse change to the assets or results of operations of such businesses. In addition, the stock purchase agreement is subject to customary conditions precedent and regulatory approval, including expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
      Except for representations and warranties with respect to capitalization and ownership of shares, authority to enter into the stock purchase agreement and their legal, valid, binding and enforceable obligations under the stock purchase agreement, which representations and warranties will survive for the periods of any applicable statutes of limitations, all representations and warranties and covenants of CGI and its selling subsidiaries will survive the closing of the applicable acquisition for one year, and such subsidiaries and CGI agree to indemnify us against any damages arising from a breach of any such representation, warranty or covenant by any of them, in each case in respect only of that business which we are acquiring from them. CGI’s obligation to indemnify us will be secured by its pledge of the trust
56
shares acquired by it pursuant to the private placement transaction. The parties to the stock purchase agreement also indemnify each other against claims for brokerage or finder’s fees or commissions in connection with the purchase and sale of the applicable initial business. The indemnification obligations of the parties (except in respect of breaches of representations and warranties as to capitalization and ownership of shares, authority to enter into the stock purchase agreement and their legal, valid, binding and enforceable obligations under the stock purchase agreement) are subject to a threshold above which claims must aggregate prior to the availability of recovery and a cap on the maximum potential indemnification liability.
      ~~In addition to the indemnification provisions described above:~~
• We will indemnify CGI and Compass Crosman Partners for any damages arising pursuant to a partial guaranty by Compass Crosman Partners of an obligation of Crosman to pay to the former owners of Crosman an earn-out under the agreement pursuant to which CGI acquired control of Crosman. Such earn-out would be triggered if Crosman meets certain financial performance benchmarks for the fiscal year ending June 30, 2006. If triggered, we do not anticipate that such earn-out would be material to our results of operations or financial condition. A similar earn-out with respect to the fiscal year ended June 30, 2005 was not triggered.
• CGI and Compass AC Partners will indemnify us against any damages resulting from a breach of any representation, warranty, covenant or obligation of Compass AC Partners or Advanced Circuits under the agreement pursuant to which CGI originally acquired control of Advanced Circuits, or any failure by either of them to perform any obligation under such original purchase agreement after the date of the closing of CGI’s original acquisition and through the closing of this offering. This separate indemnification obligation is not subject to a threshold or cap.
• CGI and its subsidiary will indemnify us against any damages resulting from a breach of any representation, warranty, covenant or obligation of CGI’s subsidiary or Silvue under the agreement pursuant to which CGI originally acquired control of Silvue, or any failure by either of them to perform any obligation under such original purchase agreement after the date of the closing of CGI’s original acquisition and through the closing of this offering. This separate indemnification obligation is not subject to a threshold or cap.
      See the sections above entitled “— Crosman — Acquisition”, “— Advanced Circuits — Acquisition” and “— Silvue — Acquisition” for a discussion of additional indemnification obligations in respect of Crosman, Advanced Circuits and Silvue, respectively.
~~Collateralization of Our Loans to Our Initial Businesses~~
      The senior secured term loans to each of our initial businesses would be secured by a first priority lien on all properties and assets of such businesses other than their working capital assets. The senior subordinated secured term loans to each of our initial businesses would be secured by a second priority lien on all properties and assets of such businesses other than their working capital assets. The secured revolving loans to each of our initial businesses would be secured by a first priority lien on the working capital assets of such businesses.
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PRO FORMA CAPITALIZATION

The following table sets forth our unaudited pro forma capitalization, assuming no exercise of the underwriters’ overallotment option, ~~is not exercised, after giving effect to the closing of this offering and sale of our shares~~ at the ~~assumed~~ public offering price of $      per share of the trust and the application of the estimated net proceeds of such sale (after deducting underwriting discounts and commission and our estimated offering expenses) as well as the proceeds from the separate private placement ~~transactions. The pro forma capitalization gives effect to:~~transaction. “As Adjusted” reflects the repayment of outstanding debt from the proceeds of the sale of Crosman, cash used and debt incurred for the acquisitions of Aeroglide and Halo and the application of the net proceeds of this offering as further described in the “Pro Forma Condensed Financial Statements” included within this prospectus. This table should be read in conjunction with “Use of Proceeds,” “Pro Forma Condensed Financial Statements” and our consolidated financial statements included elsewhere in this prospectus.

As of December 31, 2006
Actual As Adjusted
($ in thousands)

Cash and cash equivalents $ 7,006 $

Current maturities of long-term debt $ 87,604 $
Long-term debt, excluding current maturities —

Total debt $ 87,604 $
Stockholders’ equity
Trust shares, no par value; 500,000,000 authorized;          shares issued and outstanding as adjusted for the offering(1)
Total stockholder’s equity $ 255,711 $

Total capitalization $ 343,315 $

(1) • ~~Loans retiring;~~
• ~~Debt issuances;~~
• ~~Minority interests; and~~
• ~~Acquisitions.~~
      ~~See the section entitled “Use of Proceeds” for more information.~~
      You should read this information in conjunction with the financial statements and the notes related thereto, the unaudited pro forma financial statements and the notes related thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all of which are included elsewhere in this prospectus.

(Unaudited)
Pro Forma As of
September 30, 2005

($ in thousands)
Cash and cash equivalents
$ 16,323

Long-term debt:

Total long-term debt $ —

Shareholders’ equity:

Shares: (no par value);           shares authorized;           shares issued and outstanding;           shares issued and outstanding as adjusted for the offering⁽¹⁾

Total shareholders’ equity $ 327,474

Total capitalization $ 327,474

⁽¹⁾ Each trust share representing one undivided beneficial interest in the ~~trust.~~trust property.

37
58
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
Compass Diversified Trust and Compass Group Diversified Holdings LLC were organized on November 18, 2005 for the purpose of making the acquisitions described below, using the proceeds from this offering and from the related private placement transactions.
The following unaudited pro forma condensed combined balance sheet as of ~~September 30, 2005,~~December 31, 2006, gives effect to the ~~acquisition of:~~following transactions, as if the following transactions had been completed as of December 31, 2006:
• ~~approximately 98.1%~~the offering and the application of ~~CBS Personnel;~~proceeds from this offering and from the separate private placement transaction as further described in the section entitled “Use of Proceeds”;

• ~~approximately 75.4%~~the sale of ~~Crosman;~~
• ~~approximately 85.7%~~Crosman on January 5, 2007 and the application of ~~Advanced Circuits;~~the proceeds from this sale to retire third party debt and to provide partial funding for the acquisition of Aeroglide and Halo; and

• the acquisition of approximately ~~73.0%~~89.0% of ~~Silvue,~~Aeroglide and approximately 73.6% of Halo.
~~as if all these transactions had been completed as of September 30, 2005.~~
The purchase ~~prices~~price for ~~certain of~~ these acquisitions are subject to adjustment. The actual amount of such adjustments, which we do not expect to be material, will depend upon the actual ~~closing date for the acquisition. Each~~working capital of ~~these acquisitions requires the satisfaction~~Aeroglide and Halo as of conditions precedent set forth in the related stock purchase agreement. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for a further discussion of the calculation of the percentage of equity interest we are acquiring of each initial business and the conditions to be satisfied for each acquisition.February 28, 2007.

The following unaudited pro forma condensed combined statements of operations for the year ended December 31, ~~2004, and for the nine months ended September 30, 2005, give~~2006, gives effect to ~~these transactions~~this offering, the separate private placement transaction and the acquisition of Aeroglide and Halo as if they ~~all~~ had occurred at the beginning of the fiscal period presented. The “as reported” financial information in the unaudited pro forma condensed combined balance sheet at ~~and for the nine months ended September 30, 2005,~~December 31, 2006, and for the year ended December 31, ~~2004,~~2006, for ~~CBS Personnel, Advanced Circuits~~Aeroglide and ~~Silvue~~Halo are derived from the ~~unaudited and~~ audited financial statements ~~respectively,~~ for the ~~periods indicated therein~~year ended December 31, 2006 of each of the businesses, ~~all of~~ which are included elsewhere in this prospectus. The “as reported” financial information in the unaudited pro forma condensed combined balance sheet at October 2, 2005, for Crosman is derived from unaudited financial statements that are included elsewhere in this prospectus. The “as reported” financial information in the unaudited pro forma condensed combined statement of operations for the ~~nine months ended September 30, 2005,~~trust at December 31, 2006 and for the year ended December 31, 2004, for Crosman are derived from unaudited financial statements that are not included elsewhere in this prospectus. Crosman has a June 30th fiscal year end. The “as reported” financial information for Compass Diversified Trust at November 30, 2005,2006, is derived from the audited financial statements of ~~Compass Diversified Trust~~the trust as of ~~November 30, 2005, which~~December 31, 2006 and for the year ended December 31, 2006 and is included ~~elsewhere~~ in this prospectus.
~~We refer to CBS Personnel, Crosman, Advanced Circuits and Silvue as the consolidated businesses, and the~~
The following unaudited pro forma condensed combined financial statements, or the pro forma financial statements, have been prepared assuming that our ~~acquisitions~~acquisition of the ~~consolidated~~Aeroglide and Halo businesses will be accounted for under the purchase method of accounting. Under the purchase method of accounting, the ~~asset~~assets acquired and the liabilities assumed will be recorded at their respective fair value at the date of acquisition. The total purchase price has been allocated to the assets acquired and liabilities assumed based on estimates of their respective fair values, which are subject to revision if the finalization of the respective fair values results in a material difference to the preliminary estimate used.
59
The company has entered into the management services agreement with our manager, pursuant to which our manager will provide management services for a base management fee. In addition, our manager will receive a profit allocation as a holder of 100% of the management interests in the company. See the section entitled “Management Services Agreement — Management Fee” for a discussion of how the management fee will be calculated and “Description of Shares — Distributions — Manager’s Profit Allocation” for a discussion of how the profit allocation of our manager will be calculated.
The unaudited pro forma condensed combined ~~statements~~statement of operations includes the results of operations for Aeroglide and Halo as if they were purchased on January 1, 2006 and the actual historical results of operations of our other businesses as of the date of acquisition, which was May 16, 2006 for our initial businesses and August 1, 2006 for Anodyne. As such these pro forma financial statements are not necessarily indicative of operating results that would have been achieved had the transactions described above been completed at the beginning of the period presented and should not be construed as indicative of future operating results.

You should read these unaudited pro forma condensed financial statements in conjunction with the ~~accompanying notes, the~~ financial statements and accompanying footnotes of ~~the initial businesses to be acquired~~Aeroglide and Halo included in this prospectus and the consolidated financial statements for the trust and the company, including the notes ~~thereto, and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located elsewhere in this prospectus.~~thereto.

38
60
Compass Diversified Trust
Condensed Combined Pro Forma Balance Sheet
at ~~September 30, 2005~~December 31, 2006
~~(Unaudited)~~

Compass Pro Forma
CBS Advanced Diversified Combined
Personnel Crosman Circuits Silvue Trust Compass
As As As As As Pro Forma Diversified
Reported Reported Reported Reported Reported^* Adjustments Trust

($ in thousands)

Assets
Current Assets:

Cash and cash equivalents $ 1,512 $ 192 $ 942 $ 1,282 $ 100 $ 12,295 (1) $ 16,323
Accounts receivable, net 63,758 16,413 2,679 2,924 85,774
Inventories — 13,567 316 695 14,578
Prepaid expenses and other current assets 2,342 1,427 114 381 4,264
Deferred offering cost — — — — 2,527 (2,527 )(2) —
Deferred tax assets 2,646 1,345 — 998 4,989

Total current assets 70,258 32,944 4,051 6,280 2,627 9,768 125,928
Property and equipment, net 2,592 10,266 2,676 1,408 1,288 (3) 18,230
Investment in subsidiary — 497 — — 2,803 (4) 3,300
Goodwill 59,387 30,951 51,190 11,159 17,763 (5) 170,450
Intangible and other assets, net 10,347 13,773 21,910 9,249 83,862 (6) 139,141

Total assets $ 142,584 $ 88,431 $ 79,827 $ 28,096 $ 2,627 $ 115,484 $ 457,049

Liabilities and shareholders’ equity
Current liabilities:

Current portion of long-term debt and line of credit facilities payable $ 2,337 $ 2,673 $ 4,570 $ 1,678 $ $ (11,258 )(7) $ —
Accounts payable 7,654 6,851 1,036 863 16,404
Accrued expenses 37,194 4,376 2,097 1,986 2,528 (2,527 )(8) 45,654
��
Total current liabilities 47,185 13,900 7,703 4,527 2,528 (13,785 ) 62,058
Long-term debt 35,013 47,442 46,750 12,994 (142,199 )(9) —
Workers’ compensation 11,369 — — — 11,369
Deferred taxes — 3,536 — 889 32,196 (10) 36,621
Other liabilities — 578 — 83 661

Total liabilities 93,567 65,456 54,453 18,493 2,528 (123,788 ) 110,709
Minority interest — — — — 18,866 (11) 18,866
Redeemable preferred stock — — — 90 (90 )(12) —
Total shareholders’ equity 49,017 22,975 25,374 9,513 99 220,496 (13) 327,474

Total liabilities and shareholders’ equity $ 142,584 $ 88,431 $ 79,827 $ 28,096 $ 2,627 $ 115,484 $ 457,049

Pro Forma

Compass
Combined

Diversified
Compass

Trust
Aeroglide
Halo
Pro Forma
Diversified

(as reported) Offering* (as reported) (as reported) Adjustments Trust
(Unaudited)
($ in thousands)

Assets

Current assets:

Cash and cash equivalents $ 7,006 $ 157,000 $ 4,539 $ 339 $ (83,476 )(1) $ 85,408
Accounts receivable, net 74,899 11,340 22,769 109,008
Inventories 4,756 2,380 3,127 10,263
Prepaid expenses and other current assets 7,059 324 2,838 10,221
Current assets of discontinued operations 46,636 — — (46,636 )(2) —

Total current assets 140,356 157,000 18,583 29,073 (130,112 ) 214,900
Property and equipment, net 10,858 4,443 959 3,471 (3) 19,731
Goodwill 159,151 7,812 7,388 44,137 (4) 218,488
Intangible assets, net 128,890 — — 57,720 (5) 186,610
Deferred debt issuance costs 5,190 — — 5,190
Other non-current assets 15,894 1,478 1,220 (2,698 )(6) 15,894
Assets of discontinued operations 65,258 — — (65,258 )(7) —

Total assets $ 525,597 $ 157,000 $ 32,316 $ 38,640 $ (92,740 ) $ 660,813

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable and accrued expenses $ 52,900 $ $ 17,754 $ 18,204 $ $ 88,858
Deferred income taxes — — 516 (516 )(8) —
Due to related party 469 — — 469
Current portion of debt 87,604 1,324 1,096 (87,420 )(9) 2,604
Current portion of supplemental put obligation 7,880 — — 7,880
Current liabilities of discontinued operations 14,019 — — (14,019 )(10) —

Total current liabilities 162,872 — 19,078 19,816 (101,955 ) 99,811
Long-term debt — 4,058 8,205 (11,761 )(11) 502
Supplemental put obligation 14,576 — — 14,576
Long-term deferred income taxes 41,337 71 170 13,586 (12) 55,164
Non-current liabilities of discontinued operations 6,634 — — (6,634 )(13) —
Other non-current liabilities 17,336 1,703 — (1,703 )(14) 17,336

Total liabilities 242,755 — 24,910 28,191 (108,467 ) 187,389
Minority interest 27,131 — — (2,321 )(15) 24,810
Total stockholders’ equity 255,711 157,000 7,406 10,449 18,048(16 ) 448,614

Total liabilities and stockholders’ equity $ 525,597 $ 157,000 $ 32,316 $ 38,640 $ (92,740 ) $ 660,813

* ^* ~~Information is as~~Reflects the issuance of ~~November 30, 2005.~~shares and the net proceeds from this offering (after deducting underwriting discounts and commissions of $6,800 and estimated offering expenses of $2,200) and the proceeds from the separate private placement transaction.

39
61
Compass Diversified Trust
Condensed Combined Pro Forma Statement of Operations
for the year ended December 31, ~~2004~~2006
~~(Unaudited)~~

Pro Forma
CBS Advanced Combined
Personnel Crosman Circuits Silvue Compass
As As As As Pro Forma Diversified
Reported Reported^(A) Reported Reported Adjustments Trust

($ in thousands)
Net Sales $ 315,258 $ 68,489 $ 36,642 $ 16,478 $ $ 436,867
Cost of Sales 254,987 47,687 17,867 5,571 326,112

Gross profit
60,271 20,802 18,775 10,907 110,755
Operating expenses:
Staffing Expense 31,974 — — — 31,974
Selling, general and administrative expense 17,797 10,657 6,564 7,196 255 (2) 47,990
(1,406 )(4)
6,927 (5)
Research and development expense — — — 627 627
Amortization expense 1,051 572 — — 8,618 (1) 10,241

Operating income (loss)
9,449 9,573 12,211 3,084 (14,394 ) 19,923
Other income (expense):
Interest income — — 42 6 48
Interest expense (2,100 ) (3,882 ) (242 ) (389 ) 6,613 (3) —
Other income (expense), net 149 (2,320 ) 82 309 (1,780 )

Income (loss) before provision for income taxes and minority interest
7,498 3,371 12,093 3,010 (7,781 ) 18,191
Provision for income taxes 85 1,248 — 805 3,584 (6) 5,722
Minority interest in income of subsidiary — — — — 1,572 (7) 1,572

Net income (loss)
$ 7,413 $ 2,123 $ 12,093 $ 2,205 $ (12,937 ) $ 10,897

Pro forma net income per share $ 0.47

Pro forma weighted average number of shares outstanding 23,333

Supplemental Information:
Depreciation Expense $ 1,344 $ 2,117 $ 869 $ 523 $ 255 $ 5,108

Pro Forma

Compass
Combined

Diversified
Compass

Trust
Aeroglide
Halo
Pro Forma
Diversified

(as reported) (as reported) (as reported) Adjustments Trust
(Unaudited)

(in thousands, except

per share data)

Net sales $ 410,873 $ 48,086 $ 115,646 $ $ 574,605
Cost of sales 311,641 27,699 71,210 370 (2) 410,920

Gross profit
99,232 20,387 44,436 (370 ) 163,685
Operating expenses:
Staffing expense 34,345 — — 34,345
Selling, general and administrative expense 36,732 17,334 38,321 174 (2) 92,561
Supplemental put expense 22,456 — — 22,456
Fees to manager 4,376 — — 2,364 (5) 6,740
Research and development expense 1,806 — — 1,806
Amortization expense 6,774 — — 7,129 (1) 13,903

Operating income (loss)
(7,257 ) 3,053 6,115 (10,037 ) (8,126 )
Other income (expense):
Interest income 807 — — 807
Interest expense (6,130 ) (594 ) (797 ) 3,891 (3) (3,630 )
Amortization of debt issuance costs (779 ) — — (779 )
Loss on debt extinguishment (8,275 ) — — (8,275 )
Other income (expense), net 541 25 — 566

Income (loss) from continuing operations before provision for income taxes and minority interest
(21,093 ) 2,484 5,318 (6,146 ) (19,437 )
Provision for income taxes 5,298 851 2,203 (2,387 )(4) 5,965
Minority interest 1,245 — — 430 (6) 1,675

Income (loss) from continuing operations
$ (27,636 ) $ 1,633 $ 3,115 $ (4,189 ) $ (27,077 )

Loss from continuing operations per share $ (2.18 ) $ (1.21 )

Weighted average number of shares outstanding 12,686 22,451

^(A) Reflects the combination of the unaudited financial information for the period from July 1, 2004 to December 31, 2004 with the unaudited financial information for the period from January 1, 2004 to June 30, 2004. This combination was required due to Crosman having a June 30th fiscal year-end.

40
62
~~Compass Diversified Trust~~
~~Condensed Combined Pro Forma Statement of Operations~~
~~for the nine months ended September 30, 2005~~
~~(Unaudited)~~

Pro Forma
CBS Advanced Combined
Personnel Crosman Circuits Silvue Compass
As As As As Pro Forma Diversified
Reported Reported^(A) Reported Reported Adjustments Trust

($ in thousands)
Net Sales $ 405,486 $ 52,294 $ 31,454 $ 15,819 $ $ 505,053
Cost of Sales 329,536 39,899 14,133 5,593 389,161

Gross profit
75,950 12,395 17,321 10,226 115,892
Operating expenses:
Staffing Expense 41,297 — — — 41,297
Selling, general and administrative expense 22,063 7,575 5,629 6,356 163 (2) 45,521
(1,460 )(4)
5,195 (5)
Research and development expense — — — 838 838
Amortization expense 1,433 506 — — 5,438 (1) 7,377

Operating income
11,157 4,314 11,692 3,032 (9,336 ) 20,859
Other income (expense):
Interest income — — 150 — 150
Interest expense (3,398 ) (3,728 ) (325 ) (1,001 ) 8,452 (3) —
Other income (expense), net 105 (2,717 ) 4 181 (2,427 )

Income (loss) before provision for income taxes and minority interest
7,864 (2,131 ) 11,521 2,212 (884 ) 18,582
Provision (benefit) for income taxes 2,937 (909 ) 225 695 3,411 (6) 6,359
Minority interest in income of subsidiary — — — — 764 (7) 764

Net income (loss)
$ 4,927 $ (1,222 ) $ 11,296 $ 1,517 $ (5,059 ) $ 11,459

Pro forma net income per share $ 0.49

Pro forma weighted average number of shares outstanding 23,333

Supplemental Information:
Depreciation Expense $ 1,096 $ 1,648 $ 715 $ 298 $ 163 $ 3,920

^(A) ~~Reflects the combination of the unaudited financial information for the period from July 1, 2005~~Notes to ~~October 2, 2005 with the unaudited financial information for the period from January 1, 2005 to June 30, 2005. This combination was required due to Crosman having a June 30th fiscal year-end.~~
63
~~Notes To~~ Pro Forma Condensed Combined Financial Statements

(Unaudited)

This information in Note 1 provides all of the pro forma adjustments from each line item in the pro forma Condensed Combined Financial Statements. Note 2 describes how the adjustments were derived ~~for each of the initial businesses that we are acquiring.~~or calculated. Unless otherwise noted, all amounts are in thousands of dollars ($000).
Note 1. Pro Forma Adjustments
Balance Sheet:

1.
Cash and cash equivalents

Net proceeds from the sale of Crosman after partial application of proceeds to repay borrowings under the revolving credit facility $ 34,722 (a)
Revolving credit borrowing to partially fund acquisition of Aeroglide and Halo 94,500 (b)
Use of cash to fund acquisitions of Aeroglide and Halo (118,198 )(c)
Partial use of the net proceeds from this offering and from the separate private placement transaction to repay outstanding borrowings under the revolving credit facility (94,500 )(d)

$ (83,476 )

2.
Current assets of discontinued operations

Sale of Crosman $ (46,636 )(a)

3.
Property and equipment, net

Aeroglide $ 2,553 (e)
Halo 918 (f)

$ 3,471

4.
Goodwill

Aeroglide $ 20,792 (e)
Halo 23,345 (f)

$ 44,137

5.
Intangible assets, net

Aeroglide $ 22,250 (e)
Halo 35,470 (f)

$ 57,720

6.
Other non-current assets

Aeroglide $ (1,478 )(e)
Halo (1,220 )(f)

$ (2,698 )

7.
Assets of discontinued operations

Sale of Crosman $ (65,258 )(a)

8.
Deferred income taxes

Halo $ (516 )(f)

41

9.
Current portion of debt

Sale of Crosman $ (85,000 )(a)
Aeroglide (1,324 )(e)
Halo (1,096 )(f)

$ (87,420 )

10.
Current liabilities of discontinued operations

Sale of Crosman $ (14,019 )(a)

11.
Long-term debt

Compass Diversified Trust $ 94,500 (b)
Compass Diversified Trust (94,500 )(d)
Aeroglide (4,058 )(e)
Halo (7,703 )(f)

$ (11,761 )

12.
Long-term deferred income taxes

Aeroglide (71 )(e)
Halo 13,657 (f)

$ 13,586

13.
Non-current liabilities of discontinued operations

Crosman sale $ (6,634 )(a)

14.
Other non-current liabilities

Aeroglide $ (1,703 )(e)

15.
Minority interest

Sale of Crosman $ (7,422 )(a)
Aeroglide 2,350 (e)
Halo 2,751 (f)

$ (2,321 )

16.
Total stockholders’ equity

Sale of Crosman $ 35,903 (a)
Aeroglide (7,406 )(e)
Halo (10,449 )(f)

$ 18,048

Statement of Operations:

Year Ended

December 31,

2006

1.
Amortization expense

Aeroglide $ 5,006 (a)(1)
Halo 2,123 (b)(1)

$ 7,129

42

Year Ended

December 31,

2006

2.
Depreciation expense

Aeroglide $ 370 (a)(3)
Halo 174 (b)(3)

$ 544

3.
Interest expense

Aeroglide $ 594 (a)(2)
Halo 797 (b)(2)
Compass Diversified Trust 2,500 (d)

$ 3,891

4.
Provision for income taxes

Aeroglide $ (1,817 )(a)(4)
Halo (570 )(b)(4)

$ (2,387 )

5.
Fees to manager

Compass Diversified Trust $ 2,364 (c)

6.
Minority interest

Compass Diversified Trust $ 430 (e)

Note 2.   ~~Balance Sheet:~~

1. Cash and cash equivalents

Proceeds from offering and private placement transactions to establish an initial working capital level and to fund future capital expenditures $ 16,795 a
Compass Diversified Trust (4,500 )f

$ 12,295

2. Deferred Offering Costs

Compass Diversified Trust $ (2,527 )f

3. Property, plant and equipment, net

Crosman $ (141 )c(1)
Advanced Circuits 566 d(1)
Silvue 863 e(1)

$ 1,288

4. Investment in subsidiary

Crosman $ 2,803 c(1)

5. Goodwill

CBS Personnel $ 3,951 b(1)
Crosman 1,478 c(1)
Advanced Circuits 3,085 d(1)
Silvue 9,249 e(1)

$ 17,763

6. Intangible and other assets, net

CBS Personnel $ 63,358 b(1)
Crosman 4,307 c(1)
Silvue 16,197 e(1)

$ 83,862

7. Current portion of long-term debt

CBS Personnel $ (2,337 )b(1)
Crosman (2,673 )c(1)
Advanced Circuits (4,570 )d(1)
Silvue (1,678 )e(1)

$ (11,258 )

64

8. Accrued Expenses

Compass Diversified Trust $ (2,527 )f

9. Long-term debt

CBS Personnel $ (35,013 )b(1)
Crosman (47,442 )c(1)
Advanced Circuits (46,750 )d(1)
Silvue (12,994 )e(1)

$ (142,199 )

10. Deferred tax liability

CBS Personnel $ 24,076 b(1)
Crosman 1,637 c(1)
Silvue 6,483 e(1)

$ 32,196

11. Minority interest

CBS Personnel $ 4,512 b(1)
Crosman 6,505 c(1)
Advanced Circuits 1,596 d(1)
Silvue 6,253 e(1)

$ 18,866

12. Redeemable preferred stock

Silvue $ (90 )e(1)

13. Total shareholders’ equity

Acquisitions $ 331,875 a
CBS Personnel (49,017 )b(1)
Crosman (22,975 )c(1)
Advanced Circuits (25,374 )d(1)
Silvue (9,513 )e(1)
Compass Diversified Trust (4,500 )f

$ 220,496

65
~~Statement of Operations:~~

Nine Months
Year Ended Ended
December 31, September 30,
2004 2005

1.   Amortization expense

CBS Personnel $ 4,749 $ 2,917 a(1)
Crosman (54 ) (118 )b(1)
Advanced Circuits 2,661 1,996 c(1)
Silvue 1,262 643 d(1)

$ 8,618 $ 5,438

2.   Depreciation expense

Crosman $ 132 $ 39 b(3)
Advanced Circuits 30 (40 )c(3)
Silvue 93 164 d(3)

$ 255 $ 163

3.   Interest expense

CBS Personnel $ 2,100 $ 3,398 a(2)
Crosman 3,882 3,728 b(2)
Advanced Circuits 242 325 c(2)
Silvue 389 1,001 d(2)

$ 6,613 $ 8,452

4.   Elimination of prior management fee

CBS Personnel $ (652 ) $ (764 )a(3)
Crosman (492 ) (580 )b(4)
Silvue (262 ) (116 )d(4)

$ (1,406 ) $ (1,460 )

5.   New management fee

Compass Diversified Trust $ 6,927 $ 5,195 e

6.   Provision for income taxes

Compass Diversified Trust $ 3,584 $ 3,411 f

7.   Minority interest in income of subsidiaries

Compass Diversified Trust $ 1,572 $ 764 g

~~Note 2.~~ Pro Forma Adjustments by ~~Acquisition~~Business

As a further illustration, we have grouped the pro forma adjustments detailed in Note 1 to the Pro Forma Condensed Financial Statements by each ~~initial~~ business to show the ~~combined~~combine effect of the pro forma adjustments on each ~~initial~~ business.
Balance Sheet
a. Sale of Crosman
Reflects the sale of Crosman on January 5, 2007 whereby the company received proceeds of $119,722 and applied $85,000 of such proceeds from the sale to repay revolving credit facility borrowings outstanding on the date of the sale. Partial funding for the acquisitions of Aeroglide and Halo were provided by the cash remaining after the repayment of the $85.0 million of revolving credit facility borrowings. The sale resulted in a gain of $35,903 that will be recorded in fiscal 2007.

Cash $ 34,722
Current assets of discontinued operations (46,636 )
Assets of discontinued operations (65,258 )
Current portion of debt 85,000
Current liabilities of discontinued operations 14,019
Non-current liabilities of discontinued operations 6,634
Minority interest 7,422
Equity (35,903 )

$ —

43
66
b. Reflects borrowings from the revolving credit facility to partially fund the Aeroglide and Halo acquisitions:
a. ~~Balance Sheet~~

Cash $ 94,500
Long-term debt (94,500 )

$ —

Reflects issuance of shares and the net proceeds from this offering (after deducting underwriting discounts and commission of $18,125) and net proceeds from the separate private placement transactions:

To finance acquisitions $ 315,080
Additional proceeds for working capital and capital expenditures and proceeds to pay The Compass Group Investments accrued public offering costs 16,795

$ 331,875

Acquisitions and debt repayments:
CBS Personnel $ 125,088
Crosman 73,395
Advanced Circuits 78,749
Silvue 37,848

$ 315,080

c. Reflect the use of cash for the acquisitions of Aeroglide and Halo:

Aeroglide — see note e $ (56,329 )
Halo — see note f (61,869 )

$ (118,198 )

b. ~~CBS Personnel Acquisition~~

d. Reflects the partial use of the net proceeds from the offering to repay revolving credit facility borrowing incurred to fund the acquisitions of Aeroglide and Halo:

Long-term debt $ 94,500
Cash (94,500 )

$ —

e. Aeroglide Acquisition
The following information represents the pro forma adjustments made by us in Note 1 to reflect our acquisition of a ~~98.1%~~89.0% equity interest in ~~CBS Personnel~~and loans to Aeroglide for a total cash investment of approximately ~~$125.1~~$56.3 million. This investment of $56.3 million was assigned to assets of $76.4 million, current liabilities of $17.8 million consisting of the historical carrying values for accounts payable and accrued expenses and $2.3 million to minority interest. The asset allocation represents $18.6 million of current assets valued at their historical carrying values, property and equipment of $7.0 million valued through a preliminary asset appraisal, $22.2 million of intangible and other assets and $28.6 million of goodwill representing the excess of the purchase price over identifiable assets. The preliminary intangible asset values consist principally of customer relationships valued at $13.0 million, trade names valued at $3.4 million order backlog valued at $3.4 million, process know-how valued at $2.0 million and non-compete agreements valued at $0.4 million.
The customer relationships were valued at $13.0 million using an excess earnings methodology, in which an asset is valuable to the extent that the asset enables its owner to earn a return in excess of the required returns on and of the other assets utilized in the business. Customer relationships were analyzed separately for each of the capital equipment and aftermarket and other segments of the business, as described in the following two paragraphs.
Capital equipment customer relationships were valued at $5.0 million. The key assumptions in this analysis were an economic margin of approximately 9.0% (on average) of sales attributable to Aeroglide’s capital equipment customer relationships, an estimate that sales to these capital equipment customers would be $29.6 million in ~~cash:~~2008 prior to factoring in customer attrition, an attrition rate (reflecting the rate at which Aeroglide’s capital equipment customer relationships are lost) of 20% per annum, a risk-adjusted discount rate of 19%, and a remaining useful life of 10 years.
1.   Reflects (1) purchase accounting adjustments to reflect CBS Personnel assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of CBS Personnel and (3) elimination of historical shareholders’ equity:

Goodwill $ 3,951
Intangible and other assets 63,358
Current portion of long-term debt 2,337
Long-term debt 35,013
Deferred tax liability (24,076 )
Establishment of minority interest (4,512 )
Elimination of historical shareholders’ equity 49,017

$ 125,088

Aftermarket and other customer relationships were valued at $8.0 million. The key assumptions in this analysis were an economic margin of approximately 17.5% (on average) of sales attributable to Aeroglide’s aftermarket and other customer relationships, an estimate that sales to these aftermarket and other customers would be $12.6 million in 2008 prior to factoring in customer attrition, an attrition rate (reflecting the rate at which Aeroglide’s aftermarket and other customer relationships are lost) of 10% per annum, a risk-adjusted discount rate of 19%, and a remaining useful life of 12 years.
Order backlog (representing unfulfilled customer orders for the purchase of goods or services from Aeroglide) was valued at $3.4 million using an excess earnings methodology, in which an asset is valuable to the extent that the asset enables its owner to earn a return in excess of the required returns on and of the

44
67
other assets utilized in the business. Order backlog was analyzed separately for each of the capital equipment and aftermarket and other segments of the business, as described in the following two paragraphs.
c. ~~Crosman Acquisition~~

Capital equipment order backlog was valued at $2.6 million. The key assumptions in this analysis were an economic margin of 12.4%, order backlog sales of $19.0 million to be fulfilled in six months, and a risk-adjusted discount rate of 18%.
Aftermarket and other order backlog was valued at $0.8 million. The key assumptions in this analysis were an economic margin of 21.3%, order backlog sales of $3.2 million to be fulfilled in three months, and a risk-adjusted discount rate of 18%.
The trade names were valued at $3.4 million using a royalty savings methodology, in which an asset is valuable to the extent that ownership of the asset relieves the company from the obligation of paying royalties for the benefits generated by the asset. The key assumptions in this analysis were a royalty rate equal to 1% of sales, a royalty sales base equal to 100% of Aeroglide’s total sales, a risk-adjusted discount rate of 19%, and an indefinite remaining useful life.
The process know-how (representing Aeroglide’s institutional knowledge and collective technical expertise regarding various industrial applications of process driers and coolers) was valued at $2.0 million using a royalty savings methodology, in which an asset is valuable to the extent that ownership of the asset relieves the company from the obligation of paying royalties for the benefits generated by the asset. The key assumptions in this analysis were a royalty rate equal to 1% of sales, an initial royalty sales base equal to 100% of Aeroglide’s total sales, an obsolescence factor (reflecting the rate at which the utility of the core technology degrades relative to time) of 5% per annum, a risk-adjusted discount rate of 19%, and a remaining useful life of 13 years.
The non-competition agreements were valued in aggregate (for 10 Aeroglide executives) at $0.45 million using a lost profits methodology, in which such agreements are valuable to the extent that the company avoids suffering a reduction in cash flow by virtue of the protection afforded by the agreements. The key assumptions in this analysis were an estimated loss of 5% of annual revenues during a hypothetical two-year period of competition from the subject executives, a 20% probability each year the subject executives would compete in the absence of the agreements, a risk-adjusted discount rate of 19%, and a remaining useful life of two years.
The value assigned to minority interest was derived from the equity value contributed by the minority holders at the time of acquisition.
1. Reflects (1) purchase accounting adjustments to reflect Aeroglide’s assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of Aeroglide and (3) elimination of historical shareholders’ equity:

Property and equipment $ 2,553
Goodwill 20,792
Intangible assets 22,250
Other assets (1,478 )
Current portion of long-term debt 1,324
Long-term debt 4,058
Deferred tax liability 71
Other liabilities 1,703
Establishment of minority interest (2,350 )
Elimination of historical shareholders’ equity 7,406

Cash used to fund acquisition $ 56,329

f. Halo Acquisition
The following information represents the pro forma adjustments made by us in Note 1 to reflect our acquisition of a ~~75.4%~~73.6% equity interest in, ~~Crosman~~and loans to Halo for a total cash investment of approximately ~~$73.4~~

45
$61.9 million. This investment of $61.9 million was assigned to assets of $98.0 million, current liabilities of $19.5 million consisting of the historical carrying values for accounts payable and accrued expenses, $13.8 million to deferred tax liabilities and $2.8 million to minority interest. The asset allocation represents $29.1 million of current assets valued at their historical carrying values, property and equipment of $1.9 million valued through a preliminary asset appraisal, $35.5 million of intangible and other assets and $31.5 million of goodwill representing the excess of the purchase price over identifiable assets. The preliminary intangible asset values consist principally of the customer relationships and order processing network valued at $30.0 million, trade names valued at $5.1 million and non-compete covenants valued at $0.4 million.
The customer relationships and order processing network were valued at $30.0 million using an excess earnings methodology, in which an asset is valuable to the extent that the asset enables its owner to earn a return in excess of the required returns on and of the other assets utilized in the business. The key assumptions in this analysis were an economic margin of approximately 3.5% (on average) of sales attributable to Halo’s account executive relationships, an estimate that sales attributable to these account executive relationships would be $131.8 million in ~~cash:~~2008 prior to factoring in attrition, an attrition rate (reflecting the rate at which Halo’s account executive relationships are lost) of 5% per annum, a risk-adjusted discount rate of 15%, and a remaining useful life of 15 years.
1.   Reflects (1) purchase accounting adjustments to reflect Crosman assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of Crosman and (3) elimination of historical shareholders’ equity:

Property and equipment $ (141 )
Investment in subsidiary 2,803
Goodwill 1,478
Intangible and other assets 4,307
Current portion of long-term debt 2,673
Long-term debt 47,442
Deferred tax liability (1,637 )
Establishment of minority interest (6,505 )
Elimination of historical shareholders’ equity 22,975

$ 73,395

The trade names were valued at $5.1 million using a royalty savings methodology, in which an asset is valuable to the extent that ownership of the asset relieves the company from the obligation of paying royalties for the benefits generated by the asset. The key assumptions in this analysis were a royalty rate equal to 0.5% of sales, a royalty sales base equal to 100% of Halo’s total sales, a risk-adjusted discount rate of 15%, and an indefinite remaining useful life.
The non-competition agreements were valued in aggregate (for two Halo executives) at $0.37 million using a lost profits methodology, in which such agreements are valuable to the extent that the company avoids suffering a reduction in cash flow by virtue of the protection afforded by the agreements. The key assumptions in this analysis were an estimated loss of 5% of annual revenues during a hypothetical two-year period of competition from the subject executives, a 5% probability each year the subject executives would compete in the absence of the agreements, a risk-adjusted discount rate of 15%, and a remaining useful life of three years.
The value assigned to minority interest was derived from the equity value contributed by the minority holders at the time of acquisition.
1. Reflects (1) purchase accounting adjustments to reflect Halo’s assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of Halo and (3) elimination of historical shareholders’ equity:

Property and equipment $ 918
Goodwill 23,345
Intangible assets 35,470
Other assets (1,220 )
Deferred income taxes 516
Current portion of long-term debt 1,096
Long-term debt 7,703
Long-term deferred income taxes (13,657 )
Establishment of minority interest (2,751 )
Elimination of historical shareholders’ equity 10,449

Cash used to fund acquisition $ 61,869

46
Statement of Operations:

Year Ended

December 31, 2006

A. The following entries represent the pro forma adjustments made by us in Note 1 to reflect the effect of our acquisition of Aeroglide upon the results of their operations for the year ended December 31, 2006 as if we had acquired Aeroglide at the beginning of the fiscal year presented:
1.
Additional amortization expense of intangible assets resulting from the acquisition of Aeroglide:

Customer relationship — capital equipment of $5,000 which will be amortized over 10 years
$ 500

Customer relationship — after market of $8,000 which will be amortized over 11 years
727

Order backlog of $3,400 which will be amortized over less than 1 year
3,400

Process know-how of $2,000 which will be amortized over 13 years
154

Non-compete covenants of $450 which will be amortized over 2 years
225

Total
$ 5,006

2.
Reduction of interest expense with respect to the $5,382 of debt redeemed in connection with the acquisition of Aeroglide
$ (594 )

3.
Additional depreciation expense resulting from the acquisition of Aeroglide
$ 370

4. Tax impact of adjustments 1 to 3 above $ (1,817 )

B. The following entries represent the pro forma adjustments made by us in Note 1 to reflect the effect of our acquisition of Halo upon the results of their operations for the year ended December 31, 2006 as if we had acquired Halo at the beginning of the fiscal year presented:
1.
Additional amortization expense of intangible assets resulting from the acquisition of Halo:

Customer relationships and order processing network of $30,000 which will amortized over 15 years
$ 2,000

Non-compete agreement of $370 which will be amortized over 3 years
123

Total
$ 2,123

2.
Reduction of interest expense with respect to $8,799 of debt redeemed in connection with acquisition of Halo
$ (797 )

3.
Additional depreciation expense resulting from the acquisition of Halo
$ 174

4. Tax impact of adjustments 1 to 3 above $ (570 )

C. Adjustment to record the additional estimated management fee expense pursuant to the Management Services Agreement to be incurred in connection with the acquisition of Aeroglide and Halo.
Net purchase price of Aeroglide $ 56,329
Net purchase price of Halo 61,869

Additional net assets
118,198

Management fee %
2.0 %

$ 2,364 ��

47

Year Ended

December 31, 2006

D. Adjustment to reduce interest expense with the assumption that the $50.0 million of unapplied proceeds from the offering that would have reduced outstanding third party debt borrowings. The amount was calculated as follows:

Interest expense on $50.0 million at an average rate of 9.5% since May 16, 2006
$ (2,968 )
Additional unused fee on revolving loan commitment 468

$ (2,500 )

E. Adjustment to record the minority interest in net income. The adjustment for minority interest was calculated by applying the minority ownership percentage for Aeroglide and Halo to the net income applicable to the minority interest holders $ 430

d.Note 3.   ~~Advanced Circuits Acquisition~~Pro Forma loss from continuing operations per share
The following information represents the pro forma adjustments made by us in Note 1 to reflect our acquisition of a 85.7% equity interest in Advanced Circuits for a cash investment of approximately $78.7 million in cash:
1. Reflects (1) purchase accounting adjustments to reflect Advanced Circuits assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of Advanced Circuits and (3) elimination of historical shareholders’ equity:

Property and equipment $ 566
Goodwill 3,085
Current portion of long-term debt 4,570
Long-term debt 46,750
Establishment of minority interest (1,596 )
Elimination of historical shareholders’ equity 25,374

$ 78,749

68
e. ~~Silvue Acquisition~~
      The following information represents the pro forma adjustments made by us in Note 1 to reflect our acquisition of a 73.0% equity interest in Silvue for a total cash investment of approximately $37.8 million:
1. Reflects (1) purchase accounting adjustments to reflect Silvue assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of Silvue and (3) elimination of historical shareholders’ equity:

Property and equipment $ 863
Goodwill 9,249
Intangible and other assets 16,197
Current portion of long-term debt 1,678
Long-term debt 12,994
Deferred tax liability (6,483 )
Repayment of mandatorily redeemable preferred stock 90
Establishment of minority interest (6,253 )
Elimination of historical shareholders’ equity 9,513

$ 37,848

f. ~~Purchase Accounting Adjustment~~
      ~~The following pro forma adjustment made by us in Note 1 reflects the payment of the public offering costs:~~

Cash $ (4,500 )
Accrued Expenses 2,527
Deferred Offering Cost (2,527 )
Shareholders’ Equity 4,500

$ —

~~Statements of Operations:~~

Nine Months
Year Ended Ended
December 31, September 30,
2004 2005

A. The following entries represent the pro forma adjustments made by us in Note 1 to reflect the effect of our acquisition of CBS Personnel upon the results of their operations for the year ended December 31, 2004 and for the nine months ended September 30, 2005 as if we had acquired CBS Personnel at the beginning of the fiscal year presented:
1.   Additional amortization expense of intangible assets resulting from the acquisition of CBS Personnel:
     Customer relationships of $61,600 which will be amortized over 11 years $ 5,600 $ 4,200
     Non-piracy covenants of $600 which will be amortized over 3 years 200 150

       Subtotal 5,800 4,350
     Amortization included in historical financial statements (1,051 ) (1,433 )

$ 4,749 $ 2,917

69

Nine Months
Year Ended Ended
December 31, September 30,
2004 2005

2.   Decreased interest expense resulting from the acquisition of CBS Personnel:
     Reduction of interest expense with respect to the $37.4 million long-term debt redeemed in connection with the acquisition of CBS Personnel $ (2,100 ) $ (3,398 )

3.   Elimination of management fees paid to prior owner of
CBS Personnel in connection with management service contract not assumed by us $ (652 ) $ (764 )

The following entries represent the pro forma adjustments
B. made by us in Note 1 to reflect the effect of our acquisition of Crosman upon the results of their operations for the year ended December 31, 2004 and for the nine months ended September 30, 2005 as if we had acquired Crosman at the beginning of the fiscal year presented: 1.   Additional amortization expense of intangible assets
resulting from the acquisition of Crosman:      Technology of $780 which will be amortized over 11
years      License agreement of $1,100 which will be amortized $ 71 $ 53
over 6 years      Distributor relationships of $2,900 which will be 183 137
amortized over 11 years 264 198
       Subtotal

518

388
     Amortization included in historical financial
statements (572 ) (506 )

$ (54 ) $ (118 )

2.   Reduction of interest expense as a result of the
acquisition of Crosman:      Reduction of interest expense with respect to $50.1
million debt redeemed in connection with acquisition of Crosman $ (3,882 ) $ (3,728 )

3.   Additional depreciation expense resulting from the
acquisition of Crosman $ 132 $ 39

4.   Elimination of management fees paid to prior owner of
Crosman in connection with management services contract not assumed by us $ (492 ) $ (580 )

The following entries represent the pro forma adjustments
C. made by us in Note 1 to reflect the effect of our acquisition of Advanced Circuits upon the results of their operations for the year ended December 31, 2004 and for the nine months ended September 30, 2005 as if we had acquired Advanced Circuits at the beginning of the fiscal year presented: 1.   Additional amortization expense of intangible assets
resulting from the acquisition of Advanced Circuits:      Customer relationships of $18,100 which will be
amortized over 9 years      Technology of $2,600 which will be amortized over 4 $ 2,011 $ 1,508
years 650 488

$ 2,661 $ 1,996

70

Nine Months
Year Ended Ended
December 31, September 30,
2004 2005

2.   Reduction of interest expense with respect to $51.5 million of debt redeemed in connection with the acquisition of Advanced Circuits $ (242 ) $ (325 )

3.   Adjustment of depreciation expense resulting from the acquisition of Advanced Circuits $ 30 $ (40 )

D. The following entries represent the pro forma adjustments made by us in Note 1 to reflect the effect of our acquisition of Silvue upon the results of their operations for the year ended December 31, 2004 and for the nine months ended September 30, 2005 as if we had acquired Silvue at the beginning of the fiscal year presented:
1.   Additional amortization expense of intangible assets resulting from the acquisition of Silvue:
     Customer relationships of $18,700 which will be amortized over 16 years $ 1,169 $ 877
     Core technology of $3,700 which will be amortized over 13 years 285 214

       Subtotal 1,454 1,091
     Amortization included in historical financial statements (192 ) (448 )

$ 1,262 $ 643

2.   Reduction of interest expense with respect to $14.7 million of debt redeemed in connection with the acquisition of Silvue $ (389 ) $ (1,001 )

3.   Additional depreciation expense resulting from the acquisition of Silvue $ 93 $ 164

4.   Elimination of management fees paid to prior owner of Silvue in connection with management service contract not assumed by us $ (262 ) $ (116 )

E. Adjustment to record the estimated management fee expense pursuant to the Management Services Agreement to be incurred in connection with the closing of this offering $ 6,927 $ 5,195

F. Adjustment to record the estimated tax expense associated with the pro forma adjustments to pre-tax income to reflect income tax expense for Advanced Circuits due to its change from a Subchapter S corporation $ 3,584 $ 3,411

G. Adjustment to record the minority interest in net income $ 1,572 $ 764

71
~~Note 3.~~ ~~Pro Forma Income from Continuing Operations per Share~~
Pro forma ~~net income~~loss from continuing operations per share is ~~$0.47 and $0.49~~$(1.21) for the year ended December 31, ~~2004 and for the nine months ended September 30, 2005, respectively,~~2006, reflecting the shares issued from this offering ~~and the private placement transactions~~ as if such shares were outstanding from the beginning of the respective ~~periods.~~period and was calculated as follows:

Net loss $ (27,077 )(a)
Pro forma weighted average number of shares outstanding:
Actual weighted average outstanding for 2006 12,686
Shares from this offering and from the separate private placement(1) 9,765

22,451 (b)

Pro forma net loss from continuing operations per share (a divided by b) $ (1.21 )

~~Note 4.~~(1) ~~Other Estimates~~ Pro forma weighted average number of shares outstanding was derived by dividing the estimated gross proceeds from the offering and the separate private placement transaction by the assumed price per share of $17.00.
      In addition to the pro forma adjustments above, we expect to incur incremental administrative expenses, professional fees and management fees as a public company after the consummation of the transactions described above. Such fees and expenses include accounting, legal and other consultant fees, SEC and listing fees, directors’ fees and directors’ and officers’ insurance. We currently estimate these fees and expenses will total approximately $4 million per year. The actual amount of these expenses and fees could vary significantly.
48
72
SELECTED FINANCIAL DATA

The following ~~summary financial~~table sets forth selected historical and other data ~~represent the historical financial information for CBS Personnel, Crosman, Advanced Circuits and Silvue and does not reflect the accounting for these businesses upon completion~~ of the ~~acquisitions~~company and ~~the operation of the businesses as a consolidated entity. You~~ should be read ~~this information~~ in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the financial statements and notes thereto, and the unaudited condensed combined pro forma financial statements and notes thereto, all included elsewhere in this prospectus.
      The selected financial data for CBS Personnel at December 31, 2004 and 2003, and for fiscal years ended December 31, 2004, 2003 and 2002 were derived from the audited consolidated financial statements of CBS Personnel included elsewhere in this prospectus. The selected financial data of CBS Personnel at September 30, 2005 and for the nine months ended September 30, 2005 and 2004 were derived from CBS Personnel’s unauditedmore detailed consolidated financial statements included elsewhere in this prospectus.
      ~~The selected financial data~~ On January 5, 2007, we executed a purchase and sale agreement to sell our majority-owned subsidiary, Crosman, for ~~Crosman at June 30, 2005 and 2004, and for fiscal years ended June 30, 2005, 2004 and 2003 were derived from~~approximately $143 million in cash. As a result, the ~~audited consolidated financial statements~~operating results of ~~Crosman included elsewhere in this prospectus. The selected financial data for~~ Crosman for the period ~~July 1, 2003 to February 9, 2004 (predecessor)~~of its acquisition by us (May 16, 2006) through December 31, 2006 are being reported as discontinued operations in accordance with SFAS 144, and ~~February 10, 2004 to June 30, 2004 (successor) were derived~~as such are not included in the data below. We will recognize a gain of approximately $35.9 million from the ~~audited financial statements~~sale of ~~Crosman. The selected~~Crosman in fiscal year 2007.
Selected financial data below includes the results of ~~Crosman at October 2, 2005~~operations, cash flow and balance sheet data of the company for the ~~quarter ended October 2, 2005 and September 26, 2004 were derived from Crosman’s unaudited consolidated financial statements included elsewhere in this prospectus.~~
      ~~The selected financial data for Advanced Circuits at December 31, 2004 and 2003, and for fiscal~~ years ended December 31, 2004, 2003 and 2002 were derived from the audited combined financial statements of Advanced Circuits included elsewhere in this prospectus. The selected financial data of Advanced Circuits at September 30, 2005 and 2006. We were incorporated on November 18, 2005. Financial data included for the ~~nine months ended September 30, 2005 and 2004 were derived from Advanced Circuits’ unaudited consolidated financial statements included elsewhere in this prospectus.~~
      ~~The selected financial data for Silvue at December 31, 2004 and 2003, and for fiscal years~~year ended December 31, ~~2004 and 2003 were derived~~2005, therefore only includes the minimal activity experienced from the audited consolidated financial statements of Silvue included elsewhere in this prospectus. The selected financial data for Silvue for the period January 1, 2004 to September 2, 2004 (predecessor) and September 3, 2004 (inception)inception to December 31, ~~2004 were derived~~2005.
We completed the IPO on May 16, 2006 and used the proceeds of the IPO, separate private placement transactions that closed in conjunction with the IPO and from our third party credit facility to purchase controlling interests in four businesses. On August 1, 2006, we purchased a controlling interest in an additional business, Anodyne. Financial data included below therefore only includes activity in our businesses from May 16, 2006 through December 31, 2006, and in the ~~audited financial statements~~case of ~~Silvue. The selected~~Anodyne, from August 1, 2006 through December 31, 2006.
Because we completed the purchase of Aeroglide and Halo in February 2007, financial data ~~of Silvue at September 30, 2005~~is not presented for these businesses.

Fiscal Year Ended December 31,
2006 2005
($ in thousands,

except per share data)
Statements of Operations Data:

Net sales $ 410,873 $ —
Cost of sales 311,641 —

Gross profit 99,232 —
Operating expenses:
Staffing 34,345 —
Selling, general and administrative 36,732 1
Management fee 4,376 —
Supplemental put expense 22,456 —
Research and development expense 1,806 —
Amortization expense 6,774 —

Operating loss $ (7,257 ) $ (1 )

Loss from continuing operations $ (27,636 ) $ (1 )

Income from discontinued operations, net of income tax $ 8,387 $
Net loss $ (19,249 ) $ (1 )

Cash Flow Data:

Cash provided by operating activities $ 20,563 $ —
Cash (used in) investing activities (362,286 ) —
Cash provided by financing activities 351,073 100

Net increase in cash $ 9,350 $ 100

Per Share Data:

Basic and fully diluted loss from continuing operations per share $ (2.18 ) $ —

Basic and fully diluted loss per share $ (1.52 ) $ —

At December 31,
2006 2005
($ in thousands)
Balance Sheet Data:

Total current assets $ 140,356 $ 3,408
Total assets 525,597 3,408
Current liabilities 162,872 3,309
Long-term debt — —
Total liabilities 242,755 3,309
Minority interests 27,131 100
Shareholders’ equity (deficit) 255,711 (1 )

49
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management’s discussion and ~~for the nine months ended September 30, 2005 and 2004 were derived from Silvue’s unaudited consolidated financial statements included elsewhere in this prospectus.~~
      ~~The unaudited financial data for each~~analysis of ~~the businesses shown below may not be indicative of the~~ financial condition and results of operations contains forward-looking statements. Forward-looking statements in this prospectus are subject to a number of risks and uncertainties, some of which are beyond our control. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ, including those discussed in the sections entitled “Forward-Looking Statements” and “Risk Factors.”
Overview
Compass Diversified Trust, a Delaware statutory trust, was incorporated in Delaware on November 18, 2005. Compass Group Diversified Holdings, LLC, a Delaware limited liability company, was also formed on November 18, 2005. In accordance with the amended and restated trust agreement, dated as of April 25, 2006, which we refer to as the trust agreement, the trust is sole owner of 100% of the trust interests (as defined in the LLC agreement) of the company and, pursuant to the LLC agreement, the company has outstanding, the identical number of trust interests as the number of outstanding shares of the trust. Our manager is the sole owner of the allocation interests of the company. The company is the operating entity with a board of directors and other corporate governance responsibilities, similar to that of a Delaware corporation.
We acquire and manage middle market businesses based in North America with annual cash flows between $5 million and $40 million. We seek to acquire controlling ownership interests in the businesses in order to maximize our ability to work actively with the management teams of those businesses. Our model for creating shareholder value is to be disciplined in identifying and valuing businesses, to work closely with management of the businesses we acquire to grow the cash flows of those businesses, and to exit opportunistically businesses when we believe that doing so will maximize returns. We currently own six businesses in six distinct industries and we believe that these businesses ~~for~~will continue to produce stable and growing cash flows over the long term, enabling us to meet our objectives of growing distributions to our shareholders, independent of any ~~other period. The unaudited financial data,~~incremental acquisitions we may make, and investing in the ~~opinion~~long-term growth of ~~management, include all adjustments, consisting~~the company.
In identifying acquisition candidates, we target businesses that:
• produce stable cash flows;
• have strong management teams largely in place;
• maintain defensible positions in industries with forecasted long-term macroeconomic growth; and
• face minimal threat of technological or competitive obsolescence.
We maintain a long-term ownership outlook which we believe provides us the opportunity to develop more comprehensive strategies for the growth of ~~normal recurring adjustments, considered necessary~~our businesses through various market cycles, and will decrease the possibility, often faced by private equity firms or other financial investors, that our businesses will be sold at unfavorable points in a market cycle. Furthermore, we provide the financing for both the debt and equity in our acquisitions, which allows us to pursue growth investments, such as add-on acquisitions, that might otherwise be restricted by the requirements of a ~~fair presentation~~third-party lender. We have also found sellers to be attracted to our ability to provide both debt and equity financing for the consummation of ~~such data.~~acquisitions, enhancing the prospect of confidentiality and certainty of consummating these transactions. In addition, we believe that our ability to be long-term owners alleviates the concern that many private company owners have with regard to their businesses going through multiple sale processes in a short period of time and the disruption that this may create for their employees or customers.

50
73

(Unaudited)

Nine Months Ended
Fiscal Year Ended December 31, September 30,

CBS Personnel 2002 2003 2004 2004 2005

($ in thousands)
Statements of Operations Data:

Revenues $ 180,232 $ 194,717 $ 315,258 $ 179,256 $ 405,486
Direct cost of revenues 141,460 155,368 254,987 144,498 329,536

Gross Profit 38,772 39,349 60,271 34,758 75,950
Operating expenses:
Staffing 23,184 23,081 31,974 18,390 41,297
Selling, general and Administrative 12,391 12,132 17,796 10,027 22,063
Amortization 784 491 1,051 607 1,433

Income from operations 2,413 3,645 9,450 5,734 11,157
Other income (expense):
Interest expense (4,566 ) (2,929 ) (2,100 ) (828 ) (3,398 )
Other Income 246 224 148 210 105

(Loss) Income before provision for income taxes (1,907 ) 940 7,498 5,116 7,864
Provision for income taxes (30 ) (117 ) (85 ) (402 ) (2,937 )

Net income (loss) $ (1,937 ) $ 823 $ 7,413 $ 4,714 $ 4,927

Cash Flow Data:

Cash (used in) provided by operating activities $ (1,390 ) $ 3,463 4,138 $ 376 $ 9,688
Cash (used in) investing activities (166 ) (302 ) (30,058 ) (30,426 ) (607 )
Cash provided by (used in) financing activities 2,293 (3,736 ) 26,575 30,191 (8,491 )

Net increase (decrease) in cash $ 737 $ (575 ) $ 655 $ 141 $ 590

Supplemental Information:

Depreciation Expense $ 1,559 $ 1,431 $ 1,344 $ 939 $ 1,096

(Unaudited)

At December 31, At
September 30,
2003 2004 2005

($ in thousands)
Balance Sheet Data:

Total current assets $ 27,224 $ 66,760 $ 70,258
Property and equipment, net 3,989 3,081 2,592
Goodwill 49,200 59,307 59,387
Other intangibles, net and other assets 884 11,228 10,347

Total assets 81,297 140,376 142,584
Current liabilities 22,008 41,888 47,185
Long-term debt 19,507 43,893 35,013
Workers’ Compensation and other liabilities 6,956 10,684 11,369

Total liabilities 48,471 96,465 93,567
Shareholders’ equity 32,826 43,911 49,017
74

(Unaudited)
Predecessor Successor
Year July 1, 2003 February 10, Year Quarter Ended
Ended to 2004 to Ended
June 30, February 9, June 30 June 30, September 26, October 2,
Crosman 2003 2004 2004 2005 2004 2005

($ in thousands)
Statements of Operations Data:

Net sales $ 53,333 $ 38,770 $ 24,856 $ 70,060 $ 15,511 $ 20,468
Cost of sales 37,382 26,382 17,337 50,874 11,316 15,490

Gross Profit 15,951 12,388 7,519 19,186 4,195 4,978
Operating expenses:
Selling, general and administrative 8,749 5,394 4,119 10,526 2,509 2,441
Amortization 132 70 258 629 155 179

Operating income 7,070 6,924 3,142 8,031 1,531 2,358
Other income (expense):
Interest expense (1,978 ) (402 ) (1,588 ) (4,638 ) (1,055 ) (1,326 )
Other income (expense) 424 (1,560 ) (281 ) (2,792 ) 12 4

Income before provision for income taxes 5,516 4,962 1,273 601 488 1,036
Provision for income taxes 2,122 1,824 463 112 141 392

Net income $ 3,394 $ 3,138 $ 810 $ 489 $ 347 $ 644

Cash Flow Data:

Cash provided by (used in) operating activities $ 4,360 $ 8,551 $ 89 $ 3,110 $ (2,050 ) $ 1,312
Cash (used in) investing activities (572 ) (1,181 ) (65,809 ) (2,014 ) (607 ) (315 )
Cash (used in) provided by financing activities (3,865 ) (7,146 ) 65,905 (527 ) 2,874 (1,578 )

Net (decrease) in cash $ (77 ) $ 224 $ 185 $ 569 $ 217 $ (581 )

Supplemental Information:

Depreciation Expense $ 2,295 $ 1,205 $ 847 $ 2,146 $ 528 $ 560

(Unaudited)
At June 30, At
October 2,
2004 2005 2005

($ in thousands)
Balance Sheet Data:

Total current assets $ 25,497 $ 28,622 $ 32,944
Property, plant and equipment, net 10,583 10,513 10,266
Goodwill 30,951 30,951 30,951
Intangible and other assets 14,900 14,097 14,270

Total assets 81,931 84,183 88,431
Current liabilities 10,072 11,001 13,900
Notes payable under revolving line of credit 7,138 10,385 9,074
Long-term debt 37,917 35,334 37,183
Capitalized lease obligations and other liabilities 4,878 5,117 5,299

Total liabilities 60,005 61,837 65,456
Shareholders’ equity 21,926 22,346 22,975
75

Predecessor

(Unaudited)
Fiscal Year Ended Nine Months Ended
December 31, September 30,

Advanced Circuits 2002 2003 2004 2004 2005

($ in thousands)
Statements of Operations Data:

Net sales $ 23,767 $ 27,796 $ 36,642 $ 27,465 $ 31,454
Cost of sales 12,759 14,568 17,867 13,548 14,133

Gross Profit 11,008 13,228 18,775 13,917 17,321
Operating expenses:
General and administrative 5,032 5,521 6,564 4,663 5,629

Operating income 5,976 7,707 12,211 9,254 11,692
Other income (expense):
Interest Expense (418 ) (204 ) (242 ) (183 ) (324 )
Interest income 27 16 42 20 150
Other income (198 ) 15 82 5 3

Income before provision for income taxes 5,387 7,534 12,093 9,096 �� 11,521
Provision for income taxes — — — — 225

Net income $ 5,387 $ 7,534 $ 12,093 $ 9,096 $ 11,296

Cash Flow Data:

Cash provided by operating activities $ 6,087 $ 8,021 $ 12,689 $ 9,537 $ 11,967
Cash (used in) investing activities (2,226 ) (2,167 ) (1,310 ) (878 ) (75,567 )
Cash provided (used in) financing activities (4,086 ) (4,458 ) (8,830 ) (7,391 ) 57,922

Net (decrease) increase in cash $ (225 ) $ 1,396 $ 2,549 $ 1,268 $ (5,678 )

Supplemental Information:

Depreciation Expense $ 654 $ 729 $ 869 $ 594 $ 715

(Unaudited)
At December 31, At
September 30,
2003 2004 2005

($ in thousands)
Balance Sheet Data:

Total current assets $ 6,254 $ 9,564 $ 4,050
Property and equipment, net 6,721 6,669 2,676
Goodwill and other assets 166 556 73,101

Total assets 13,141 16,789 79,827
Current liabilities 3,415 3,422 7,703
Long-term debt 3,167 2,787 46,750
Other liabilities 60 131 —

Total liabilities 6,642 6,340 54,453
Shareholders’ equity 6,499 10,449 25,374
76
��
(Unaudited)
Predecessor Successor Nine Months
Predecessor January 1, September 3, Ended
Year Ended 2004 to 2004 to September 30,
December 31, September 2, December 31,
Silvue 2003 2004 2004 2004 2005

($ in thousands)
Statements of Operations Data:

Net sales $ 12,813 $ 10,354 $ 6,124 $ 11,859 $ 15,819
Cost of sales 4,194 3,620 1,951 4,091 5,593

Gross Profit 8,619 6,734 4,173 7,768 10,226
Operating expenses:
Selling, general and administrative 6,103 4,497 2,699 5,260 6,356
Research and Development costs 549 448 179 500 838

Operating income 1,967 1,789 1,295 2,008 3,032
Other income (expense):
Interest income 8 5 — 6 —
Interest expense (58 ) (29 ) (360 ) (106 ) (1,000 )
Other income 376 175 135 193 180

Income before provision for income taxes 2,293 1,940 1,070 2,101 2,212
Provision for income taxes 576 483 322 575 695

Net income $ 1,717 $ 1,457 $ 748 $ 1,526 $ 1,517

Cash Flow Data:

Cash provided by operating activities $ 1,948 $ 1,449 $ 942 $ 1,697 $ 1,752
Cash provided by (used in) investing activities (92 ) (210 ) (7,750 ) (8,221 ) 109
Cash (used in) provided by financing activities (1,013 ) (3,139 ) 6,507 4,419 (1,588 )

Net increase (decrease) in cash $ 843 $ (1,900 ) $ (301 ) $ (2,105 ) $ 273

Supplemental Information:

Depreciation Expense $ 464 $ 436 $ 87 $ 474 $ 298

(Unaudited)
At December 31, At
September 30,
2003 2004 2005

(Predecessor)
($ in thousands)
Balance Sheet Data:

Total current assets $ 6,198 $ 5,201 $ 6,280
Property, plant and equipment, net 4,795 750 1,408
Goodwill — 7,057 11,159
Other Intangibles, net and other assets 972 12,097 9,249

Total assets 11,965 25,105 28,096
Current liabilities 1,942 3,684 4,527
Equipment line 61 — 183
Long-term debt 554 12,201 12,790
Deferred income tax liability and other liabilities 784 1,008 993

Total liabilities 3,341 16,893 18,493
Cumulative redeemable preferred stock — 90 90
Shareholders’ equity 8,624 8,122 9,513
77
Our management team’s strategy for our subsidiaries involves:
• utilizing structured incentive compensation programs tailored to each business to attract, recruit and retain talented managers to operate our businesses;
• regularly monitoring financial and operational performance, instilling consistent financial discipline, and supporting management in the development and implementation of information systems to effectively achieve these goals;
• assisting management in their analysis and pursuit of prudent organic cash flow growth strategies (both revenue and cost related);
• identifying and working with management to execute attractive external growth and acquisition opportunities; and
• forming strong subsidiary level boards of directors to supplement management in their development and implementation of strategic goals and objectives.
Based on the experience of our management team and its ability to identify and negotiate acquisitions, we believe we are positioned to acquire additional attractive businesses. Our management team has a large network of over 2,000 deal intermediaries to whom it actively markets and who we expect to expose us to potential acquisitions. Through this network, as well as our management team’s active proprietary transaction sourcing efforts, we typically have a substantial pipeline of potential acquisition targets. In consummating transactions, our management team has, in the past, been able to successfully navigate complex situations surrounding acquisitions, including corporate spin-offs, transitions of family-owned businesses, management buy-outs and reorganizations. We believe the flexibility, creativity, experience and expertise of our management team in structuring transactions provides us with a strategic advantage by allowing us to consider non-traditional and complex transactions tailored to fit a specific acquisition target.
In addition, because we intend to fund acquisitions through the utilization of our revolving credit facility, we do not expect to be subject to delays in or conditions by closing acquisitions that would be typically associated with transaction specific financing, as is typically the case in such acquisitions. We believe this advantage is a powerful one and is highly unusual in the marketplace for acquisitions in which we operate.
~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~
~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~
~~Overview~~Initial Public Offering and Initial Acquisitions

On May 16, 2006, we completed the IPO of 13,500,000 shares of the trust at an offering price of $15.00 per share. Total net proceeds from the IPO, after deducting the underwriters’ discounts, commissions and financial advisory fee, were approximately $188.3 million. On May 16, 2006, we also completed the private placement of 5,733,333 shares to CGI at the IPO price per share for approximately $86.0 million and completed the private placement of 266,667 shares at the IPO price per share per share to Pharos, an entity controlled by Mr. Massoud, the chief executive officer of the company, and owned by our management team, for approximately $4.0 million. CGI also purchased 666,667 shares for $10.0 million through the IPO.
On May 16, 2006, we also entered into a financing agreement, which we refer to as the prior financing agreement, which was a $225 million secured credit facility with Ableco Finance LLC, as collateral and administrative agent. On November 22, 2006, we terminated the prior financing agreement and entered into a new $255 million revolving credit facility, which we refer to as the revolving credit facility, with Madison Capital Funding, LLC, which we refer to as Madison, as agent.
We used the net proceeds of the IPO, the separate private placements that closed in conjunction with the IPO, and initial borrowings under our prior financing agreement to make loans to and acquire

51
controlling interests in each of the following businesses from certain subsidiaries of CGI and from certain minority owners of each business, which include:
• a loan was made to and a controlling interest in CBS Personnel was purchased totaling $127.8 million. Our controlling interest represented at the time of purchase approximately 97.6% of the outstanding stock of CBS Personnel on a primary basis and approximately 94.4% on a fully diluted basis, after giving effect to the exercise of vested and in-the-money options and vested non-contingent warrants;
• a loan was made to and a controlling interest in Crosman was purchased totaling $72.6 million. Our controlling interest represented approximately 75.4% of the outstanding stock of Crosman on a primary basis and 73.8% on a fully diluted basis;
• a loan was made to and a controlling interest in Advanced Circuits was purchased for approximately $81.0 million. Our controlling interest represented approximately 70.2% of the outstanding stock of Advanced Circuits on a primary and fully diluted basis; and
• a loan was made to and a controlling interest in Silvue was purchased for approximately $37.5 million. Our controlling interest represented approximately 73.0% of the outstanding stock of Silvue on a primary and fully diluted basis.
At the close of the acquisitions of the initial businesses, the company’s board of directors engaged our manager to externally manage theday-to-day operations and affairs of the company, oversee the management and operations of the businesses and to perform those services customarily performed by executive officers of a public company.
We are ~~and will be~~ dependent upon the earnings of and cash ~~flow~~distributions from, the businesses that we own to meet our corporate overhead and management fee expenses and to ~~make~~pay distributions. These earnings, net of any ~~tax payable by and~~ minority interests in these businesses, will be available:
• ~~First,~~first, to meet capital expenditure requirements, management fees and corporate overhead ~~expenses of the businesses that we own, the company and the trust;~~expenses;

• ~~Second,~~second, to fund distributions byfrom the ~~company~~businesses to the ~~trust;~~company; and

• ~~Third,~~third, to be distributed by the trust to shareholders.
Anodyne Acquisition ~~of Initial Businesses~~

On August 1, 2006, we acquired approximately 47.3% of the outstanding capital stock, on a fully diluted basis, of Anodyne which represents approximately 69.8% of the voting power of all Anodyne stock from CGI and Compass Medical Mattresses Partners, LP, a wholly owned, indirect subsidiary of CGI.
The purchase price aggregated $31.1 million for the Anodyne stock, all outstanding debt to the seller under Anodyne’s credit facility, which we refer to as original loans, and a promissory note issued by a borrower controlled by Anodyne’s chief executive officer totaling $5.2 million, which we refer to as the promissory note, which purchase price was paid by the company in the form of $17.3 million in cash and 950,000 of our newly issued shares. The shares were valued at $13.1 million, or $13.77 per share. Transaction expenses were approximately $700,000. The cash consideration was funded through available cash and a drawing on our prior financing agreement of approximately $18.0 million.
On October 5, 2006 Anodyne acquired Anatomic Concepts, Inc., which we refer to as Anatomic. The cash purchase price was approximately $8.6 million all of which was funded by loans from the company. In addition, costs totaling $0.5 million were accrued in connection with the acquisition. Anatomic designs, manufactures and distributes medical support surfaces and medical patient positioning devices, including mattresses, mattress overlays and replacements, operating room patient positioning devices, operating table pads and related accessories. Anatomic is located in Corona, California.

52
Recent Developments
Crosman Disposition
On January 5, 2007, we sold all of our interest in Crosman, an operating segment, for approximately $143 million. Closing and other transaction costs totaled approximately $2.4 million. Our share of the proceeds, after accounting for the redemption of Crosman’s minority holders and the payment of CGM’s profit allocation of $7.9 million was approximately $110 million. We will ~~use~~recognize a gain on the sale of approximately $35.9 million in fiscal 2007. We used $85.0 million of the net proceeds to repay amounts outstanding under the company’s revolving credit facility. The remaining net proceeds were invested in short-term investment securities pending future application. We did not pay a corresponding distribution of any of the proceeds from this sale.
Our consolidated financial statements reflect the activity of ~~this offering,~~Crosman, as a discontinued operation in accordance with SFAS No. 144,“Accounting for the impairment or disposal of long-lived assets.”
The following table presents Crosman’s results of operations from May 16, 2006 through December 31, 2006 reflected in our consolidated financial statements as discontinued operations:

($ in thousands)

Net sales $ 72,316
Costs and expenses 59,039

Income from discontinued operations 13,277
Other income, net 182

Income from discontinued operations before taxes 13,459
Provision for taxes 3,367
Minority interests 1,705

Net income from discontinued operations(1) $ 8,387

(1) This amount does not include intercompany interest expense incurred totaling approximately $3.2 million.
Aeroglide Acquisition
On February 28, 2007, we purchased a controlling interest in Aeroglide Corporation which we refer to as Aeroglide. Aeroglide is a leading global designer and manufacturer of industrial drying and cooling equipment. Aeroglide provides specialized thermal processing equipment designed to remove moisture and heat as well as roast, toast and bake a variety of processed products. Its machinery includes conveyer driers and coolers, impingement driers, drum driers, rotary driers, toasters, spin cookers and coolers, truck and tray driers and related auxiliary equipment and is used in the production of a variety of human foods, animal and pet feeds and industrial products. Aeroglide utilizes an extensive engineering department to custom engineer each machine for a particular application. Aeroglide had sales of approximately $48 million for the year ended December 31, 2006.
On February 28, 2007, we made loans to and purchased a controlling interest in Aeroglide totaling $57 million. Our controlling interest represents approximately 89% of the outstanding stock. The cash consideration was funded through available cash and a drawing on our revolving credit facility.
Halo Acquisition
On February 28, 2007, we purchased a controlling interest in Halo Branded Solutions, Inc. which we refer to as Halo, and which operates under the brand names of Halo and Lee Wayne. Halo serves as a one-stop shop for over 30,000 customers providing design, sourcing, management and fulfillment services across all categories of its customers’ promotional product needs. Halo has established itself as a leader in the

53
promotional products and marketing industry through its focus on service through its approximately 700 account executives. Halo had sales of approximately $116 million for the year ended December 31, 2006.
On February 28, 2007, we made loans to and purchased a controlling interest in Halo totaling $61 million. Our controlling interest represents approximately 73.6% of the outstanding equity. The cash consideration was funded through available cash and a drawing on our revolving credit facility.
We expect that both businesses will be accretive to cash flow available for distribution in fiscal 2007 and beyond.
Results of Operations
We were formed on November 18, 2005 and acquired our initial businesses on May 16, 2006 and Anodyne on July 31, 2006, and, therefore cannot provide a comparison of our consolidated results of operations for the year ended December 31, 2006 with any prior year. In the following results of operations, we provide (i) our consolidated results of operations for the years ended December 31, 2006 and 2005, which includes the results of operations of our businesses (segments) as of May 16, 2006 and the results of operations of Anodyne from August 1, 2006, (ii) comparative and unconsolidated results of operations for each of the initial businesses, on a stand-alone basis, for years ended December 31, 2006 and 2005, and (iii) unconsolidated results of operations for Anodyne from August 1, 2006. Anodyne was formed in 2005, began business operations in February 2006 and was acquired by us on August 1, 2006. As a result, comparative results of operations are not available.
Consolidated Results of Operations — Compass Diversified Trust and Compass Group Diversified Holdings LLC

Years Ended December 31,
2006 2005
($ in thousands)

Net sales $ 410,873 $ —
Cost of sales 311,641 —

Gross profit 99,232 —
Selling, general and administrative expense 71,077 1
Fees to manager 4,376 —
Supplemental put cost 22,456 —
Amortization of intangibles 6,774 —
Research and development expense 1,806 —

Operating loss $ (7,257 ) $ (1 )

We do not generate any revenues apart from those generated by the businesses we own, control or operate. We may generate interest income on the investment of available funds, but expect such earnings to be minimal. Our investment in our businesses is typically in the form of loans from the company to such businesses, as well as equity interests in those companies. Cash flows coming to the trust and the company are the result of interest payments on those loans, amortization of those loans and, in the future, potentially, dividends on our equity ownership. However, on a consolidated basis these items will be eliminated.
Pursuant to the management services agreement, we pay our manager a quarterly management fee equal to 0.5% (2.0% annualized) of our adjusted net assets as of the last day of each fiscal quarter. (See “— Related Party Transactions”). We accrue for the management fee on a quarterly basis. For the year ended December 31, 2006 we incurred approximately $4.4 million in expense for these fees.
In addition, concurrent with the IPO, we entered into a supplemental put agreement with our manager pursuant to which our manager has the right to cause us to purchase the allocation interests then owned by it upon termination of the management services agreement. The company accrued approximately $22.5 million

54
in non-cash expense during the year ended December 31, 2006 in connection with this agreement. This expense represents that portion of the estimated increase in the value of our original businesses over our basis in those businesses that our manager is entitled to if the management services agreement were terminated or those businesses were sold (see “— Related Party Transactions”).
We acquired our initial businesses on May 16, 2006. As a result, our consolidated operating results only include the results of operations for the 230 day period between May 16, 2006 and December 31, 2006. The following reflects a comparison of the historical results of operations for each of our initial businesses for the entire twelve-month period ending December 31, 2006, which we believe is a more meaningful comparison in explaining the historical financial performance of the business. These results of operations do not reflect any purchase accounting adjustments from our acquisition and are not necessarily indicative of the results to be expected for the full year going forward.
Advanced Circuits
Overview
Advanced Circuits is a provider of prototype, quick-turn and volume production PCBs to customers throughout the United States. Collectively, prototype and quick-turn PCBs represent 66.0% of Advanced Circuits’ gross revenues. Prototype and quick-turn PCBs typically command higher margins than volume production given that customers require high levels of responsiveness, technical support and timely delivery with respect to prototype and quick-turn PCBs and are willing to pay a premium for them. Advanced Circuits is able to meet its customers’ demands by manufacturing custom PCBs in as little as 24 hours, while maintaining over 98.0% error-free production rate and real-time customer service and product tracking 24 hours per day.
While global demand for PCBs has remained strong in recent years, industry wide domestic production has declined by approximately 60% since 2000. In contrast, Advanced Circuits’ revenues have increased steadily as its customers’ prototype and quick-turn PCB requirements, such as small quantity orders and rapid turnaround, are less able to be met by low cost volume manufacturers in Asia and elsewhere. Advanced Circuits’ management anticipates that demand for its prototype and quick-turn printed circuit boards will remain strong.
Over the past three years, Advanced Circuits has continued to improve its internal production efficiencies and enhance its service capabilities, resulting in increased profit margins. Additionally, Advanced Circuits has benefited from increased production capacity as a result of a facility expansion that was completed in 2003.
Advanced Circuits does not depend or expect to depend upon any customer or group of customers, with no single customer accounting for more than 2% of its net sales. Advanced Circuits receives orders from over 8,000 customers and adds approximately 225 new customers per month.
In September 2005, a subsidiary of CGI acquired Advanced Circuits, Inc. along with R.J.C.S. LLC, an entity previously established solely to hold Advanced Circuits’ real estate and equipment assets. Immediately following the acquisitions, R.J.C.S. LLC was merged into Advanced Circuits, Inc. The results for the year ended December 31, 2005, reflects the combined results of the two businesses. The following section discusses the historical financial performance of the combined entities.

55
Results of Operations
Fiscal Year Ended December 31, 2006 Compared to Fiscal Year Ended December 31, 2005
The table below summarizes the combined statement of operations for Advanced Circuits for the fiscal years ending December 31, 2006 and December 31, 2005.

Fiscal Year Ended

December 31,
2006 2005
($ in thousands)

Net sales $ 48,139 $ 41,969
Cost of sales 18,888 18,102

Gross profit 29,251 23,867
Selling, general and administrative expenses 14,934 8,283
Amortization of intangibles 2,731 717

Income from operations $ 11,586 $ 14,867

Net sales
Net sales for the year ended December 31, 2006 was approximately $48.1 million as compared to approximately $42.0 million for the year ended December 31, 2005, an increase of approximately $6.2 million or 14.7%. The increase in net sales was largely due to increased sales in quick-turn production PCB, and prototype production, which increased by approximately $2.5 million and $1.8 million, respectively, and the addition of new customers from increased marketing efforts. Quick-turn production PCBs represented approximately 32.1% of gross sales for the year ended December 31, 2006 as compared to approximately 32.0% for the fiscal year ended December 31, 2005. Prototype production represented approximately 33.4% of sales for the fiscal year ended December 31, 2006 compared to approximately 34% for the fiscal year ended December 31, 2005.
Cost of sales
Cost of sales for the year ended December 31, 2006 was approximately $18.9 million, or 39.2% of net sales, as compared to approximately $18.1 million, or 43.1% of net sales, for the year ended December 31, 2005, an increase of approximately $0.8 million or 4.3%. The increase in cost of sales was largely due to the increase in production volume offset in part by efficiencies realized from the increased capacity utilization at the Aurora Colorado facility.
Gross profit margin increased by approximately 3.9% to approximately 60.8% for the year ended December 31, 2006 as compared to approximately 56.9% for the year ended December 31, 2005. The increase is due to increased capacity utilization. These benefits were partially offset by increased costs of laminates, Advanced Circuits’ primary raw material component in the production of PCB’s.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended December 31, 2006 were approximately $14.9 million, or 31.0% of net sales, as compared to approximately $8.3 million, or 19.7% of net sales, for the year ended December 31, 2005, an increase of approximately $6.7 million, or 80.3%. Approximately $3.8 million of the increase was due to loan forgiveness arrangements provided to Advanced Circuits’ management associated with CGI’s acquisition of Advanced Circuits. Additionally, approximately $0.3 million of the increase was due to increased advertising expenditures with the remainder of the increase due to increased compensation and other professional fees due principally to the increase in sales and scope of operations.

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Amortization of intangibles
Amortization of intangibles for the year ended December 31, 2006 was approximately $2.7 million, or 5.7% of net sales, compared to approximately $0.7 million, or 1.7% of net sales, for the year ended December 31, 2005. This increase was due to the significant increase in the amortization of intangibles acquired as a result of the acquisition on September 20, 2005 and reflected for four fiscal quarters in 2006 compared to only one fiscal quarter in 2005.
Income from operations
Income from operations was approximately $11.6 million, or 24.1% of net sales, for the year ended December 31, 2006 as compared to approximately $14.9 million, or 35.4% of net sales, for the year ended December 31, 2005, a decrease of approximately $3.3 million or 22.1%. The decrease in income from operations was principally due to the non-cash costs associated with loan forgiveness compensation arrangements totaling approximately $3.8 million in fiscal 2006. We expect there to be additional suchnon-cash charges in the future.
CBS Personnel
Overview
CBS Personnel, a provider of temporary staffing services in the United States, provides a wide range of human resources services, including temporary staffing services, employee leasing services, permanent staffing andtemporary-to-permanent placement services. CBS Personnel derives a majority of its revenues from its temporary staffing services, which generated approximately 97.2% and 97.1% of revenues for fiscal years ended December 31, 2006 and 2005, respectively. CBS Personnel serves over 4,000 corporate and small business clients and during an average week places over 24,000 temporary employees in a broad range of industries, including manufacturing, transportation, retail, distribution, warehousing, automotive supply, construction, industrial, healthcare and financial sectors.
As a result of relatively flat economic conditions, CBS Personnel’s revenues increased slightly compared to fiscal 2005. As the salaries of temporary employees represent the largest costs of providing staffing services, the increase in number of temporary workers on hire has resulted in a corresponding increase in CBS Personnel’s costs of revenues. Based on forecasts of continued economic growth, CBS Personnel’s management believes the demand for temporary staffing services will continue to grow.
CBS Personnel’s business strategy includes maximizing production in existing offices, increasing the number of offices within a market when conditions warrant, and expanding organically into contiguous markets where it can benefit from shared management and administrative expenses. CBS Personnel typically enters into new markets through acquisition. In keeping with these strategies, CBS Personnel acquired substantially all of the assets of PMC Staffing Solutions, Inc., d/b/a Strategic Edge Solutions (SES) on November 27, 2006. This acquisition gave CBS Personnel a presence in the Baltimore, Maryland area, while increasing its presence in the Chicago, Illinois area. SES revenues for the eleven months ended November 27, 2006 were approximately $31.4 million and are not included in the information below. SES derives its revenues primarily from the light industrial market. CBS Personnel continues to view acquisitions as an attractive means to enter new geographic markets.

57
Fiscal Year Ended December 31, 2006 as Compared to Fiscal Year Ended December 31, 2005
The table below summarizes the consolidated statement of operations data for CBS Personnel for the fiscal years ended December 31, 2006 and December 31, 2005:

Fiscal Year Ended December 31,
2006 2005
($ in thousands)

Revenues $ 551,080 $ 543,012
Direct cost of revenues 446,820 441,685

Gross profit 104,260 101,327
Staffing expense 54,847 54,249
Selling, general and administrative expenses 25,666 26,723
Amortization expense 2,687 1,902

Income from operations $ 21,060 $ 18,453

Revenues
Revenues for the year ended December 31, 2006 increased approximately $8.1 million, or 1.5%, over the corresponding twelve months ended December 31, 2005. Revenues from light industrial staffing increased approximately $25.1 million year over year, and included approximately $2.8 million from the SES acquisition. This increase was partially offset by a $10.7 million decrease in revenues from clerical services, and a $5.0 million decrease in revenues from medical and payroll services. The remaining decrease in revenues is attributable to the remaining niche segments serviced by CBS Personnel. These decreases in revenues include approximately $7.1 million attributable to one specific customer that CBS personnel stopped providing service for in the fourth quarter of 2005, due to the customer’s credit issues.
Direct cost of revenues
Direct cost of revenues for the twelve months ended December 31, 2006 were approximately $446.8 million, or 81.1% of revenues, compared to approximately $441.7 million, or 81.3% of revenues, for the year ended December 31, 2005, an increase of approximately $5.1 million, or 1.2%, principally due to those costs associated with the increase in revenues and the SES acquisition. The acquisition of SES accounted for approximately $2.7 million of the increase. The remaining increase is the result of higher revenue volume in temporary services, which was substantially offset by lower workers’ compensation costs. A favorable actuarial adjustment of approximately $2.5 million was recorded in 2006, reflecting CBS Personnel’s initiatives to reduce workers’ compensation exposure and to settle claims.
Gross profit totaled approximately 18.9% and 18.7% as a percentage of revenues in each of the twelve-month periods ended December 31, 2006 and 2005, respectively. The increase in gross profit as a percent of revenues is primarily attributable to lower workers’ compensation costs as discussed above. This decrease in workers’ compensation cost was partially offset by a shift in product mix to larger accounts and light industrial accounts, which typically have lower margins.
Staffing expense
Staffing expense for the year ended December 31, 2006 was approximately $54.8 million, or 9.9% of revenues, compared to approximately $54.2 million, or 10.0% for the year ended December 31, 2005. This increase of approximately $0.6 million is principally due to cost associated with the increase in revenues and for the SES acquisition.

58
Selling, general and administrative expenses
Selling, general and administrative expenses were approximately $25.7 million, or 4.7% of revenues for the year ended December 31, 2006, compared to approximately $26.7 million, or 4.9% of revenues, for the year ended December 31, 2005, a decrease of approximately $1.1 million, or 4.0%. The SES acquisition contributed to an increase of approximately $0.1 million. This increase was offset by nonrecurring costs associated with the equity recapitalization and the SES acquisition in 2006 of approximately $0.6 million compared to expenses of approximately $1.2 million associated with the reorganization of field operations in 2005 and by lower bad debt expense of approximately $0.4 million in fiscal 2006.
Amortization expense
Amortization expense increased approximately $0.8 million in the twelve months ended December 31, 2006 as a result of the recapitalization in connection with CODI’s purchase of a controlling interest in CBS Personnel in May 2006. As part of the recapitalization, CBS Personnel repaid their original long-term debt, which required CBS to write off the remaining balance of deferred financing costs of $1.6 million related to that debt.
Income from operations
Income from operations increased approximately $2.6 million to $21.1 million, or 3.8% of revenues, for the year ended December 31, 2006 compared to $18.5 million, or 3.4% of revenues, for the year ended December 31, 2005 principally as a result of the factors described above.
Silvue
Overview
Silvue is a developer and producer of proprietary, high performance liquid coating systems used in the high-end eyewear, aerospace, automotive and industrial markets. Silvue’s coating systems, which impart properties such as abrasion resistance, improved durability, chemical resistance, ultraviolet or UV protection, can be applied to a wide variety of materials, including plastics, such as polycarbonate and acrylic, glass, metals and other surfaces.
We believe that the hardcoatings industry will experience growth as the use of existing materials requiring hardcoatings continues to grow, new materials requiring hardcoatings are developed and new uses of hardcoatings are discovered. Silvue’s management expects additional growth in the industry as manufacturers continue to outsource the development and application of hardcoatings used on their products.
To respond to increasing demand for coating systems, Silvue is focused on growth through the development of new products providing either greater functionality or better value to its customers. Silvue currently owns nine patents relating to its coatings portfolio and continues to invest in the research and development of additional proprietary products. Further, driven by input from customers and the changing demands of the marketplace, Silvue actively endeavors to identify new applications for its existing products.
On August 31, 2004, Silvue was formed by CGI and management to acquire SDC Technologies, Inc. and on September 2, 2004, it acquired 100% of the outstanding stock of SDC Technologies, Inc. Following this acquisition, on April 1, 2005, SDC Technologies, Inc. purchased the remaining 50% it did not previously own of Nippon Arc Co. LTD, which we refer to as Nippon ARC, which was formerly operated as a joint venture with Nippon Sheet Glass Co., LTD., for approximately $3.6 million.
The results for the fiscal year ended December 31, 2005, reflects the results of Silvue and its predecessor company, SDC Technologies. In November 2005, Silvue’s management made the strategic decision to halt operations at its application facility in Henderson, Nevada. The operations included substantially all of Silvue’s application services business, which has historically applied Silvue’s coating systems and other coating systems to customer’s products and materials. The facility was shut down in November 2006.

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Results of Operations
Fiscal Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
The table below summarizes the consolidated statement of operations for Silvue for the fiscal year ended December 31, 2006 and for the fiscal year ended December 31, 2005:

Fiscal Year Ended

December 31,
2006 2005
($ in thousands)

Net sales $ 24,068 $ 21,491
Cost of sales 7,098 7,497

Gross profit 16,970 13,994
Selling, general and administrative expenses 8,426 7,552
Research and development costs 1,129 1,226
Amortization of intangibles 745 709

Operating income 6,670 4,507

Net sales
Net sales for the year ended December 31, 2006 was approximately $24.1 million as compared to approximately $21.5 million for the year ended December 31, 2005, an increase of approximately $2.6 million or 12.0%. This increase was principally due to additional sales associated with Nippon ARC of approximately $2.1 million. Nippon ARC, purchased on April 1, 2005 contributed a full year’s sales in 2006. In addition, growth within Silvue’s core ophthalmic business and expansion in sales of Silvue’s aluminum coatings products accounted for approximately $1.7 million of the increase. These increases were offset in part by the decrease in sales as a result of the closure of the facility in Henderson, Nevada.
Cost of sales
Cost of sales for the year ended December 31, 2006 was approximately $7.1 million, or 29.5% of net sales, as compared to approximately $7.5 million, or 34.9% of net sales, for the year ended December 31, 2005, a decrease of approximately $0.4 million or 5.3%. This decrease was principally due to a reduction in costs associated with the elimination of the application processing facility aggregating approximately $1.2 million. This decrease was offset in part by increased cost directly associated with the increased sales at Silvue’s Nippon ARC operations totaling approximately $0.9 million.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended December 31, 2006 were approximately $8.4 million, or 35.0% of net sales, as compared to approximately $7.6 million, or 35.1% of net sales, for the year ended December 31, 2005, an increase of approximately $0.8 million or 11.5%. The increase in selling, general and administrative expenses was primarily due to (i) the inclusion of Nippon ARC, which had selling, general and administrative expenses of $1.8 million in fiscal 2006 compared to $1.5 million in fiscal 2005 and (ii) increased legal and professional fees of $0.5 million.
Research and development costs
Research and development costs for the year ended December 31, 2006 were approximately $1.1 million as compared to approximately $1.2 million for the year ended December 31, 2005.
Amortization of intangibles
Amortization of intangibles was approximately $0.7 million in each of the years ended December 31, 2006 and 2005.

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Operating income
Income from operations was approximately $6.7 million, or 27.7% of net sales for the year ended December 31, 2006 as compared to approximately $4.5 million, or 21.0% of net sales, for the year ended December 31, 2005, an increase of approximately $2.2 million or 48.0%. This increase was principally due to the acquisition of Nippon ARC which contributed approximately $0.8 million in additional operating income and from the organic growth in revenues from existing ophthalmic customers and the expansion in sales in aluminum coating products.
Anodyne
Overview
Anodyne was formed in early 2006 in order to purchase the assets and operations of AMF and SenTech which were completed on February 15, 2006. Both AMF and SenTech manufacture and distribute patient positioning devices. On October 5, 2006, Anodyne purchased a third manufacturer and distributor of patient positioning devices, Anatomic Concepts. Anatomic Concepts’ operations were merged into the AMF operations.
The medical support surfaces industry is fragmented in nature. Management estimates the market is comprised of approximately 70 small participants who design and manufacture products for preventing and treating decubitus ulcers. Decubitus ulcers, or pressure ulcers, are formed on immobile medical patients through continued pressure on one area of skin. Immobility caused by injury, old age, chronic illness or obesity are the main causes for the development of pressure ulcers. In these cases, the person lying in the same position for a long period of time puts pressure on a small portion of the body surface. This pressure, if continued for sustained period, can close blood capillaries that provide oxygen and nutrition to the skin. Over a period of time, these cells deprived of oxygen begin to break down and form sores. Contributing factors to the development of pressure ulcers are sheer, or pull on the skin due to the underlying fabric, and moisture, which increases the propensity to deteriorate.
The U.S. market for specialty beds and medical support surfaces market was estimated to be $1.6 billion in 2005 and was forecast to reach $2.9 billion by 2012 (Frost and Sullivan). Management believes the medical support surfaces industry will continue to grow due to several favorable demographic and industry trends including the increasing incidence of obesity in the United States, increasing life expectancies, and an increasing emphasis on prevention of pressure ulcers by hospitals and long term care facilities.
Beyond favorable demographic trends, Anodyne’s management believes hospitals are placing an increased emphasis on the prevention of pressure ulcers. Frost and Sullivan estimates that approximately one million pressure ulcers occur annually in the United States generating an estimated $1.3 billion in annual costs to hospitals alone. According to Medicare reimbursement guidelines, pressure ulcers are eligible for reimbursement by third party payers only when they are diagnosed upon hospital admission. Additionally, third party payers only provide reimbursement for preventative mattresses under limited circumstances. The end result is that if an at risk patient develops pressure ulcers while at the hospital, the hospital is required to bear the cost of healing. As a result of increasing litigation and the high cost of healing pressures ulcers, hospitals are now focusing on using pressure relief equipment to reduce the incidence of hospital acquired pressure ulcers.
Anodyne’s strategy for approaching this market includes offering its customers consistently high quality products on a national basis, leveraging its scale to provide industry leading research and development and pursuing cost savings through scale purchasing and operational efficiencies.
We purchased Anodyne from CGI on August 1, 2006. As such, our consolidated financial statements include the results of operations of Anodyne for the five month period ended December 31, 2006. Anodyne’s results of operations include the results of Anatomic Concepts since October 5, 2006. We have not presented comparative results for Anodyne, as the company formed in 2006 and such comparisons are

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unavailable. In addition, the following results of operations do not reflect any purchase accounting adjustments resulting from our acquisition.
Results of Operations
The results of operations of Anodyne from February 15, 2006 to December 31, 2006 are shown in the following table:

Fiscal

2006
($ in thousands)

Net sales $ 23,367
Cost of sales 17,505
Gross profit 5,862
Selling, general and administrative expenses 4,901
Amortization expense 709

Income from operations $ 252

Anodyne’s sales were below expectations in fiscal 2006 due primarily to the delay in fulfillment of a supply contract with a major customer. The issues surrounding this delay have been substantially resolved to date and management expects Anodyne to record sales equal to or exceeding its current 2007 expectations.
Income from operations were lower than our expectations primarily due to the delay in sales which also negatively impacted cost of sales due to lower production capacity utilization. Selling, general and administrative expenses were as expected. We anticipate increased operating income for Anodyne relative to sales in fiscal year 2007 as Anodyne’s SenTech operations has begun to deliver additional sales.
Liquidity and Capital Resources
On May 16, 2006 we completed the IPO and concurrent private placement of our shares, each representing a beneficial interest in the company. The net proceeds from these offerings after underwriter’s commissions, discounts and offering costs totaled approximately $269.8 million.
We used the net proceeds from the IPO and private placements together with the $50 million term loan from our prior financing agreement to acquire controlling interests in, and to provide loans to, our initial businesses on May 16, 2006. On August 1, 2006 we acquired a controlling interest in Anodyne. As a ~~single transaction~~consequence, our consolidated cash flows from operating, financing and investing activities reflect the inclusion of our businesses for the period between May 16, 2006 and December 31, 2006 and cash flows from Anodyne’s results for five months (August 1, 2006 through December 31, 2006). Any comparison of our consolidated cash flows for this partial period in 2006 to any prior period is not meaningful.
At December 31, 2006, on a consolidated basis, cash flows provided by operating activities totaled approximately ~~$315~~$20.6 million, which represents the inclusion of the results of operations of the businesses for 230 days (May 16, 2006 through December 31, 2006).
Cash flows used in ~~cash from subsidiaries of CGI~~investing activities totaled approximately $362.3 million, which principally reflects the costs to acquire the initial businesses and ~~certain minority investors. In addition, we will use~~Anodyne. Cash flow provided by financing activities totaled $351.1 million, principally reflecting the net proceeds of ~~this offering,~~the shareholder offerings and draw-downs of debt from our revolving credit facility.
At December 31, 2006, we had approximately $7.0 million of cash on hand and the ~~related private placements, to make~~following principal amounts outstanding under loans todue from each of our initial businesses. The terms and pricing of the agreements with respect to our acquisitions of our initial businesses from CGI were negotiated among CGI affiliated entities in the overall context of this offering. The acquisition of each of the initial businesses will be conditioned upon the consummation of our acquisition of each of the other initial businesses.businesses:
~~In connection with this offering, the company will use a portion of the proceeds from this offering to acquire:~~
• ~~approximately 98.1% of~~ CBS Personnel ~~on a primary and~~— approximately ~~95.6% on a fully diluted basis;~~$63.5 million;

• ~~approximately 75.4% of Crosman on a primary and fully diluted basis;~~
• ~~approximately 85.7% of~~ Advanced Circuits ~~on a primary basis and~~— approximately ~~73.2% on a fully diluted basis; and~~
• ~~approximately 73.0% of Silvue on a primary and fully diluted basis, after giving effect to the conversion of preferred stock of Silvue we acquired.~~$37.3 million;

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See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for more information about the calculation of the percentages of equity interest we are acquiring of each initial business. The remaining equity interests in each initial business will be held by the respective senior management of each of our initial businesses, as well as other minority shareholders.
      In connection with this offering, the company will use a portion of the proceeds of this offering and the related transactions to make loans and financing commitments to each of our initial businesses as follows:
• Silvue — approximately $70.2 million to CBS Personnel. The $70.2 million is comprised of approximately $64.0 million in term loans, approximately $31.2 million of which will be used to pay down third party debt and approximately $32.8 million of which represents a capitalization loan and, therefore, considered part of the purchase price of equity interests in CBS Personnel, and an approximately $42.5 million revolving loan commitment, approximately $6.2 million of which will be funded to CBS Personnel in conjunction with the closing of this offering;
• ~~approximately $50.1 million to Crosman. The $50.1 million is comprised of an approximately $47.8 million in term loans and an approximately $15.0 million revolving loan commitment,~~
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~~approximately $2.3 million of which will be funded to Crosman in conjunction with the closing of this offering;~~
• approximately $51.3 million to Advanced Circuits. The $51.3 million is comprised of approximately $50.5 million in term loans and an approximately $4.0 million revolving loan commitment, approximately $0.8 million of which will be funded to Advanced Circuits in conjunction with the closing of this offering;$17.0 million; and

• Anodyne — approximately $14.7 million to Silvue. The $14.7 million is comprised of approximately $14.3 million in term loans and an approximately $4.0 million revolving loan commitment, approximately $0.4 million of which will be funded to Silvue in conjunction with the closing of this offering.$21.2 million.
~~The~~
In addition, we had loans due from Crosman totaling $50.5 million. These loans were repaid, together with accrued interest from the net proceeds from the sale of Crosman on January 5, 2007. See Note D, “Discontinued Operations”, to the consolidated financial statements for additional financial information of Crosman as of December 31, 2006.
Each loan has a scheduled maturity and each business is entitled to repay all or a portion of the principal amount of the outstanding loans, without penalty, prior to maturity.
In September 2006, our subsidiary Silvue borrowed approximately $9.0 million in term loans ~~will be used~~from us in order to ~~refinance all~~redeem its outstanding cumulative preferred stock.
In October 2006, Anodyne borrowed an additional $9.2 million in term loans in order finance its Anatomic acquisition.
In November 2006, CBS borrowed approximately $5.0 million in order to help finance its acquisition of SES.
Our primary source of cash is from the ~~debt~~receipt of interest and principal on our outstanding ~~at each~~loans to our businesses. Accordingly, we are dependent upon the earnings of and cash flow of these businesses, which are available for (i) operating expenses; (ii) payment of principal and interest under our ~~initial businesses immediately prior~~revolving credit facility; (iii) payments to our manager due or potentially due pursuant to the ~~offering and to recapitalize each initial business. The revolving loans will be used to provide a source of revolving credit for each of our initial businesses, as necessary. See~~management services agreement, the ~~section entitled “The Acquisitions of and Loans to Our Initial Businesses” for more information regarding the percentage of equity interest we are acquiring of each business~~LLC agreement, and the ~~loans~~supplemental put agreement; (iv) cash distributions to our shareholders and (v) investments in future acquisitions. Payments made under (iii) above are required to be paid before distributions to shareholders and may be significant and exceed the funds held by the company, which may require the company to ~~each initial business.~~
      ~~We intend to~~dispose of assets or incur debt to fund such expenditures. A non-cash charge to earnings of approximately $22.5 million was recorded during the year ended December 31, 2006 in order to recognize our estimated, potential liability in connection with the supplemental put agreement between us and our manager. Approximately $7.9 million of this amount will be paid in the first quarter of fiscal 2007 (see “— Related Party Transactions”). We believe that we currently have sufficient liquidity and resources to meet our existing obligations including anticipated distributions to our shareholders over the next twelve months.
Concurrent with the IPO, we entered into a third party $225 million prior financing atagreement with Ableco Finance LLC as agent, and other lenders. On November 21, 2006, we terminated the ~~company level which will consist of a~~prior financing agreement when we entered into our new revolving credit facility and repaid all the outstanding principal and interest under the prior financing agreement. We initially borrowed $96.6 million of the revolving credit facility to pay all amounts due under the prior financing agreement and to pay for the fees and costs associated with establishing the revolving credit facility.
On November 21, 2006, we obtained a ~~term~~$255 million revolving credit facility with an option to increase the facility by $45 million from a group of lenders led by Madison Capital Funding, LLC as agent. The revolving credit facility allows for loans at either base rate or London Interbank Offer Rate, or LIBOR. Base rate loans bear interest at a fluctuating rate per annum equal to the greater of (i) the prime rate of interest published by the Wall Street Journal and (ii) the sum of the Federal Funds Rate plus 0.5% for the relevant period, plus a margin ranging from 1.50% to 2.50% based upon the ratio of total debt to adjusted consolidated earnings before interest expense, tax expense, and depreciation and amortization expenses for such period, which we refer to as the total debt to EBITDA ratio. LIBOR loans bear interest at a fluctuating rate per annum equal to the LIBOR, for the relevant period plus a margin ranging from 2.50% to 3.50% based on the total debt to EBITDA ratio. We are required to pay commitment fees ranging between 0.75% and 1.25% per annum on the unused portion of the revolving credit facility.
The lenders agreed to issue letters of credit under the revolving credit facility in an aggregate face amount not to exceed $50 million outstanding at any time. At no time may the (i) aggregate principal amount of all amounts outstanding under the revolving credit facility, plus (ii) the aggregate amount of all outstanding letters of credit, exceed the loan ~~facility. Our~~commitment thereunder.

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The revolving credit facility is secured by all the assets of the company, including our equity interests and loans to our ~~initial~~businesses. We paid approximately $4.6 million for administrative and closing fees, which we are amortizing over the life of the loan.
The revolving credit facility contains various covenants, including financial covenants, with which we must comply. The financial covenants include (i) a requirement to maintain, on a consolidated basis, a fixed coverage ratio of at least 1.5:1, (ii) an interest coverage ratio not to exceed less than 3:1 and (iii) a total debt to earnings before interest, depreciation and amortization ratio of not to exceed 3:1. In addition, the revolving credit facility contains limitations on, among other things, items, certain acquisition, consolidations, sales of assets and the incurrence of debt. In January 2007, the revolving credit facility was increased by $5.0 million. Currently we are in compliance with all covenants. Outstanding indebtedness under the revolving credit facility will mature on November 21, 2011.
We intend to use our revolving credit facility to pursue acquisitions of additional businesses to the extent permitted under our revolving credit facility and to provide for working capital needs. As of December 31, 2006, the company had $85 million in revolving credit commitments outstanding under the revolving credit facility. This amount was repaid with the proceeds from the sale of Crosman on January 5, 2007.
On February 28, 2007, we purchased a majority interest in two companies, Aeroglide and Halo. The total purchase price for these acquisitions, including our share of the transactions costs, aggregated $118.7 million. We funded the transactions with excess cash on hand ($24.2 million), resulting from the Crosman sale, and borrowings under our revolving credit facility ($94.5 million). The availability of our revolving credit facility was approximately $106 million after the borrowing for these two acquisitions.
On July 18, 2006 we paid a distribution of $0.1327 per share to all holders on record on July 11, 2006 and on October 19, 2006 we paid a distribution $0.2625 per share to holders of record on October 13, 2006. On January 24, 2007, we paid a distribution of $0.30 per share to holders of record on January 18, 2007. Respectively, these distributions represent (i) a pro rata distribution for the quarter ended June 30, 2006 and (ii) a full distribution for the quarters ended September 30, 2006 and December 31, 2006. We intend to continue to declare and pay regular quarterly cash distributions. We anticipate generating cash flow available for distribution of approximately $41.2 million to $46.2 million or $1.62 to $1.82 per share for fiscal 2007, assuming the completion of this offering and the application of the proceeds thereof as described in the “Use of Proceeds” section of this prospectus. Assuming distributions would be paid at the same $0.30 per share rate as paid in January 2007, the estimated cash flow available for distribution for fiscal 2007 would yield an approximate coverage ratio to the distributions paid for 2007 performance of 1.4x to 1.5x. This estimate is based on our achievement of 2007 budgeted results for our businesses, including Aeroglide and Halo from March 1, 2007, excluding the results of Crosman and the gain from the sale of Crosman, which was sold on January 5, 2007. This estimate also assumes the consummation of a $60 million acquisition (either “add-on” or new platform business) on October 1, 2007, primarily funded by excess proceeds from this offering, with the remainder of the funding provided under the company’s revolving credit facility. There can be no assurance, however, that such an acquisition will be ~~structured~~either identified or consummated. The estimate does not consider the impact of any additional acquisitions or dispositions that we may complete in fiscal 2007 and includes numerous other assumptions that may or may not be realized. See “Forward-Looking Statements” for a list of the risks and uncertainties to which the estimate is subject.
Management’s estimated cash available for distribution as of December 31, 2006 is approximately $23.7 million. Cash available for distribution is a non-GAAP measure that we believe provides additional information to evaluate our ability to make anticipated quarterly distributions. The table below details cash receipts and payments that are not reflected on our income statement in order to provide cash available for distribution. Cash available for distribution is not necessarily comparable with ~~standard third party terms, security~~similar measures provided by other entities. We believe that cash available for distribution, together with future distributions and ~~covenants.~~cash available from our businesses (net of reserves) will be sufficient to meet our anticipated distributions over the next twelve months. The table below reconciles cash available for distribution to net income and to cash

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flow provided by operating activities, which we consider to be the most directly comparable financial measure calculated and presented in accordance with GAAP.

Year Ended
December 31, 2006
($ in thousands)

Net loss $ (19,249 )
Adjustment to reconcile net loss to cash provided by operating activities
Depreciation and amortization 10,290
Supplemental put expense 22,456
Silvue’s in-process R&D expensed at acquisition date 1,120
Advanced Circuit’s loan forgiveness accrual 2,760
Minority interest 2,950
Deferred taxes (2,281 )
Loss on Ableco debt retirement 8,275
Other (450 )
Changes in operating assets and liabilities (5,308 )

Net cash provided by operating activities 20,563
Plus:
Unused fee on delayed term loan(1) 1,291
Changes in operating assets and liabilities 5,308
Less:
Maintenance capital expenditures(2)
CBS Personnel 209
Crosman(3) 1,926
Advanced Circuits 392
Silvue 304
Anodyne 636

Estimated cash flow available for distribution $ 23,695 (a)

Distribution paid July 2006 $ (2,587 )
Distribution paid September 2006 (5,368 )
Distribution paid January 2007 (6,135 )

Total distributions $ (14,090 )(b)

Distribution Coverage Ratio(a)¸(b)
1.7 x

(1) Represents the commitment fee on the unused portion of our third-party loans.
(2) Represents maintenance capital expenditures that were funded from operating cash flow and excludes approximately $2.3 million of growth capital expenditures for the period ended December 31, 2006.
(3) Crosman was sold on January 5, 2007 (see Note D to the consolidated financial statements).
Cash flows of certain of our businesses are seasonal in nature. Cash flows from CBS Personnel are typically lower in the first quarter of each year than in other quarters due to reduced seasonal demand for temporary staffing services and to lower gross margins during that period associated with the front-end loading of certain taxes and other payments associated with payroll paid to our employees. Cash flows from Halo are typically higher in the fourth quarter of each year than in other quarters due to increased seasonal demands for calendars and other promotional products among other factors.
Related Party Transactions
We have entered into the following agreements with our manager. Any fees associated with the agreements described below must be paid, if applicable, prior to the payment of any distributions to shareholders.
• management services agreement
• LLC agreement
• supplemental put agreement

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Management Services Agreement — We entered into a management services agreement with our manager effective May 16, 2006. The management services agreement provides for our manager to perform services for us in exchange for a quarterly management fee equal to 0.5% (2.0% annualized) of our adjusted net assets as of the last day of each fiscal quarter. We amended the management services agreement on November 8, 2006, to clarify that adjusted net assets are not reduced by non-cash charges associated with the supplemental put agreement, which amendment was unanimously approved by the compensation committee and the board of directors. The management fee is required to be paid prior to the payment of any distributions to shareholders. For the year ended December 31, 2006 we paid approximately $4.4 million to our manager for its quarterly management fees.
LLC Agreement — As distinguished from its position of providing management services to us, pursuant to the management services agreement, our manager is also an equity holder of 100% of the allocation interests of the company. As such, our manager has the right to a distribution pursuant to a profit allocation formula upon the occurrence of certain events. Our manager has the right to cause the company to purchase the allocation interests it owns under certain circumstances, (see “— Supplemental Put Agreement” below).
Supplemental Put Agreement — Our manager is also the owner of 100% of the allocation interests in the company. Concurrent with the IPO, our manager and the company entered into a supplemental put agreement, which may require the company to acquire these allocation interests upon termination of the management services agreement. Essentially, the put rights granted to our manager require us to acquire our manager’s allocation interests in the company at a price based on a percentage of the increase in fair value in the company’s businesses over its basis in those businesses. Each fiscal quarter we estimate the fair value of our businesses for the purpose of determining our potential liability associated with the supplemental put agreement. Any change in the potential liability is accrued currently as a non-cash adjustment to earnings. For the year ended December 31, 2006, we recognized approximately $22.5 million in non-cash expense related to the supplemental put agreement. As a result of the sale of Crosman on January 5, 2007, our manager is currently due $7.9 million. We expect ~~these loans~~ to ~~have bullet maturities~~pay our manager this amount in the first fiscal quarter of 2007.
Anodyne Acquisition — On August 1, 2006, we acquired from CGI and ~~substantial sweeps of excess cash flows at those businesses. The revolving loan commitments will be used~~its wholly-owned, indirect subsidiary, Compass Medical Mattress Partners, LP which we refer to ~~fund~~as the ~~working capital needs~~seller, approximately 47.3% of the ~~businesses~~outstanding capital stock, on a fully-diluted basis, of Anodyne, representing approximately 69.8% of the voting power of all Anodyne stock. Pursuant to the same agreement, we also acquired from the seller all outstanding debt to seller under Anodyne’s credit facility, which we refer to as original loans. On the same date, we purchased from the seller a promissory note issued by a borrower controlled by Anodyne’s chief executive officer totaling $5.2 million, which we refer to as the promissory note. The promissory note is secured by shares of Anodyne stock and guaranteed by Anodyne’s chief executive officer. The promissory note accrues interest at the rate of 13% per annum and is added to the note’s principal balance. The note matures in August, 2008. The principal balance of the promissory note and accrued interest totals approximately $5.4 million at December 31, 2006. The purchase price for ~~central corporate purposes.~~the Anodyne stock, the original loans and the promissory note totaled approximately $31.1 million, which was paid for in the form of $17.3 million in cash and 950,000 shares of our newly issued shares. The ~~term~~shares were valued at $13.1 million, or $13.77 per share.
Our manager acted as an advisor to us in the Anodyne acquisition for which it received transaction services fees and expense payments totaling approximately $300,000.
Advanced Circuits Acquisition — In connection with the acquisition of Advanced Circuits by CGI in September 2005, Advanced Circuits loaned certain officers and members of management of Advanced Circuits $3,409,100 for the purchase of 136,364 shares of Advanced Circuit’s common stock. On January 1, 2006, Advanced Circuits loaned certain officers and members of management of Advanced Circuits $4,834,150 for the purchase of an additional 193,366 shares of Advanced Circuit’s common stock. The notes bear interest at 6% and interest is added to the notes. The notes are due in September 2010 and December 2010 and are subject to mandatory prepayment provisions if certain conditions are met.
Advanced Circuits granted the purchasers of the shares the right to put to Advanced Circuits a sufficient number of shares at the then fair market value of such shares, to cover the tax liability that each

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purchaser may have. Approximately $0.8 million of compensation expense calculated using the Black Scholes model related to these rights and is reflected in selling and general administrative expenses for the year ended December 31, 2006.
In connection with the issuance of the notes as described above, Advanced Circuits implemented a performance incentive program whereby the notes could either be partially or completely forgiven based upon the achievement of certain pre-defined financial performance targets. The measurement date for determination of any potential loan ~~facility will be used to acquire additional businesses. We would expect~~forgiveness is based on the financial performance of Advanced Circuits for the fiscal year ended December 31, 2010. The company believes that ~~these facilities would have customary terms~~the achievement of the loan forgiveness is probable and ~~covenants. Working capital will be provided to our initial businesses through revolving lines~~is accruing any potential forgiveness over a service period measured from the issuance of ~~credit either provided by us or by our third party lender.~~the notes until the actual measurement date of December 31, 2010. During fiscal 2006, the company accrued approximately $1.6 million for this loan forgiveness. This expense is reflected as a component of general and administrative expenses, and is a component of other liabilities as of December 31, 2006.
Contractual Obligations and Off-Balance Sheet Arrangements
We have no special purpose entities or off balance sheet arrangements, other than operating leases entered into in the ordinary course of business.
Long-term contractual obligations, except for our long-term debt obligations, are generally not recognized in our consolidated balance sheet. Non-cancelable purchase obligations are obligations we incur during the normal course of business, based on projected needs.
The table below summarizes the payment schedule of our contractual obligations at December 31, 2006.

Less Than
1-3
3-5
More Than

Total 1 Year Years Years 5 Years
($ in thousands)

Operating Lease Obligations(1) $ 28,012 $ 7,080 $ 11,002 $ 4,639 $ 5,291
Purchase Obligations(2) 83,584 39,227 24,136 20,221 —
Supplemental Put Obligation(3) 14,702 — — — —

$ 126,298 $ 46,307 $ 35,138 $ 24,860 $ 5,291

(1) Reflects various operating leases for office space, manufacturing facilities and equipment from third parties with various lease terms running from one to fourteen years.
(2) Reflects non-cancelable commitments as of December 31, 2006, including: (i) shareholder distributions of $24.5 million, (ii) management fees of $9.6 million per year over the next five years and; (iii) other obligations, including amounts due under employment agreements.
(3) The supplemental put obligation represents the long-term portion of an estimated liability accrued as if our management services agreement with CGM had been terminated. This agreement has not been terminated and there is no basis upon which to determine a date in the future, if any, that this amount will be paid.
The table does not include the long-term portion of the actuarially developed reserve for workers compensation, which does not provide for annual estimated payments beyond one year. This liability, totaling approximately $13.2 million at December 31, 2006, is included in our balance sheet as a component of other non-current liabilities.
Critical Accounting ~~Policies~~Estimates

The following discussion relates to critical accounting policies for the company, the trust and each of our ~~initial~~ businesses.

The preparation of our financial statements in conformity with GAAP will require management to adopt accounting policies and make estimates and judgments that affect the amounts reported in the

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financial statements and accompanying notes. Upon the completion of the acquisitions contemplated in the offering, we will base our estimates on historical information and experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions and judgments and uncertainties, and potentially could result in materially different results under different conditions. Our critical accounting ~~policies~~estimates are discussed below. These ~~policies~~estimates are generally consistent with the accounting policies followed by the businesses we plan to acquire. These critical accounting ~~policies will be~~estimates are reviewed by our independent auditors and the audit committee of ~~the company’s~~our board of directors.
     ~~Revenue Recognition~~Supplemental Put Agreement

In connection with our manager’s acquisition of the allocation interests, we entered into a supplemental put agreement with our manager pursuant to which our manager has the right to cause the company to purchase the allocation interests then owned by our manager upon termination of the management services agreement for a price to be determined in accordance with the supplemental put agreement. We record the supplemental put agreement at its fair value quarterly by recording any change in value through the income statement. The ~~company recognizes~~fair value of the supplemental put agreement is largely related to the value of the profit allocation that our manager, as holder of allocation interests, will receive. At any point in time, the supplemental put liability recorded on the company’s balance sheet is our manager’s estimate of what its allocation interests are worth based upon a percentage of the increase in fair value of our businesses over our basis in those businesses. Because the supplemental put price would be calculated based upon an assumed profit allocation for the sale of all of our businesses, the growth of the supplemental put liability over time is indicative of our manager’s estimate of the company’s unrealized gains on its interests in our businesses. A decline in the supplemental put liability is indicative either of the realization of gains associated with the sale a business and the corresponding payment of a profit allocation to our manager (as with Crosman), or a decline in our manager’s estimate of the company’s unrealized gains on its interests in our businesses. We account for the change in the estimated value of the supplemental put liability on a quarterly basis in our income statement. The expected value of the supplemental put liability affects our results of operations but it does not affect our cash flows or our cash flow available for distribution. The valuation of the supplemental put agreement requires the use of complex models, which require highly sensitive assumptions and estimates. The impact of over-estimating or under-estimating the value of the supplemental put agreement could have a material effect on operating results. In addition, the value of the supplemental put agreement is subject to the volatility of our operations which may result in significant fluctuation in the value assigned to this supplemental put agreement.
Revenue Recognition
We recognize revenue when it is realized or realizable and earned. ~~The company considers~~We consider revenue realized or realizable and earned when it has persuasive evidence of an arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. Provisions for customer returns and other allowances based on historical experience are recognized at the time the related sale is recognized.

In addition, CBS Personnel recognizes revenue for temporary staffing services at the time services are provided by CBS Personnel employees and reports revenue based on gross billings to customers. Revenue from CBS Personnel employee leasing services is recorded at the time services are provided. Such revenue is reported on a net basis (gross billings to clients less worksite employee salaries, wages and ~~payroll-~~
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~~related~~payroll-related taxes). ~~The company believes~~We believe that net revenue accounting for leasing services more closely depicts the transactions with its leasing customers and is consistent with guidelines outlined in Emerging Issue Task Force ~~(“EITF”)~~ which we refer to as the EITF,No. 99-19,“Reporting Revenue Gross as a Principal versus Net as an Agent.”The effect of using this method of accounting is to report lower revenue than would be otherwise reported.
~~Business Combinations~~
Business Combinations

The acquisitions ~~contemplated in the offering and future acquisitions~~ of our businesses ~~that we will control will be~~are accounted for under the purchase method of accounting. The amounts assigned to the identifiable assets acquired and liabilities assumed in connection with acquisitions ~~will be~~are based on estimated fair values as of the date of the acquisition, with the remainder, if any, to be

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recorded as identifiable intangibles or goodwill. The fair values ~~will be~~are determined by our management team, taking into consideration information supplied by the management of the acquired entities and other relevant information. Such information ~~will include~~typically includes valuations supplied by independent appraisal experts for significant business combinations. The valuations ~~will~~are generally be based upon future cash flow projections for the acquired assets, discounted to present value. The determination of fair values requires significant judgment both by our management team and by outside experts engaged to assist in this process.
~~Goodwill, Intangible Asset and Property and Equipment~~
      ~~Significant assets that will be acquired~~ This judgment could result in ~~connection with the contemplated acquisitions will include customer relationships, noncompete agreements, trademarks, technology, property and equipment and goodwill.~~either a higher or lower value assigned to amortizable or depreciable assets. The impact could result in either higher or lower amortization and/or depreciation expense.

Goodwill, Intangible Assets and Property and Equipment
Trademarks are considered to be indefinite life intangibles. Goodwill represents the excess of the purchase price over the fair value of the assets acquired. Trademarks and goodwill ~~will~~are not be amortized. However, we will be required to perform impairment reviews at least annually and more frequently in certain circumstances.

The goodwill impairment test is a two-step process, which ~~will require~~requires management to make judgments in determining ~~what~~certain assumptions ~~to use~~used in the calculation. The first step of the process consists of estimating the fair value of each of our reporting units based on a discounted cash flow model using revenue and profit forecasts and comparing those estimated fair values with the carrying values, which include the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which ~~will~~is then be compared to its corresponding carrying value. The impairment test for trademarks requires the determination of the fair value of such assets. If the fair value of the trademark is less than its carrying value, an impairment loss will be recognized in an amount equal to the difference. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and/or intangible assets. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, and material adverse effects in relationships with significant customers.

The “implied fair value” of reporting units ~~will be~~is determined by ~~our~~ management and ~~will~~ generally beis based upon future cash flow projections for the reporting unit, discounted to present value. We ~~will~~ use outside valuation experts when management considers that it would be appropriate to do so.

Intangibles subject to amortization, including customer relationships, noncompete agreements and technology are amortized using the straight-line method over the estimated useful lives of the intangible assets, which we ~~will~~ determine based on the consideration of several factors including the period of time the asset is expected to remain in service. We ~~will~~ evaluate the carrying value and remaining useful lives of intangibles subject to amortization whenever indications of impairment are present.
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Property and equipment are initially stated at cost. Depreciation on property and equipment ~~will be~~ computed using the straight-line method over the estimated useful lives of the property and equipment after consideration of historical results and anticipated results based on our current plans. Our estimated useful lives represent the period the asset is expected to remain in service assuming normal routine maintenance. We ~~will~~ review the estimated useful lives assigned to property and equipment when our business experience suggests that they may have changed from our initial assessment. Factors that lead to such a conclusion may include physical observation of asset usage, examination of realized gains and losses on asset disposals and consideration of market trends such as technological obsolescence or change in market demand.

We ~~will~~ perform impairment reviews of property and equipment, when events or circumstances indicate that the value of the assets may be impaired. Indicators include operating or cash flow losses, significant decreases in market value or changes in the long-lived assets’ physical condition. When indicators of impairment are present, management determines whether the sum of the undiscounted future cash flows estimated to be generated by those assets is less than the carrying amount of those assets. In this

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circumstance, the impairment charge is determined based upon the amount by which the carrying value of the assets exceeds their fair value. The estimates of both the undiscounted future cash flows and the fair values of assets require the use of complex models, which require numerous highly sensitive assumptions and estimates.
~~Allowance for Doubtful Accounts~~
Allowance for Doubtful Accounts

The company records an allowance for doubtful accounts on anentity-by-entity basis with consideration for historical loss experience, customer payment patterns and current economic trends. The company reviews the adequacy of the allowance for doubtful accounts on a periodic basis and adjusts the balance, if necessary.
      As The determination of ~~September 30, 2005,~~the adequacy of the allowance for doubtful accounts ~~was approximately $5.0 million, $0.2 million and $0.1 million for CBS Personnel, Silvue and Advanced Circuits, respectively. As~~requires significant judgment by management. The impact of ~~October 2, 2005,~~either over or under estimating the allowance ~~for doubtful accounts for Crosman was approximately $1.5 million.~~could have a material effect on future operating results.
~~Workers’ Compensation Liability~~
Workers’ Compensation Liability

CBS ~~Personnel~~ self-insures its workers’ compensation exposure for certain employees. CBS ~~Personnel~~ establishes reserves based upon its experience and expectations as to its ultimate liability ~~may be~~ for those claims using developmental factors based upon historical claim experience. CBS ~~Personnel~~ continually evaluates the potential for change in loss estimates with the support of qualified actuaries. As of ~~September 30, 2005,~~December 31, 2006, CBS ~~Personnel~~ had approximately ~~$18.9~~$20.9 million of workers’ compensation ~~reserve.~~liability. The ultimate settlement of ~~these reserves~~this liability could differ materially from the assumptions used to calculate ~~the reserves,~~this liability, which could have a material adverse effect on future operating results.
~~Deferred Tax Assets~~
Deferred Tax Assets

Several of the ~~contemplated acquisitions~~majority owned subsidiaries have deferred tax assets recorded at ~~September 30, 2005~~December 31, 2006 which in total amount to approximately ~~$5.0~~$11.8 million. These deferred tax assets are ~~largely~~ comprised of ~~workers’ compensation~~ liabilities not currently deductible for tax purposes. The temporary differences that have resulted in the recording of these tax assets may be used to offset taxable income in future periods, reducing the amount of taxes we might otherwise be required to pay. Realization of the deferred ~~income~~ tax assets is dependent on generating sufficient future taxable income. Based upon the expected future results of operations, ~~the company believes~~we believe it is more likely than not that ~~the company~~we will generate sufficient future taxable income to realize the benefit of existing temporary differences, although there can be no assurance of this. The impact of not realizing these deferred tax assets would result in an increase in income tax expense for such period when the determination was made that the assets are not realizable. (See Note K — Income taxes to the financial statements included elsewhere in this report).
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Recent Accounting Pronouncements
~~The following discussion relates to recent accounting pronouncements for the company, the trust and each of our initial businesses.~~
      ~~In December 2004,~~On July 13, 2006, the Financial Accounting Standards Board ~~(“FASB”)~~ issued Interpretation No. (FIN) 48,“Accounting for Uncertainty in Income Taxes”,which is effective January 1, 2007. The purpose of FIN 48 is to clarify and set forth consistent rules for accounting for uncertain tax positions in accordance with FAS 109,Accounting for Income Taxes.The cumulative effect of applying the provisions of this interpretation is required to be reported separately as an adjustment to the opening balance of retained earnings in the year of adoption. We are in the process of reviewing and evaluating FIN 48, and therefore the ultimate impact of its adoption is not yet known.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.” This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a ~~revised FAS~~fair value hierarchy that prioritizes the information used to develop those assumptions. We have not yet determined the impact that the implementation of SFAS No. ~~123(R) entitled “Share-Based Payment.” FAS~~157 will have on our results of operations or financial condition. SFAS No. ~~123(R) sets accounting requirements~~157 is effective for ~~“share-based” compensation to employees~~financial statements issued for fiscal years beginning after November 15, 2007.

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In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106, and 132(R).” This standard requires ~~companies~~employers to recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the ~~income statement~~funded status in the ~~grant-date fair value~~year in which the changes occur through accumulated other comprehensive income. Additionally, SFAS No. 158 requires employers to measure the funded status of a plan as of the ~~stock options and other equity-based compensation. FAS~~date of its year-end statement of financial position. We are currently evaluating the impact that the implementation of SFAS No. ~~123(R) is effective in annual periods beginning after June 15, 2005. Crosman adopted FAS No. 123(R) for the quarter ended October 2, 2005. Our other initial businesses~~158 will ~~be required to adopt FAS No. 123(R) in the first quarter of 2006. Crosman currently discloses and the businesses that we will own will disclose the effect~~have on ~~net income and earnings per share of the fair value recognition provisions of FAS No. 123, “Accounting for Stock-Based Compensation,” in the notes to the consolidated~~our financial statements. The new reporting requirements and related new footnote disclosure rules of SFAS No. 158 are effective for fiscal years ending after December 15, 2006. The new measurement date requirement applies for fiscal years ending after November 15, 2008. We have determined that this statement is not applicable to the company.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,“Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,”(SAB 108). SAB 108 was issued to provide interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying in a current year misstatement. The provisions of SAB 108 were effective for the company for its December 31, 2006 year-end. The adoption of SAB 108 had no impact on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Liabilities”which we refer to as SFAS No. 159. SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value, and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new guidance is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the potential impact of the adoption of ~~FAS~~SFAS No. ~~123(R)~~159 on its financial position and results of operations including the valuation methods and support for the assumptions that underlie the valuation of awards, but does not expect that the adoption of FAS No. 123(R) will have a material impact on the financial condition and results of operations of the other initial businesses that we will own..
      In November 2004, the FASB issues FAS No. 151 entitled “Inventory Costs.” This Statement amends the guidance in ARB No. 43, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight handling costs and wasted material (spoilage). The provisions of this Statement will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the adoption of FAS No. 151 to have a material impact on the financial condition or results of operations of the businesses that we will own.

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      In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”) “Accounting for Conditional Asset Retirement Obligations.” This Interpretation clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. The provisions of this Interpretation shall be effective no later than the end of fiscal years ending after December 31, 2005, for calendar-year companies. We are currently evaluating the impact for the contemplated acquisitions of the adoption of FIN 47 on the financial condition, business and results of operation of the businesses that we will own.
      In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which establishes retrospective application as the required method for reporting a change in accounting principle, unless impracticable, in the absence of explicit transition requirements specific to the newly adopted accounting principle. The statement provides guidance for determining whether retrospective application of a change in accounting principle is impracticable. The statement also addresses the reporting of a correction of error by restating previously issued financial statements. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect adoption of this statement to have a material impact on the financial condition or results of operations of the businesses that we will own.
~~Revenues~~
      We do not plan to generate any revenues apart from those generated by the initial businesses that we own. We may generate interest income on the investment of available funds but expect such earnings to be minimal. Our investment in our initial businesses will typically be in the form of loans from the company to our businesses, as well as equity interests in those companies. Cash flow coming to us will be the result of interest payments on those loans, amortization of those loans and, potentially, dividends on our equity ownership. However, from a GAAP basis, these loans will be consolidated.
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~~Expenses~~
Our operating expenses will primarily consist of the salary and related costs and expenses of our Chief Financial Officer and his staff and for the cost of professional services and for other expenses. These other expenses will include the cost of audit fees, directors and officers’ insurance premiums paid and tax preparation services. We estimate that our operating expenses will approximate $4 million during our first year of operation.
~~Financial Condition, Liquidity and Capital Resources~~
      We will generate cash primarily from the net proceeds of this offering and from any future offerings of securities. In addition, we will generate cash from the receipt of interests and principal on the inter-company loans in addition to any dividends received from the businesses. In the future, we may also fund acquisitions through borrowings from banks and issuances of senior securities. Our primary use of funds will be investments in future acquisitions and cash distributions to holders of our shares. Immediately after this offering, we expect to have approximately $12.3 million of cash and no indebtedness other than in connection with operating expenses in the normal course of business. This amount does not take into account the exercise of the over-allotment option. See the section entitled “Use of Proceeds” for more information.
~~Dividend and Distribution Policy~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We intend to pursue a policy of paying regular distributions on our outstanding shares. Our policy is based on the liquidity and capital of our initial businesses and on our intention to pay out as distributions to our shareholders the majority of cash resulting from the ordinary operation of our businesses, and not to retain significant cash balances in excess of what is prudent for the company or the businesses that we own, or as may be prudent for the consummation of attractive acquisition opportunities. We intend to finance our acquisition strategy primarily through a combination of issuing new equity and incurring debt. We expect all or most of the new debt to be incurred at the company level. We expect our distributions to reflect our businesses’ financial condition and results of operations.
~~Contractual Obligations~~Interest Rate Sensitivity
~~We will engage our manager to manage the day-to-day operations and affairs of the company. Our relationship with our manager will be governed principally by the following two agreements:~~
• ~~The management services agreement relating to the management services our manager will perform for us and the businesses we own and the management fee to be paid to our manager in respect thereof; and~~
• ~~The company’s LLC agreement setting forth our manager’s rights with respect to the management interests it owns, including the right to receive profit allocations from the company.~~
      ~~In addition,~~At February 28, 2007, we intend to enter into a supplemental put agreement with our manager pursuant to which our manager shall have the right to cause the company to purchase the management interests then owned by our manager upon termination of the management services agreement. The relationships created by these agreements are discussed in more detail below.
      We also expect that our manager will enter into off-setting management services agreements, transaction services agreements and other agreements, in each case, with some or all of the businesses that we own. In this respect, we expect that The Compass Group will assign any outstanding agreements with our initial businesses to our manager in connection with the closing of this offering. See the sections entitled “Management Services Agreement” and “Description of Shares” for information about these and other agreements we and our businesses intend to enter into with our manager.
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      Concurrently with the closing of this offering, all the employees of The Compass Group will become employees of our manager. We expect our manager and members of our management team to remain affiliated with CGI after closing of this offering, and further expect that our manager, our management team and CGI may pursue joint business endeavors.
      The company intends to enter into a management services agreement with our manager pursuant to which our manager will provide management services to us and the businesses we own. Pursuant to the management services agreement, we will pay our manager a quarterly management fee for the performance of management services. See the section entitled “Management Services Agreement — Management Fee” for more information about the management fee to be paid to our manager.
      We have agreed that our manager may, at any time, enter into off-setting management services agreements with the businesses that we own relating to the performance by our manager of off-setting management services for such businesses. Any fees to be paid by a business that we own to our manager pursuant to such an off-setting management services agreement are referred to as off-setting management fees. Any off-setting management fees received by our manager pursuant to an off-setting management services agreement during any fiscal quarter will reduce, on a dollar-for-dollar basis, the management fee otherwise due and payable by the company under the management services agreement for such fiscal quarter. Simultaneously with the closing of this offering, The Compass Group will assign, or cause to be assigned, to our manager any then existing agreements pursuant to which it or any of its affiliates provides management services to the businesses that we own. Each such agreement shall be deemed an off-setting management services agreement. See the section entitled “Management Services Agreement — Offsetting Management Services Agreements” for more information about off-setting management services agreements and off-setting management fees.
      We have agreed that our manager may, at any time, enter into transaction services agreements with the businesses that we own relating to the performance by our manager of certain transaction-related services, such as those customarily performed by a third-party consultant or financial advisor. Our manager will contract for the performance of transaction services on an arm’s-length basis and on market terms upon approval of the company’s independent directors (or a committee of the board of directors that is comprised of at least three independent directors). Any fees received by our manager pursuant to such a transaction services agreement will be in addition to the management fee payable by the company pursuant to the management services agreement and~~will notreduce the payment of such management fee. See the section entitled “Management Services Agreement — Transaction Services Agreements” for more information about transaction fees.~~
      Our manager will own 100% of the management interests of the company. Pursuant to the LLC agreement, our manager will receive a profit allocation with respect to the management interests. See the section entitled “Description of Shares — Distributions — Manager’s Profit Allocation” for more information about the profit allocation to be paid to our manager. In accordance with the constituent documents of our manager, CGI will be entitled to receive 10% of any profit allocation paid by the company to our manager.
      The company has agreed to reimburse our manager and its affiliates, within five business days after the closing of this offering, for certain costs and expenses incurred or to be incurred prior to and in connection with the closing of this offering in the aggregate amount of approximately $4.5 million. See the section entitled “Management Services Agreement — Reimbursement of Expenses” for more information about the reimbursement of our manager’s fees and expenses.
      If (i) the management services agreement is terminated at any time other than as a result of our manager’s resignation or (ii) our manager resigns on any date that is at least three years after the closing of this offering, then the manager will have the right, but not the obligation, for one year from the date of termination or resignation, as the case may be, to elect to cause the company to purchase the management interests then owned by the manager for the put price. See the section entitled “Description of Shares — Supplemental Put Agreement” for more information about our manager’s put right and our obligations relating thereto.
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~~CBS Personnel~~
~~Overview~~
      CBS Personnel, headquartered in Cincinnati, Ohio, is a leading provider of temporary staffing services in the United States. In order to provide its clients with a comprehensive solution to their human resources needs, CBS Personnel also offers employee leasing services, permanent staffing and temporary-to-permanent placement services. CBS Personnel operates 136 branch locations in various cities in 18 states and seeks to have a dominant market share in each city in which it operates. CBS Personnel and its subsidiaries have been associated with quality service in their markets for more than 30 years.
      CBS Personnel serves over 3,000 corporate and small business clients and on an average week places over 21,000 temporary employees in a broad range of industries, including manufacturing, transportation, retail, distribution, warehousing, automotive supply, construction, industrial, healthcare and financial sectors. We believe the quality of CBS Personnel’s branch operations and its strong sales force provide CBS Personnel with a competitive advantage over other placement services. CBS Personnel’s senior management, collectively, has approximately 50 years of experience in the human resource outsourcing industry and other closely related industries.
      For the nine months ended September 30, 2005 and the fiscal year ended December 31, 2004, temporary staffing generated approximately 96.9% and 96.8%, respectively, of CBS Personnel’s revenues, while the employee leasing and temporary-to-permanent staffing and permanent placement accounted for the remaining 3.1% and 3.2% of revenues, respectively. For the nine months ended September 30, 2005 and September 30, 2004, CBS Personnel had revenues of approximately $405.5 million and $179.3 million, respectively, and net income of approximately $4.9 million and $4.7 million, respectively. Venturi Staffing Partners, Inc., or VSP, was acquired in September 2004 and therefore the nine months ended September 30, 2004 operating results only reflect revenues from VSP since its acquisition. For the fiscal year ended December 31, 2004, CBS Personnel had revenues of approximately $315.3 million and net income of approximately $7.4 million.
      CBS Personnel revenues are comprised of various staffing services that include temporary help, employee leasing, and permanent placement. CBS Personnel’s expenses are comprised of four components: direct cost of revenue, staffing expense, selling, general and administrative expense and amortization expense. Direct costs of revenue include the salaries paid to CBS Personnel’s temporary staffing employees, the costs of benefits and taxes for those employees, workers compensation costs and other direct costs. CBS Personnel’s gross profit margin will primarily be affected by the mix of services sold and the markups generated on employee labor costs.
      CBS Personnel operating expenses are comprised of three components: staffing expenses, selling, general and administrative expenses and amortization. Staffing expenses represent salaries and related costs for executive, finance, accounting and human resources personnel at corporate headquarters as well as at CBS Personnel’s network of offices. Selling, general and administrative expenses include expenses associated with the costs of operating CBS Personnel’s network of offices and corporate expenses including professional fees. CBS Personnel’s amortization expense relates primarily to the amortization of intangibles acquired in connection with the VSP acquisition and for the amortization of loan origination costs and depreciation of assets employed in the business.
      On September 30, 2004, CBS Personnel acquired VSP. The acquisition was funded using a $20.0 million subordinated term loan entered into by CBS Personnel and by approximately $10.3 million from the revolving credit facility. The results of operations for the nine months ended September 30, 2005 and for the fiscal year ended December 31, 2004 includes the results of this acquisition from the date of acquisition.
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~~Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004~~
      ~~The table below summarizes the consolidated statement of operations data for CBS Personnel for the nine months ended September 30, 2005 and September 30, 2004.~~

(Unaudited)
Nine Months Ended
September 30,

2004 2005

($ in thousands)
Revenues $ 179,256 $ 405,486
Direct cost of revenues 144,498 329,536

Gross profit 34,758 75,950
Staffing expense 18,390 41,297
Selling, general and administrative expenses 10,027 22,063
Amortization expense 607 1,433

Income from operations 5,734 11,157
Interest expense (828 ) (3,398 )
Other income 210 105

Income before provision for income taxes 5,116 7,864
Provision for income taxes 402 2,937

Net income $ 4,714 $ 4,927

~~Revenues~~
      Revenues for the nine months ended September 30, 2005 was approximately $405.5 million as compared to approximately $179.3 million for the nine months ended September 30, 2004, an increase of approximately $226.2 million or approximately 126.2%. This increase was primarily due to both increased demand from new and existing customers and the acquisition of VSP on September 30, 2004. The acquisition of VSP contributed approximately $212.8 million of the increase in revenues.
~~Direct cost of revenues~~
      Direct cost of revenues for the nine months ended September 30, 2005 was approximately $329.5 million as compared to approximately $144.5 million for the nine months ended September 30, 2004, an increase of $185.0 million or approximately 128.1%. This increase was primarily due to the increase in revenues from the increased activity levels and from the acquisition of VSP which was approximately $171.9 million of the increase. As a percentage of revenue, direct cost for the nine months ended September 30, 2005 was approximately 81.3% as compared to approximately 80.6% for the nine months ended September 30, 2004. Direct cost of revenues increased as a percentage of revenue, primarily due to higher unemployment tax rates and an increase in the percentage of total revenue from lower margin industrial accounts. These factors were ~~partially offset by increased permanent placement revenue, primarily attributable to the acquisition of VSP.~~
~~Staffing expense~~
      Staffing expense for the nine months ended September 30, 2005 was approximately $41.3 million as compared to approximately $18.4 million for the nine months ended September 30, 2004, an increase of approximately $22.9 million or 124.6%. This increase was primarily due to direct costs associated with the acquisition of VSP, which was approximately $21.8 million of the increase.
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~~Selling, general and administrative expenses~~
      Selling, general and administrative expenses for the nine months ended September 30, 2005 were approximately $22.1 million as compared to approximately $10.0 million for the nine months ended September 30, 2004, an increase of approximately $12.0 million or approximately 120.0%. This increase was primarily due to the acquisition of VSP, which was approximately $10.8 million of the increase. Additional reasons for this increase include nonrecurring integration costs associated with the acquisition, which contributed approximately $1.1 million to the increase.
~~Amortization expense~~
      Amortization expense for the nine months ended September 30, 2005 was approximately $1.4 million as compared to approximately $0.6 million for the nine months ended September 30, 2004, an increase of approximately $0.8 million or approximately 136.1%.
      ~~This increase was primarily due to the amortization of intangibles and fixed assets acquired in connection with the acquisition of VSP, which accounted for approximately $1.0 million of the increase.~~
~~Income from operations~~
      Income from operations was approximately $11.2 million for the nine months ended September 30, 2005 as compared to approximately $5.7 million for the nine months ended September 30, 2004, an increase of approximately $5.4 million or approximately 94.6%. This increase was primarily due to the acquisition of VSP, which contributed approximately $5.2 million of the increase.
~~Interest expense~~
      Interest expense was $3.4 million for the nine months ended September 30, 2005 as compared to approximately $0.8 million for the nine months ended September 30, 2004, an increase of approximately $2.6 million or approximately 310.4%. This increase was primarily due to higher borrowing levels associated with the financing of VSP as approximately $22.0 million of long-term debt was issued in connection with the acquisition.
~~Other income~~
      Other income was approximately $0.1 million for the nine months ended September 30, 2005 as compared to approximately $0.2 million for the nine months ended September 30, 2004, a decrease of approximately $0.1 million or approximately 50.0%. This decrease was primarily due to no rental income recognized in 2005 from the leased space in the Columbia Staffing building as this property was sold in December 2004.
~~Provision for income taxes~~
      The provision for income taxes for the nine months ended September 30, 2005 was approximately $2.9 million as compared to approximately $0.4 million for the nine months ended September 30, 2004, an increase of approximately $2.5 million. The provision for income taxes includes a tax benefit in the amount of approximately $1.3 million for the reduction of the deferred tax valuation allowance during fiscal 2004 as a result of a decrease in net deferred tax assets. The remaining increase is due to higher taxable income at statutory rates.
~~Net income~~
      Net income for the nine months ended September 30, 2005 was approximately $4.9 million as compared to approximately $4.7 million for the nine months ended September 30, 2004, an increase of approximately $0.2 million or 4.5%. The increase in net income was principally due to the acquisition of VSP, but was offset by increased interest expense and a higher provision for income taxes.
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~~Fiscal Year Ended December 31, 2004 as Compared to Fiscal Year Ended December 31, 2003~~
      ~~The table below summarizes the consolidated statement of operations data for CBS Personnel Holdings for the year ending December 31, 2004 and December 31, 2003.~~

Fiscal Year Ended
December 31,

2003 2004

($ in thousands)
Revenues $ 194,717 $ 315,258
Direct cost of revenues 155,368 254,987

Gross profit 39,349 60,271
Staffing expense 23,081 31,974
Selling, general and administrative expenses 12,132 17,796
Amortization expense 491 1,051

Income from operations 3,645 9,450
Interest expense (2,929 ) (2,100 )
Other income 224 148

Income before provision for income taxes 940 7,498
Provision for income taxes 117 85

Net income $ 823 $ 7,413

~~Revenues~~
      Revenues for the year ended December 31, 2004 was approximately $315.3 million as compared to approximately $194.7 million for the year ended December 31, 2003, an increase of approximately $120.5 million or 61.9%. This increase was due to both increased demand from new and existing customers and the acquisition of VSP in September 30, 2004. Revenue from existing operations increased by approximately 26.1% or $50.9 million due largely to increasing demand for staffing services as a result of improvements in economic conditions during 2004. The acquisition of VSP contributed approximately $70.6 million of the increase in revenues.
~~Direct cost of revenues~~
      Direct cost of revenues for the year ended December 31, 2004 was approximately $255.0 million as compared to approximately $155.4 million for the year ended December 31, 2003, an increase of approximately $99.6 million or approximately 64.1%. This increase was primarily due to both increased activity levels and the acquisition of VSP which was approximately $56.8 million of the increase. As a percentage of revenue direct cost for the year ended December 31, 2004 was approximately 80.9% as compared to approximately 79.8% for the year ended December 31, 2003. Direct cost of revenues increased as a percentage of revenue, primarily due to higher unemployment tax rates and an increase in the percentage of total revenue from lower margin industrial accounts. These factors were partially offset by increased permanent placement revenue.
~~Staffing expense~~
      Staffing expense for the year ended December 31, 2004 was approximately $32.0 million as compared to approximately $23.1 million for the year ended December 31, 2003, an increase of approximately $8.9 million or approximately 38.5%. This increase was primarily due to direct costs associated with the acquisition of VSP, which was approximately $7.2 million of the increase. Staffing expense also increased by approximately $1.1 million due to an increase in variable compensation related to improved results.
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~~Selling, general and administrative expenses~~
      Selling, general and administrative expenses for the year ended December 31, 2004 were approximately $17.8 million as compared to approximately $12.1 million for the year ended December 31, 2003, an increase of approximately $5.7 million or approximately 46.7%. This increase was primarily due to the acquisition of VSP, which was approximately $3.4 million of the increase. Additional reasons for this increase include nonrecurring integration costs associated with the acquisition of approximately $1.0 million.
~~Amortization expense~~
      Amortization expense for the year ended December 31, 2004 was approximately $1.1 million as compared to approximately $0.5 million for the year ended December 31, 2003, an increase of approximately $0.6 million or approximately 114.1%. This increase was primarily due to the amortization of intangibles and fixed assets acquired in connection with the acquisition of VSP, which accounted for approximately $0.3 million of the increase.
~~Income from operations~~
      Income from operations was approximately $9.5 million for the year ended December 31, 2004 as compared to approximately $3.6 million for the year ended December 31, 2003, an increase of approximately $5.8 million or approximately 159.3%. The increase was primarily due to increased demand as a result of improving economic conditions and the acquisition of VSP, which contributed approximately $1.7 million of the increase.
~~Interest expense~~
      Interest expense was approximately $2.1 million for the year ended December 31, 2004 as compared to approximately $2.9 million for the year ended December 31, 2003, a decrease of approximately $0.8 million. Interest expense decreased due to a lower effective interest rate associated with a revised credit agreement entered into in 2004. These benefits were offset by higher borrowing levels in the fourth quarter of the year as a result of the VSP acquisition.
~~Other income~~
      Other income was approximately $0.1 million for the year ended December 31, 2004 as compared to approximately $0.2 million for the year ended December 31, 2003, a decrease of approximately $76 thousand. This decrease was primarily due to the loss on a sale of the Columbia Staffing building.
~~Provision for income taxes~~
      The provision for income taxes for the year ended December 31, 2004 was approximately $0.1 million as compared to approximately $0.1 million for the year ended December 31, 2003. The provision for income taxes includes a tax benefit in the amount of approximately $1.8 million for the reversal of the deferred tax valuation during fiscal 2004 that was deemed not to be necessary.
~~Net income~~
      Net income for the year ended December 31, 2004 was approximately $7.4 million as compared to approximately $0.8 million for the year ended December 31, 2003, an increase of approximately $6.6 million or 800.7%. This increase was principally due to increased demand as a result of improving economic conditions, the acquisition of VSP and a lower level interest expense.
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~~Fiscal Year ended December 31, 2003 as Compared to Fiscal Year Ended December 31, 2002~~
      ~~The table below summarizes the consolidated statement of operations data for CBS Personnel Holdings for the year ending December 31, 2003 and December 31 2002.~~

Year Ended December 31,

2002 2003

($ in thousands)
Revenues $ 180,232 $ 194,717
Direct cost of revenues 141,460 155,368

Gross profit 38,772 39,349
Staffing expense 23,184 23,081
Selling, general and administrative expenses 12,391 12,132
Amortization expense 784 491

Income from operations 2,413 3,645
Interest expense (4,566 ) (2,929 )
Other income 246 224

Income before provision for income taxes (1,907 ) 940
Provision for income taxes 30 117

Net (loss) income $ (1,937 ) $ 823

~~Revenues~~
      Revenues for the year ended December 31, 2003 was approximately $194.7 million as compared to approximately $180.2 million for the year ended December 31, 2002, an increase of approximately $14.5 million or 8.0%. This increase was primarily the result of an increase in the number of hours billed for temporary staffing services. The increase in number of hours billed was driven mainly by an increase in the number of large on-site program accounts managed during the year.
~~Direct cost of revenues~~
      Direct cost of revenues for the year ended December 31, 2003 was approximately $155.4 million as compared to approximately $141.5 million for the year ended December 31, 2002 an increase of approximately $13.9 million or 9.8%. Direct cost increased due mainly to the increase in hours billed. As a percentage of revenue, direct cost for the year ended December 31, 2003 was approximately 79.8% as compared to approximately 78.5% for the year ended December 31, 2002. The increase in direct cost as a percentage of revenues was primarily due to an increased share of revenues coming from industrial staffing services, particularly larger on-site program accounts, which has a lower margin.
~~Staffing expense~~
      Staffing expense for the year ended December 31, 2003 was approximately $23.1 million as compared to approximately $23.2 million for the year ended December 31, 2002, a decrease of approximately $0.1 million or 0.4%. This decrease was primarily due to the integration of the corporate support structure for Columbia Staffing, which relocated accounting and other back office functions to corporate headquarters in Cincinnati, Ohio.
~~Selling, general and administrative expenses~~
      Selling, general and administrative expenses for the year ended December 31, 2003 were approximately $12.1 as compared to approximately $12.4 million for the year ended December 31, 2002, a decrease of approximately $0.3 million or approximately 2.1%. This decrease was primarily due to the above mentioned integration.
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~~Amortization expense~~
      Amortization expense for the year ended December 31, 2003 was approximately $0.5 million as compared to approximately $0.8 million for the year ended December 31, 2002, a decrease of approximately $0.3 million or approximately 37.4%. This decrease was primarily due to an amendment to a senior debt agreement in November 2002.
~~Operating income~~
      Income from operations was approximately $3.6 million for the year ended December 31, 2003 as compared to approximately $2.4 million for the year ended December 31, 2002, an increase of approximately $1.2 million or approximately 51.1%. This increase was primarily due to an increase in number of hours billed and reduced operating expenses.
~~Interest expense~~
      Interest expense was approximately $2.9 million for the year ended December 31, 2003 as compared to approximately $4.6 million for the year ended December 31, 2002, a decrease of approximately $1.6 million or approximately 35.9%. This decrease was due to principal payments made in 2003 to repay portions of the term loan and revolving credit facility.
~~Net income (loss)~~
      Net income for the year ended December 31, 2003 was approximately $0.8 million as compared to a loss of approximately $1.9 million for the year ended December 31, 2002, an increase of approximately $2.8 million. This increase was primarily due to an increase in number of hours billed, reduced operating expenses and a reduction in interest expense.
~~Liquidity and Capital Resources~~
      The ability of CBS Personnel to satisfy its obligations will depend on its future performance, which will be subject to prevailing economic, financial, business and other factors, most of which are beyond its control. Future capital requirements for CBS Personnel are expected to be provided by cash flows from operating activities and cash on hand at September 30, 2005. As of September 30, 2005, CBS Personnel had approximately $1.5 million in cash and cash equivalents and working capital of approximately $23.1 million. To the extent future capital requirements exceed cash flows from operating activities, CBS Personnel anticipates that:
• ~~working capital will be financed by CBS Personnel’s revolving credit facility as discussed below and repaid from subsequent reductions in current assets or from subsequent earnings;~~
• ~~capital expenditures will be financed by the use of the revolving credit facility; and~~
• ~~third-party long-term debt will be refinanced with long-term debt with similar terms.~~
      At September 30, 2005, CBS Personnel had a senior credit facility that consisted of a $50.0 million revolving credit facility and a term loan. The revolving credit facility allows for the issuance of letters of credit and expires on June 30, 2009. At September 30, 2005, approximately $10.3 million of borrowings (of which $0.3 million was classified as current) and approximately $19.6 million of letters of credit were outstanding under this facility, leaving availability of approximately $20.1 million at September 30, 2005. The term loan, which matures on June 30, 2008, had a balance outstanding of approximately $6.6 million at September 30, 2005 of which approximately $2.0 million was classified as current.
      At September 30, 2005, CBS Personnel also had other long-term debt outstanding of approximately $20.5 million. This other long term debt consisted of a $20 million term loan that was incurred as part of the acquisition of VSP and bears interest at 12% plus a margin of 2.5% based on defined debt to EBITDA ratios. The note is due in full on December 31, 2009 and is subordinate to borrowings under the senior credit facility described above.
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~~Discussion of changes in cash flows for the nine months ended September 30, 2005 versus the nine month ended September 30, 2004~~
      Cash provided by operating activities was approximately $9.7 million in the nine months ended September 30, 2005, compared to cash provided by operating activities of approximately $0.4 million in the nine months ended September 30, 2004. The cash provided by operating activities in the nine months ended September 30, 2005 was attributable to net income of approximately $4.9 million, non-cash charges of approximately $1.2 million and net decreases in operating assets and liabilities of approximately $3.6 million. The impact of changes in operating assets and liabilities may change in future periods, depending on the timing of each period end in relation to items such as internal payroll and billing cycles, payments from customers, payments to vendors and interest payments. The cash provided by operating activities in the nine months ended September 30, 2004 was attributable to net income of approximately $4.7 million and non-cash charges of approximately $1.5 million partially offset by net increases in operating assets and liabilities of approximately $5.9 million. The non-cash charges consist of depreciation, amortization and deferred taxes.
      Cash used in investing activities was approximately $0.6 million in the nine months ended September 30, 2005, compared to cash used in investing activities of approximately $30.4 million in the nine months ended September 30, 2004. Cash used in investing activities in the nine months ended September 30, 2005 was used in purchases of property and equipment. Cash used in investing activities in the nine months ended September 30, 2004 included approximately $30.3 million related to the acquisition of VSP and approximately $0.2 million in purchases of property and equipment.
      Cash used in financing activities was approximately $8.5 million for the nine months ended September 30, 2005 as compared to cash provided by financing activities of approximately $30.2 million for the nine months ended September 30, 2004. Cash used in financing activities in the nine months ended September 30, 2005 included approximately $6.0 million for the repayment of CBS Personnel’s revolving credit facility and approximately $3.1 million for the repayment of long term debt. These uses were partially offset by the issuance of approximately $0.5 million of long term debt and approximately $0.1 million in proceeds from the exercise of stock options. Cash provided by financing activities for the nine months ended September 30, 2004 included the issuance of approximately $20.0 million in long-term debt related to the acquisition of VSP, an increase of approximately $13.8 million in CBS Personnel’s revolving line of credit and approximately $0.2 million in proceeds from the exercise of stock options. These sources of cash were partially offset by the repayment of approximately $3.8 million in long-term debt.
~~Discussion of changes in cash flows for the fiscal year ended December 31, 2004 versus the fiscal year ended December 31, 2003~~
      Cash provided by operating activities was approximately $4.1 million for the year ended December 31, 2004, compared to cash provided by operating activities of approximately $3.5 million for the year ended December 31, 2003. The cash provided by operating activities in the year ended December 31, 2004 was attributable to net income of approximately $7.4 million and non-cash charges of approximately $0.8 million partially offset by net changes in operating assets and liabilities of approximately $4.1 million. The cash provided by operating activities in year ended December 31, 2003 was attributable to net income of approximately $0.8 million, non-cash charges of approximately $1.9 million and a net decrease in operating assets and liabilities of approximately $0.7 million.
      Cash used in investing activities was approximately $30.1 million in the year ended December 31, 2004 as compared to cash used in investing activities of approximately $0.3 million in year ended December 31, 2003. Cash used in investing activities in the year ended December 31, 2004 consisted of approximately $30.3 million related to the acquisition of VSP and approximately $0.9 million in the purchase of property, plant and equipment partially offset by $1.1 million in proceeds from the sale of property, plant and equipment. Cash used in investing activities in the year ended December 31, 2003 was due to the purchase of approximately $0.3 million of property and equipment.
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      Cash provided by financing activities was approximately $26.6 million for the year ended December 31, 2004 as compared to cash used in financing activities of approximately $3.7 million for the year ended December 31, 2003. Cash provided by financing activities in the year ended December 31, 2004 included approximately $20.0 million of proceeds from the issuance of long-term debt related to the acquisition of VSP, an increase in CBS Personnel’s revolving line of credit of approximately $11.9 million and $0.2 million in proceeds from the exercise of stock options. These sources were partially offset by the repayment of approximately $5.5 million of long-term debt. Cash used in financing activities in the year ended December 31, 2003 included the repayment of approximately $3.1 million of long-term debt and the reduction of CBS Personnel’s revolving credit facility of approximately $0.7 million.
~~Commitments and Contingencies~~
      ~~CBS Personnel’s principal commitments at September 30, 2005 consisted primarily of its commitments related to the long-term debt and for obligations incurred under operating leases.~~
      ~~The following table summarizes CBS Personnel’s significant contractual obligations for the repayment of debt and payment of other contractual obligations as of September 30, 2005.~~

Payments Due by Period

Less than More than
Total 1 Year 1-3 Years 3-5 Years 5 Years

($ in thousands)
Long-term debt $ 37,350 $ 2,338 $ 4,526 $ 30,486 $ —
Operating lease obligations $ 17,082 $ 5,731 $ 9,693 $ 1,098 $ 560

Total contractual cash obligations
$ 54,432 $ 8,069 $ 14,219 $ 31,584 $ 560

      On September 30, 2004, CBS Personnel entered into an interest rate swap agreement to manage its exposure to interest rate movements in its variable rate debt. CBS Personnel pays interest at a fixed rate of 3.07% and receives interest from the counter-party at one month LIBOR (3.84% at September 30, 2005). The notional principal amount was $13.9 million at September 30, 2005. The agreement terminates on September 30, 2007.
      CBS Personnel believes that, for the foreseeable future, it will have sufficient cash resources to meet the commitments described above and for current anticipated working capital and capital expenditure requirements. CBS Personnel’s future liquidity and capital requirements will depend upon numerous factors, including retention of customers at current volume and revenue levels, ability to refinance long-term debt at acceptable terms and competing technological and market developments.
~~Quantitative and Qualitative Disclosures about Market Risk~~
      ~~CBS Personnel is~~ exposed to interest rate risk primarily through ~~its senior~~borrowings under our revolving credit ~~facilities since these instruments all bear interest at~~facility because our borrowings are subject to variable interest rates. ~~At September 30, 2005, CBS Personnel~~We had outstanding ~~borrowings~~$94.5 million under these debt instruments that totaled approximately $16.9 million. This exposure is minimal as most of this debt is hedged to minimize exposure to interest rate movements on CBS Personnel’s variable rate debt.
      CBS Personnel also selectively uses derivative financial instruments to manage its exposure to interest rate movements on its variable rate debt. See the section entitled “— Other” for a description of the interest rate swap agreement.
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~~Crosman~~
~~Overview~~
      Crosman, headquartered in East Bloomfield, New York, was one of the first manufacturers of airguns and is a leading manufacturer and distributor of recreational airgun products and related accessories. Crosman also designs, markets and distributes paintball products and related accessories through Diablo Marketing, LLC (d/b/a Game Face Paintball), or GFP, its 50%-owned joint venture. Crosman’s products are sold in over 6,000 retail locations worldwide through approximately 500 retailers, which include mass retailers, such as Wal-Mart and Kmart, and sporting goods retailers, such as Dick’s Sporting Goods and Big 5 Sporting Goods. While Crosman’s primary market is the United States (accounting for approximately 87% of net sales for the fiscal year ended June 30, 2005 and 85% and 86% of net sales for the quarters ended September 26, 2004 and October 2, 2005, respectively), Crosman distributes its products in 44 countries worldwide.
      ~~The~~~~Crosman~~^tm brand is one of the pre-eminent names in the recreational airgun market and is widely recognized in the broader outdoor sporting goods industry. Crosman markets a full line of recreational airgun products, airgun accessories and related products under its own trademark brands as well as under other well-established brands through licensing or distribution agreements. Crosman markets paintball products, including markers (which are paintball projection devices), paintballs, paintball accessories and related products, primarily under the~~Game Face~~^tm ~~brand. Crosman’s senior management, collectively, has approximately 77 years of experience in the recreational products industry and closely related industries.~~
      For the quarters ended October 2, 2005 and September 26, 2004, Crosman had net sales of approximately $20.5 million and $15.5 million, respectively, and net income of approximately $0.6 million and $0.3 million, respectively. For the fiscal year ended June 30, 2005, Crosman had net sales of approximately $70.1 million and net income of approximately $0.5 million.
      Crosman’s net sales are comprised of sales of airguns, soft air airguns and related consumables, accessories and other products. Crosman’s operating expenses are comprised of three components: cost of sales, selling, general and administrative expenses and amortization expense. Cost of sales primarily consists of raw materials, salaries and related personnel expenses, depreciation, shipping, warranty costs and manufacturing overhead. Crosman’s gross profit will primarily be affected by a mix of products sold and manufacturing volume.
      Crosman’s selling, general and administrative expenses are comprised of selling expenses and general and administrative expenses. Selling expenses consist primarily of salaries, commissions and related expenses for sales and marketing, as well as costs associated with trade shows and other marketing expenses. Crosman’s general and administrative expenses consist primarily of salaries and related expenses for executive, finance, accounting and human resources personnel, insurance, information technology costs, professional fees, related party management fees and other corporate expenses. Crosman’s amortization expense relates to the amortization of intangibles and deferred financing costs incurred in connection with the acquisition of Crosman in February 2004.
      On February 10, 2004, Crosman Corporation was acquired by a subsidiary of CGI. To facilitate comparisons, the results of Crosman and the predecessor company for fiscal year ended June 30, 2004 were combined as applicable. During fiscal year ended June 30, 2005, Crosman pursued a public offering in the Canadian Income Trust market that was ultimately not completed.
      Crosman operates on a 4-4-5 method whereby the first eleven months of the fiscal year close on a Sunday. Eight of Crosman’s fiscal months have four weeks; three of the months have five weeks. July generally has less than four weeks to ensure the month ends on a Sunday, and June generally has more than four weeks as the fiscal year always ends on June 30, regardless of the day of the week. The quarter ended October 2, 2005 contained one extra week as compared to the quarter ended September 26, 2004. However, Crosman’s management does not believe the extra week to be material for comparison purposes.
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~~Results of Operations~~
~~Quarter Ended October 2, 2005 Compared to Quarter Ended September 26, 2004~~
      ~~The table below summarizes the consolidated statement of operations data for Crosman for the quarter ended October 2, 2005 and the quarter ended September 26, 2004.~~

(Unaudited)
Quarter Ended

September 26, October 2,
2004 2005

($ in thousands)
Net sales $ 15,511 $ 20,468
Cost of sales 11,316 15,490

Gross profit 4,195 4,978
Selling, general and administrative expenses 2,509 2,441
Amortization expense 155 179

Operating income 1,531 2,358
Interest expense 1,055 1,326
Equity in losses of investee 109 48
Other income (121 ) (52 )

Income before provision for income taxes 488 1,036
Provision for income taxes 141 392

Net income $ 347 $ 644

~~Net sales~~
      Net sales for the quarter ended October 2, 2005 was approximately $20.5 million as compared to approximately $15.5 million for the quarter ended September 26, 2004, an increase of approximately $5.0 million or 32.0%. This increase was primarily due to the growth in revenues from Soft Air products which increased by approximately $4.4 million over the prior period and by increased airgun sales of approximately $0.9 million. Crosman began selling its Soft Air products in May 2002 and by leveraging its customer relationships, distribution and brand name, Crosman was able to take advantage of growth in the overall soft air market. Net sales of consumables, accessories and other products for the quarter ended October 2, 2005 decreased by approximately $0.3 million as compared to the quarter ended September 26, 2004.
~~Cost of sales~~
      Cost of sales for the quarter ended October 2, 2005 was approximately $15.5 million as compared to approximately $11.3 million for the quarter ended September 26, 2004, an increase of approximately $4.2 million or 36.9%. This increase was primarily due to the increase in net sales. Gross profit margin decreased by approximately 2.7% from 27.0% to 24.3% primarily due to a shift in revenue mix. The revenue mix was impacted by Soft Air products sales, which have a lower overall margin than Crosman’s manufactured products, as Soft Air products made up a larger percentage of sales in the current period than in the comparable prior quarter.
~~Selling, general and administrative expenses~~
      Selling, general and administrative expenses for the quarter ended October 2, 2005 were approximately $2.4 million as compared to approximately $2.5 million for the quarter ended September 26, 2004, a decrease of approximately $0.1 million or 2.7%. Selling, general and administrative expenses decreased due to a change in vacation policy such that employees earn vacation time in the current fiscal
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year over the course of the entire year, rather than at the beginning of the fiscal year as was the practice for last fiscal year. Crosman incurred approximately $0.1 million less vacation expense in the quarter ended October 2, 2005 than it did in the comparable prior quarter.
      As a percentage of revenue, selling, general and administrative expenses decreased from approximately 16.2% in the first quarter of fiscal 2005 to approximately 11.9% in the first quarter of fiscal 2006. The primary reason for the decrease in the costs as a percentage of revenues is due to Crosman’s operating leverage of being able to increase revenue without significantly increasing selling, general and administrative costs other than for increased commission expense.
~~Amortization expense~~
      Amortization expense for the quarter ended October 2, 2005 was approximately $0.2 million as compared to approximately $0.2 million for the quarter ended September 26, 2004, an increase of approximately $24 thousand or 15.5%. This increase was primarily due to additional amortization related to fees paid in connection with the refinancing of Crosman’s debt in August 2005.
~~Operating income~~
      Operating income for the quarter ended October 2, 2005 was approximately $2.4 million as compared to approximately $1.5 million for the quarter ended September 26, 2004, an increase of approximately $0.8 million or 54.0%. This increase was primarily due to increased revenues from Soft Air products as described above.
~~Interest expense~~
      Interest expense for the quarter ended October 2, 2005 was approximately $1.3 million as compared to approximately $1.1 million for the quarter ended September 26, 2004, an increase of approximately $0.3 million or 25.7%. This increase was primarily due to increases in the interest rates charged to Crosman on its variable rate debt.
~~Equity in losses of investee~~
      Equity in losses of investee for the quarter ended October 2, 2005 was a loss of approximately $48 thousand as compared to a loss of approximately $0.1 million for the quarter ended September 26, 2004, a decreased loss of approximately $61 thousand or 56.0%. The lower losses were primarily due to increased sales at GFP with slightly lower operating costs.
~~Other income~~
      Other income for the quarter ended October 2, 2005 was approximately $52 thousand as compared to approximately $0.1 million for the quarter ended September 26, 2004, a decrease of approximately $69 thousand or 57.0%. This decrease was primarily due to costs incurred in connection with the refinancing of Crosman’s debt in August 2005.
~~Provision for income taxes~~
      Provision for income taxes for the quarter ended October 2, 2005 was approximately $0.4 million as compared to approximately $0.1 million for the quarter ended September 26, 2004, an increase of approximately $0.3 million or 178.0%. This increase was primarily due to the higher pre-tax income for the quarter ended October 2, 2005. The effective tax rate increased from approximately 28.9% in the first quarter of fiscal 2005 to the rate of approximately 37.8% in the first quarter of fiscal year 2006 due primarily to significant investment tax credits earned in the first quarter of fiscal 2005 associated with investments in machinery and equipment.
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~~Net income~~
      Net income for the quarter ended October 2, 2005 was approximately $0.6 million as compared to approximately $0.3 million for the quarter ended September 26, 2004, an increase of approximately $0.3 million or 85.6%. This increase was primarily due the increase in operating income partially offset by higher interest expense and provision for income taxes.
~~Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004~~
      ~~The table below summarizes the consolidated statement of operations data for Crosman for the fiscal years ending June 30, 2005 and June 30, 2004.~~

Fiscal Year Ended
June 30,

2004⁽¹⁾ 2005

($ in thousands)
Net sales $ 63,626 $ 70,060
Cost of sales 43,719 50,874

Gross profit 19,907 19,186
Selling, general and administrative expenses 9,513 10,526
Amortization expense 328 629

Operating income 10,066 8,031
Interest expense 1,990 4,638
Equity in (income) loss of investee (56 ) 241
Recapitalization and foregone offering costs 2,497 3,022
Other (income) (600 ) (471 )

Income before provision for income taxes 6,235 601
Provision for income taxes 2,287 112

Net income $ 3,948 $ 489

⁽¹⁾ ~~The results of the predecessor and successor companies were combined to facilitate this comparison for fiscal year ended June 30, 2004.~~
~~Net sales~~
      Net sales for the fiscal year ended June 30, 2005 was approximately $70.1 million as compared to approximately $63.6 million for the year ended June 30, 2004, an increase of approximately $6.4 million or 10.1%. This increase was primarily due to an increase in revenue from Soft Air products which increased by approximately $9.8 million over the prior period. This increase was partially offset by a reduction in revenue from airgun rifle and pistol products of approximately $3.1 million due primarily to a change in promotional strategies at some of Crosman’s key accounts.
~~Cost of sales~~
      Cost of sales for the fiscal year ended June 30, 2005 was approximately $50.9 million as compared to approximately $43.7 million for the fiscal year ended June 30, 2004, an increase of approximately $7.2 million or 16.4%. This increase was primarily due to the increase in net sales and from increased raw material costs. Gross profit margin decreased by approximately 3.9% to approximately 27.4% in fiscal 2005 from approximately 31.3% in fiscal 2004 as a result of revenue mix and a liquidation of certain inventories at lower than standard margins. The revenue mix was impacted by Soft Air products sales, which have a lower overall margin than Crosman’s manufactured products, as Soft Air products made up a larger percentage of sales in the current period than in the comparable prior year.
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~~Selling, general and administrative expenses~~
      Selling, general and administrative expenses for the fiscal year ended June 30, 2005 were approximately $10.5 million as compared to approximately $9.5 million for the year ended June 30, 2004, an increase of approximately $1.0 million or 10.6%. This increase was primarily due to increased royalties paid on new product sales, additional commissions paid due to the increase in net sales and from increased sales and marketing personnel required to support Crosman’s growth.
~~Amortization expense~~
      Amortization expense for the fiscal year ended June 30, 2005 was approximately $0.6 million as compared to approximately $0.3 million for the year ended June 30, 2004, an increase of approximately $0.3 million or 91.8%. This increase was primarily due to a full year of amortization of the intangibles acquired in February 2004.
~~Operating income~~
      Operating income was approximately $8.0 million for the fiscal year ended June 30, 2005 as compared to approximately $10.1 million for the fiscal year ended June 30, 2004, a decrease of approximately $2.0 million or 20.2%. This decrease was primarily due to the lower gross profit and increased selling, general and administrative and amortization expenses as described above.
~~Interest expense~~
      Interest expense was approximately $4.6 million for the fiscal year ended June 30, 2005 as compared to approximately $2.0 million for the fiscal year ended June 30, 2004 an increase of approximately $2.6 million or 133.1%. This increase was primarily due to increased debt levels associated with Crosman’s acquisition by a subsidiary of CGI.
~~Equity in (income) loss of investee~~
      Equity in (income) loss of investee for the year ended June 30, 2005 was a loss of approximately $0.2 million as compared to income of approximately $0.1 million for the year ended June 30, 2004, a decrease of approximately $0.3 million or 430.4%. The increased loss was primarily due to decreased sales at GFP as sales were negatively impacted by higher inventories at customer locations resulting in curtailed purchases.
~~Recapitalization and foregone offering costs~~
      Recapitalization and foregone offering costs was approximately $3.0 million for the fiscal year ended June 30, 2005 as compared to approximately $2.5 million for the fiscal year ended June 30, 2004, an increase of approximately $0.5 million or 21.0%. These expenses were driven in the fiscal year ended June 30, 2005 by Crosman’s contemplated equity offering and in fiscal 2004 by the recapitalization associated with the acquisition by a subsidiary of CGI.
~~Other (income)~~
      Other income was approximately $0.5 million for the fiscal year ended June 30, 2005 as compared to approximately $0.6 million for the fiscal year ended June 30, 2004, a decrease of approximately $0.1 million or 21.5%. This decrease was primarily due to lower billings to GFP associated with decreased sales at GFP as described above.
~~Provision for income taxes~~
      Provision for income taxes was approximately $0.1 million for the fiscal year ended June 30, 2005 as compared to approximately $2.3 million for the year ended June 30, 2004, a decrease of approximately $2.2 million or 95.1%. This decrease was primarily due to the lower pre-tax income for the fiscal year
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~~ended June 30, 2005. The effective tax rate in fiscal 2005 was approximately 18.6% due primarily to significant investment tax credits earned during the year.~~
~~Net income~~
      Net income for the fiscal year ended June 30, 2005 was approximately $0.5 million as compared to approximately $3.9 million for fiscal year ended June 30, 2004, a decrease of approximately $3.4 million or 87.6%. This decrease was primarily due to the decrease in operating income combined with increased interest expense and increased other expenses, partially offset by the lower provision for income taxes.
~~Fiscal Year Ended June 30, 2004 Compared to Fiscal Year Ended June 30, 2003~~
      ~~The table below summarizes the consolidated statement of operations data for Crosman for the fiscal years ending June 30, 2004 and June 30, 2003.~~

Fiscal Year Ended
June 30,

2003 2004⁽¹⁾

($ in thousands)
Net sales $ 53,333 $ 63,626
Cost of sales 37,382 43,719

Gross profit 15,951 19,907
Selling, general and administrative expenses 8,749 9,513
Amortization expense 132 328

Operating income 7,070 10,066
Interest expense 1,978 1,990
Equity in (income) of investee (158 ) (56 )
Recapitalization and foregone offering costs — 2,497
Other (income) (266 ) (600 )

Income before provision for income taxes 5,516 6,235
Provision for income taxes 2,122 2,287

Net income $ 3,394 $ 3,948

⁽¹⁾ ~~The results of the predecessor and successor companies were combined to facilitate this comparison for fiscal year ended June 30, 2004.~~
~~Net sales~~
      Net sales for the fiscal year ended June 30, 2004 was approximately $63.6 million as compared to approximately $53.3 million for the year ended June 30, 2003, an increase of approximately $10.3 million or 19.3%. This increase was primarily due to the growth in net sales from Soft Air products of approximately $4.7 million and from increased sales of Soft Air airgun rifles and pistols of approximately $3.3 million primarily resulting from new product placement at many of Crosman’s larger customer accounts. Sales of consumables increased by approximately $2.0 million as a result of the corresponding increase in the sales of Soft Air and airgun products.
~~Cost of sales~~
      Cost of sales for the fiscal year ended June 30, 2004 was approximately $43.7 million as compared to approximately $37.4 million for the fiscal year ended June 30, 2003, an increase of approximately $6.3 million or 17.0%. This increase was primarily due to the increase in net sales. Gross profit margins increased by approximately 1.4% to approximately 31.4% in fiscal 2004 from approximately 29.9% in fiscal 2003 as a result of product mix and by increased operating leverage partially offset by increased steel costs due to higher worldwide steel prices.
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~~Selling, general and administrative expenses~~
      Selling, general and administrative expenses for the fiscal year ended June 30, 2004 were approximately $9.5 million as compared to approximately $8.7 million for the year ended June 30, 2003, an increase of approximately $0.8 million or 8.7%. This increase was primarily due to increased royalty payments on new product sales, additional sales commissions as a result of increased sales levels and increased executive compensation expense as a result of Crosman’s improved performance. As a percentage of revenues, selling general and administrative expenses decreased from approximately 16.4% in fiscal 2003 to approximately 15.0% in fiscal 2004. Crosman’s operating leverage allowed it to incur the increased costs described above without increases in its costs as a percentage of revenues.
~~Amortization expense~~
      Amortization expense for the fiscal year ended June 30, 2004 was approximately $0.3 million as compared to approximately $0.1 million for the year ended June 30, 2003, an increase of approximately $0.2 million or 148.5%. This increase was primarily due to the amortization of the intangibles acquired in February 2004.
~~Operating income~~
      Operating income was approximately $10.1 million for the fiscal year ended June 30, 2004 as compared to approximately $7.1 million for the fiscal year ended June 30, 2003, an increase of approximately $3.0 million or 42.4%. This increase was largely due to increased net sales levels and reduced operating cost as a percentage of net sales.
~~Interest expense~~
      Interest expense was approximately $2.0 million for the fiscal year ended June 30, 2004 as compared to approximately $2.0 million for the fiscal year ended June 30, 2003, an increase of approximately $12 thousand or 0.6%. Interest expense in fiscal 2004 includes a write-off of approximately $0.6 million for the unamortized original issue discount resulting from the recapitalization in 2004. Interest expense otherwise decreased as higher rate subordinated debt comprised a greater percentage of total debt in fiscal year ended June 30, 2003 than it did in fiscal year ended June 30, 2004.
~~Equity in (income) of investee~~
      Equity in income of investee for the year ended June 30, 2004 was approximately $0.1 million as compared to approximately $0.2 million for the year ended June 30, 2003, a decrease of approximately $0.1 million. Despite increased sales at GFP in fiscal year ended June 30, 2004, GFP’s net income decreased due to higher operating costs.
~~Recapitalization and foregone offering costs~~
      Recapitalization and foregone offering costs was approximately $2.5 million for the fiscal year ended June 30, 2004. These expenses were driven in fiscal year 2004 by the recapitalization associated with the acquisition by a subsidiary of CGI.
~~Other (income)~~
      Other income was approximately $0.6 million for the fiscal year ended June 30, 2004 as compared to income of approximately $0.3 million for the fiscal year ended June 30, 2003 an increase of approximately $0.3 million or 125.6%. This increase was primarily due to higher billings to GFP associated with increased sales at GFP as described above.
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~~Provision for income taxes~~
      Provision for income taxes for the fiscal year ended June 30, 2004 was approximately $2.3 million as compared to approximately $2.1 million for the year ended June 30, 2003, an increase of approximately $0.2 million or 7.8%. This increase was primarily due to the higher pre-tax income for fiscal year ended June 30, 2004. The effective rate in 2004 decreased to approximately 36.7% from approximately 38.5% primarily as a result of more investment tax credits generated in 2004 than in 2003.
~~Net income~~
      Net income for the fiscal year ended June 30, 2004 was approximately $3.9 million as compared to approximately $3.4 million for the fiscal year ended June 30, 2003, an increase of approximately $0.6 million or 16.3%. This increase was primarily due to the increase in operating income as described above partially offset by increased recapitalization expense and higher income taxes.
~~Liquidity and Capital Resources~~
      The ability of Crosman to satisfy its obligations will depend on its future performance, which will be subject to prevailing economic, financial, business and other factors, most of which are beyond its control. Future capital requirements for Crosman are expected to be provided by cash flows from operating activities and cash on hand at October 2, 2005. As of October 2, 2005, Crosman had approximately $0.2 million in cash and cash equivalents and working capital of approximately $19.0 million. To the extent future capital requirements exceed cash flows from operating activities, Crosman anticipates that:
• ~~working capital will be financed by Crosman’s revolving credit facility as discussed below and repaid from subsequent reductions in current assets or from future earnings;~~
• ~~capital expenditures will be financed from the revolving credit facility; and~~
• ~~long-term debt will be refinanced with long-term debt with similar terms.~~
      ~~At October 2, 2005, Crosman had a approximately $20.0 million~~our revolving credit facility. ~~The revolving credit facility expires in December 2008. At October 2, 2005, approximately $9.1 million of borrowings was outstanding under the revolving credit facility.~~
      At October 2, 2005, Crosman had approximately $39.8 million of long-term debt outstanding of which approximately $2.6 million was classified as current. The entire amount of this debt was incurred as part of the acquisition by a subsidiary of CGI and bears interest based on LIBOR and is due in various installments through December 2008. Crosman intends to fund the repayment of the current maturity of approximately $2.6 million with proceeds generated from operations. The remaining $14.0 million of long-term debt outstanding was also incurred as part of the acquisition by a subsidiary of CGI and is due to a 14% stockholder of Crosman. This long-term debt is a senior subordinated note that bears interest at 16.5%, of which 12% is payable currently and 4.5% is deferred until February, 2009. The principal is due on February 10, 2010.
      The seasonal nature of Crosman’s sales requires significantly higher working capital investments from September through January than the average working capital requirements of Crosman. Consequently, interim results for Crosman are not necessarily indicative of the full fiscal year and quarterly results may vary substantially, both within a fiscal year and between comparable fiscal years. The effects of seasonality could have a material adverse impact on Crosman’s financial condition and results of operations.
~~Discussion of changes in cash flows for the quarter ended October 2, 2005 versus the quarter ended September 26, 2004~~
      Cash provided by operating activities was approximately $1.3 million for the quarter ended October 2, 2005, compared to cash used in operating activities of approximately $2.1 million in the quarter ended September 26, 2004. The cash provided by operating activities in the quarter ended October 2, 2005 was attributable to net income of approximately $0.6 million and non-cash charges of approximately
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$0.7 million partially offset by net changes in operating assets and liabilities of approximately $0.1 million. The impact of changes in operating assets and liabilities may change in future periods, depending on the timing of each period end in relation to items such as internal payroll and billing cycles, payments from customers, payments to vendors and interest payments. The cash used in operating activities in the quarter ended September 26, 2004 was attributable to net income of approximately $0.3 million and non-cash charges of approximately $0.7 million offset by net changes in operating assets and liabilities of approximately $3.0 million which was largely due to a build up in inventories. The non-cash charges largely consist of depreciation, amortization and non-cash interest expense.
      Cash used in investing activities was approximately $0.3 million in the quarter ended October 2, 2005, compared to cash used in investing activities of approximately $0.6 million in the quarter ended September 26, 2004. Cash used in investing activities during both periods were exclusively for capital expenditures.
      Cash used in financing activities was approximately $1.6 million for the quarter ended October 2, 2005 as compared to cash provided by financing activities of approximately $2.9 million for the quarter ended September 26, 2004. Cash used in financing activities in the quarter ended October 2, 2005 included approximately $26.0 million from the issuance of long-term debt offset by approximately $24.2 million for the repayment of long-term obligations, approximately $1.3 million in net repayments under Crosman’s revolving credit facility and by approximately $2.1 million of financing and the payment of foregone offering costs incurred in 2005. Cash provided by financing activities for the quarter ended September 26, 2004 was due to net borrowings under Crosman’s revolving credit facility of approximately $3.5 million partially offset by approximately $0.6 million for the repayment of long-term obligations and for the redemption of common stock.
~~Discussion of changes in cash flows for the fiscal year ended June 30, 2005 versus the fiscal year ended June 30, 2004~~
      Cash provided by operating activities was approximately $3.1 million for the year ended June 30, 2005, compared to cash provided by operating activities of approximately $8.6 million for the year ended June 30, 2004. The cash provided by operating activities in the year ended June 30, 2005 was attributable to net income of approximately $0.5 million and non-cash charges of approximately $6.1 million partially offset by a net change in operating assets and liabilities of approximately $3.5 million. The cash provided by operating activities in year ended June 30, 2004 was attributable to net income of approximately $3.9 million and non-cash charges of approximately $6.0 million partially offset by a net change in operating assets of approximately $1.3 million. The non-cash charges largely consist of depreciation and amortization of approximately $2.8 million and foregone offering costs of approximately $3.0 million in fiscal 2005 and depreciation and amortization of approximately $2.4 million and recapitalization expenses of approximately $2.5 million in fiscal 2004.
      Cash used in investing activities was approximately $2.0 million for the year ended June 30, 2005 as compared to cash used in investing activities of approximately $67.0 million for the year ended June 30, 2004. Cash used for investing activities in the year ended June 30, 2005 was exclusively for capital expenditures. Cash used in investing activities in the year ended June 30, 2004 was primarily used for capital expenditures of approximately $2.3 million and approximately $64.7 million incurred in connection with the acquisition of Crosman in February 2004.
      Cash used in financing activities was approximately $0.5 million for the year ended June 30, 2005 as compared to cash provided by financing activities of approximately $58.8 million for the year ended June 30, 2004. Cash used for financing activities in the year ended June 30, 2005 was primarily due to approximately $3.3 million of net borrowings under Crosman’s revolving credit facility offset by approximately $2.4 million of principal payments on long term obligations, approximately $1.3 million of foregone offering costs and for other uses of approximately $0.1 million. Cash provided by financing activities for the year ended June 30, 2004 was primarily from the issuance of long-term debt of approximately $41.0 million and the issuance of equity of approximately $21.2 million to fund the
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acquisition further increased by net borrowings of approximately $4.9 million under Crosman’s revolving credit facility partially offset by approximately $3.9 million of principal payments on long-term obligations, approximately $3.2 million for recapitalization expenses and by approximately $1.2 million for other net uses.
~~Commitments and Contingencies~~
      Crosman’s principal commitments at October 2, 2005 consisted primarily of its commitments related to the long-term debt incurred as part of the acquisition and for obligations incurred under operating leases. Crosman is contingently liable for additional purchase price consideration for fiscal 2006 if certain milestones are achieved. These milestones were not achieved in fiscal 2005 and have not been included in the following table.
      ~~The following table summarizes Crosman’s significant contractual obligations for the repayment of debt and payment of other contractual obligations as of October 2, 2005.~~

Payments Due by Period

Less than More than
Total 1 Year 1-3 Years 3-5 Years 5 Years

($ in thousands)
Long-term debt $ 39,783 $ 2,600 $ 5,742 $ 31,441 $ —
Revolving line of credit 9,074 — 9,074 — —
Capital lease obligations 217 63 107 47 —
Operating lease obligations 199 53 110 36 —

Total contractual cash obligations
$ 49,273 $ 2,716 $ 15,033 $ 31,524 $ —

      Crosman did not have any off-balance sheet arrangements at October 2, 2005. This is due to the expectation that all of Crosman’s long-term debt will be refinanced as part of the contemplated transaction. However, Crosman has used and would investigate using interest rate swap agreements to manage its exposure to interest rate movements on its variable rate debt if the proposed transaction did not occur.
      Crosman believes that, for the foreseeable future, it will have sufficient cash resources to meet the commitments described above and for current anticipated working capital and capital expenditure requirements. Crosman’s future liquidity and capital requirements will depend upon numerous factors, including retention of customers at current volume and revenue levels, ability to refinance long-term debt at acceptable terms and competing technological and market developments.
~~Quantitative and Qualitative Discussion about Market Risk~~
      Crosman is exposed to interest rate risk primarily through its revolving and term loan credit facilities since these instruments all bear interest based off of variable interest rates. At October 2, 2005, Crosman had approximately $34.9 million outstanding under these facilities. In the event that interest rates associated with ~~these instruments~~the revolving credit facility were to increase by 100 basis points the impact on future cash flows would be a decrease of ~~approximately $0.4~~$0.94 million.
We expect to borrow under our revolving credit facility in the future in order to finance our short term working capital needs and future acquisitions.
Exchange Rate Sensitivity
At December 31, 2006, we were not exposed to significant foreign currency exchange rate risks that could have a material effect on our financial condition or results of operations.

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BUSINESS
Overview
Compass Diversified Trust offers investors an opportunity to participate in the ownership and growth of middle market businesses that traditionally have been owned and managed by private equity firms or other financial investors, large conglomerates or private individuals or families. Through the ownership of a diversified group of middle market businesses, we also offer investors an opportunity to diversify their portfolio risk while participating in the cash flows of our businesses through the receipt of quarterly distributions.
We acquire and manage middle market businesses based in North America with annual cash flows between $5 million ~~annually.~~and $40 million. We seek to acquire controlling ownership interests in the businesses in order to maximize our ability to work actively with the management teams of those businesses. Our model for creating shareholder value is to be disciplined in identifying and valuing businesses, to work closely with management of the businesses we acquire to grow the cash flows of those businesses, and to exit opportunistically businesses when we believe that doing so will maximize returns. We currently own six businesses in six distinct industries and we believe that these businesses will continue to produce stable and growing cash flows over the long term, enabling us to meet our objectives of growing distributions to our shareholders, independent of any incremental acquisitions we may make, and investing in the long-term growth of the company.
~~Advanced Circuits~~
In identifying acquisition candidates, we target businesses that:
~~Overview~~• produce stable cash flows;
• have strong management teams largely in place;
• maintain defensible positions in industries with forecasted long-term macroeconomic growth; and
• face minimal threat of technological or competitive obsolescence.
We maintain a long-term ownership outlook which we believe provides us the opportunity to develop more comprehensive strategies for the growth of our businesses through various market cycles, and will decrease the possibility, often faced by private equity firms or other financial investors, that our businesses will be sold at unfavorable points in a market cycle. Furthermore, we provide the financing for both the debt and equity in our acquisitions, which allows us to pursue growth investments, such as add-on acquisitions, that might otherwise be restricted by the requirements of a third-party lender. We have also found sellers to be attracted to our ability to provide both debt and equity financing for the consummation of acquisitions, enhancing the prospect of confidentiality and certainty of consummating these transactions. In addition, we believe that our ability to be long-term owners alleviates the concern that many private company owners have with regard to their businesses going through multiple sale processes in a short period of time and the disruption that this may create for their employees or customers.
We believe that our ownership outlook provides us the opportunity to develop more comprehensive strategies for the medium and long term growth of our businesses in and out of market cycles, and decreases the possibility that our businesses will be sold at unfavorable points in a market cycle. Furthermore, our financing of both the debt and equity of our businesses allows us to pursue interesting growth opportunities, such as add-on acquisitions, that might otherwise be restricted by the presence of a third-party lender.
We have a strong management team that has worked together since 1998 and, collectively, has approximately 75 years of experience in acquiring and managing middle market businesses. During that time, our management team has developed a reputation for acquiring middle market businesses in various industries through a variety of processes. These include corporate spin-offs, transitions of family-owned businesses, management buy-outs, management basedroll-ups, reorganizations, bankruptcy sales and auction-based acquisitions from financial owners. The flexibility, creativity, experience and expertise of our management team in structuring complex transactions provides us with strategic advantages by allowing us to consider non-traditional and complex transactions tailored to fit specific acquisition targets.

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Our manager, who we describe below, has demonstrated a history of growing cash flows at the businesses in which it has been involved. As an example, for the four businesses we acquired concurrent with the IPO, 2006 full year operating income increased, in total, over 2005 by 20.5%. Our quarterly distribution rate has increased by 14.3% from the IPO, which we refer to as the IPO, on May 16, 2006 until January 2007, from $0.2625 per share to $0.30 per share. From the date of the IPO until December 31, 2006 (including the distribution paid in January 2007 for the quarter ended December 31, 2006), our distribution coverage ratio (estimated cash available for distribution divided by total distributions) was 1.7x. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
At the time of the IPO, on May 16, 2006, we sold 13,500,000 shares of the trust at an offering price of $15.00 per share. Total net proceeds from the IPO were approximately $188.3 million. On May 16, 2006, we also completed, on the same terms of the IPO, the private placement of 5,733,333 shares to CGI for approximately $86.0 million and completed the private placement of 266,667 shares to Pharos I LLC, an entity owned by our management team, for approximately $4.0 million. CGI also purchased 666,667 shares for $10.0 million through the IPO. In addition, in connection with the acquisition of Anodyne on August 1, 2006, we issued 950,000 of our newly issued shares to CGI valued at $13.1 million, or $13.77 per share. Since the commencement of the IPO, we have acquired controlling interests in the following businesses (including Crosman which we recently divested):
Advanced Circuits
On May 16, 2006, concurrent with the IPO, we acquired a controlling interest in Advanced Circuits. Advanced Circuits, headquartered in Aurora, Colorado, is a ~~leading~~ provider of prototype and ~~low-volume rigid~~quick-turn printed circuit boards, or PCBs, throughout the United States. ~~Advanced Circuits also provides its customers longer lead-time production services in order to meet its clients’ complete PCB needs.~~PCBs are a vital component of virtually all electronic products. The prototype and quick-turn portions of the PCB industry are characterized by customers
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requiring high levels of responsiveness, technical support and timely delivery. Due to the critical roles that PCBs play in the research and development process of electronics, customers often place more emphasis on the turnaround time and quality of a customized PCB rather than on ~~the~~other factors, such as price. Advanced Circuits meets this market need by manufacturing and delivering custom PCBs in as little as 24 hours, providing its approximately 8,000 customers with approximately ~~98.5%~~98% error-free production and real-time customer service and product tracking 24 hours per day. In 2004, approximately 66% of Advanced Circuits’ net sales were derived from highly profitable prototype and quick-turn production PCBs. Advanced Circuits’ success is demonstrated by its broad base of over 3,500 customers with which it does business each month. These customers represent numerous end markets, and for the nine months ended September 30, 2005, no single customer accounted for more than 2% of net sales. Advanced Circuits’ senior management, collectively, has approximately 90 years of experience in the electronic components manufacturing industry and closely related industries.
      ~~For the nine months ended September 30, 2005 and September 30, 2004,~~ Advanced Circuits had ~~net sales of approximately $31.5 million and $27.5 million, respectively, and net~~full-year operating income of approximately $11.3 million and $9.1 million, respectively. For the fiscal year ended December 31, 2004, Advanced Circuits had net sales of approximately $36.6 million and net income of approximately $12.1 million.
      Advanced Circuits’ net sales are comprised of sales from the production of low volume, quick-turn and prototype circuit boards; from manufacturing of high volume production run circuit boards; and from commissions received for acting as an intermediary to facilitate the production of PCBs that do not fit with its internal capabilities. Advanced Circuits’ operating costs are comprised of two components: cost of sales and selling, general and administrative expenses. Cost of sales consists of the salaries of production employees and related expenses, manufacturing overhead, depreciation and costs of raw materials. Advanced Circuits’ gross profit will primarily be effected by a mix of products sold and manufacturing volume.
      Advanced Circuits’ selling, general and administrative expenses are comprised of selling expenses and general and administrative expenses. Selling expenses consist primarily of salaries and related expenses for marketing, sales and customer service personnel as well as costs associated with advertising and industry group membership. Advanced Circuits’ general and administrative expenses are comprised primarily of salaries and related expenses for executive, finance, accounting and human resources personnel, professional fees and other corporate expenses.
      During the past three years, Advanced Circuits has continued to improve the technology of its printed circuit boards and enhance its quick-turn and prototype service capabilities which has resulted in increased profit margins. Advanced Circuits’ gross margin depends on its sales mix between prototype, quick-turn production and volume production PCBs and the associated production cost for each. Advanced Circuits has been able to reap the benefits of its increased production capacity as a result of the facility expansion completed in 2003 by processing more new customers during 2004 and 2005 while better leveraging its fixed costs. Changes in Advanced Circuits’ sales mix have also contributed to its higher profit margins. Quick-turn production PCBs, which provide high margin due to the quick delivery time requirement, have increased as a percentage of gross sales from approximately 27.7% in 2003 to approximately 31.9% for the nine months ended September 30, 2005.
      Advanced Circuits currently depends, and expects to continue to depend, upon a relatively large number of customers, with no single customer accounting for more than 2% of its net sales. Each month, Advanced Circuits receives orders from approximately 3,500 customers and adds over 200 new customers.
      In September 2005, a subsidiary of CGI acquired Advanced Circuits, Inc. along with R.J.C.S. LLC, an entity previously established solely to hold Advanced Circuits’ real estate and equipment assets. Immediately following the acquisitions, R.J.C.S. LLC was merged into Advanced Circuits. The results for the nine months ended September 30, 2005, the nine months ended September 30, 2004, the year ended December 31, 2004, the year ended December 31, 2003 and the year ended December 31, 2002 reflect the combined results of the two businesses. The following section discusses the historical financial performance of the combined entities.
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~~Results of Operations~~
~~Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004~~
      ~~The table below summarizes the combined statement of operations for Advanced Circuits for the nine months ending September 30, 2005 and September 30, 2004.~~

(Unaudited)
Nine Months Ended
September 30,

2004 2005

($ in thousands)
Net sales $ 27,465 $ 31,454
Cost of sales 13,548 14,133

Gross profit 13,917 17,321
Selling, general and administrative expenses 4,663 5,629

Operating income 9,254 11,692
Interest expense (183 ) (325 )
Interest income 20 151
Other income 5 3

Income before provision for income taxes 9,096 11,521
Provision for income taxes — 225

Net income $ 9,096 $ 11,296

~~Net sales~~
      Net sales for the nine months ended September 30, 2005 was approximately $31.5 million as compared to approximately $27.5 million for the nine months ended September 30, 2004, an increase of approximately $4.0 million or 14.5%. The increase in net sales was largely due to increased sales in quick-turn production PCBs, which increased by approximately $2.4 million, and the addition of new customers due to increased marketing efforts. Quick-turn production PCBs represented approximately 31.9% of gross sales for the nine months ended September 30, 2005 as compared to approximately 29.6% for the fiscal year ended December 31, 2004.
~~Cost of sales~~
      Cost of sales for the nine months ended September 30, 2005 was approximately $14.1 million as compared to approximately $13.5 million for the nine months ended September 30, 2004, an increase of approximately $0.6 million or 4.3%. The increase in cost of sales was largely due to the increase in production volume.
      Gross profit margin increased by approximately 4.4% to approximately 55.1% for the nine months ended September 30, 2005 as compared to approximately 50.7% for the nine months ended September 30, 2004. The increase is due to increased capacity utilization at Advanced Circuits’ Aurora facility and a shift in its sales mix to higher margin business. These benefits were partially offset by increased costs of laminates, Advanced Circuits’ primary raw material.
~~Selling, general and administrative expenses~~
      Selling, general and administrative expenses for the nine months ended September 30, 2005 were approximately $5.6 million as compared to approximately $4.7 million for the nine months ended September 30, 2004, an increase of approximately $1.0 million or 20.7%. Approximately $0.6 million or 64.7% of the increase was due to deferred compensation payments provided to Advanced Circuits’ management associated with CGI’s acquisition of Advanced Circuits and improved financial performance.
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~~An increase of approximately $0.1 million in advertising and promotional expenses also contributed to this increase.~~
~~Income from operations~~
      Income from operations was approximately $11.7 million for the nine months ended September 30, 2005 as compared to approximately $9.3 million for the nine months ended September 30, 2004, an increase of approximately $2.4 million or 26.3%. The increase in income from operations was principally due to the increase in quick-turn production PCB sales which is one of the high margin products and services of Advanced Circuits’ business.
~~Interest expense~~
      Interest expense was approximately $0.3 million for the nine months ended September 30, 2005 as compared to approximately $0.2 million for the nine months ended September 30, 2004, an increase of approximately $0.1 million or 77.6%. This increase was primarily due to interest expense incurred as a result of the financing for the acquisition of Advanced Circuits. The acquisition resulted in the issuance of approximately $50.5 million of long-term debt which was only outstanding since September 20, 2005.
~~Interest income~~
      Interest income was approximately $0.2 million for the nine months ended September 30, 2005 as compared to approximately $20 thousand for the nine months ended September 30, 2004, an increase of approximately $0.1 million or 655%. Interest income increased primarily due to higher interest rates.
~~Provision for income taxes~~
      Provision for income taxes for the nine months ended September 30, 2005 was approximately $0.2 million as compared to no provision for the nine months ended September 30, 2004. The increase in provision for income taxes was due to Advanced Circuits conversion to a C-corporation on September 20, 2005 as part of the acquisition by a subsidiary of CGI.
~~Net income~~
      Net income for the nine months ended September 30, 2005 was approximately $11.3 million as compared to approximately $9.1 million for the nine months ended September 30, 2004, an increase of approximately $2.2 million or 24.2%. This was primarily a result of increased sales in prototype and quick-turn PCBs and new customers and partially offset by increased selling, general and administrative expenses and provision for income taxes.
~~Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended December 31, 2003~~
      ~~The table below summarizes the consolidated statement of operations data for Advanced Circuits for the years ending December 31, 2004 and December 31, 2003.~~

Fiscal Year Ended
December 31,

2003 2004

($ in thousands)
Net sales $ 27,796 $ 36,642
Cost of sales 14,568 17,867

Gross profit 13,228 18,775
Selling, general and administrative expenses 5,521 6,564

Operating income 7,707 12,211
Interest expense (204 ) (242 )
Interest income 16 42
Other income 15 82

Net income $ 7,534 $ 12,093

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~~Net sales~~
      ~~Net sales for the year ended December 31, 2004 was approximately $36.6 million as compared to approximately $27.8~~$11.6 million for the year ended December 31, ~~2003,~~2006.
Aeroglide
On February 28, 2007, we acquired a controlling interest in Aeroglide. Aeroglide, headquartered in Cary, North Carolina, is a leading global designer and manufacturer of industrial drying and cooling equipment. Aeroglide provides specialized thermal processing equipment designed to remove moisture and heat as well as roast, toast and bake a variety of processed products. Its machinery includes conveyer driers and coolers, impingement driers, drum driers, rotary driers, toasters, spin cookers and coolers, truck and tray driers and related auxiliary equipment and is used in the production of a variety of human foods, animal and pet feeds and industrial products. Aeroglide utilizes an ~~increase~~extensive engineering department to custom engineer each machine for a particular application. Aeroglide had full-year operating income of approximately $8.8 million or 31.8%. Advanced Circuits sales in 2004 grew in each of its products and services as it was able to fully utilize the additional production capacity provided by its 2003 plant expansion. In addition, the PCBs produced by Advanced Circuits in 2004 had greater number of panels which results in higher revenue per panel as average layer count increased.
~~Cost of sales~~
      ~~Cost of sales for the year ended December 31, 2004 was approximately $17.9 million as compared to approximately $14.6~~$3.1 million for the year ended December 31, ~~2003, an increase~~2006.
Anodyne
On August 1, 2007, we acquired a controlling interest in Anodyne on August 1, 2006. Anodyne, headquartered in Los Angeles, California, is a leading manufacturer of medical support services and patient positioning devices used primarily for the prevention and treatment of pressure wounds experienced by patients with limited or no mobility. Anodyne is one of the nation’s leading designers and manufacturers of specialty support surfaces and is able to manufacture products in multiple locations to better serve a national customer base. Anodyne had operating income of approximately ~~$3.3~~$0.3 million ~~or 22.6%. This increase was due to greater production volume due to increased capacity resulting from the 2003 plant expansion.~~
      ~~Gross profit margin increased by approximately 3.6% to approximately 51.2%~~ for the ~~year~~ten and one-half month period ended December 31, ~~2004 as compared~~2006.

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CBS Personnel
On May 16, 2006, concurrent with out IPO, we acquired a controlling interest in CBS Personnel. CBS Personnel, headquartered in Cincinnati, Ohio, is a provider of temporary staffing services in the United States. In order to provide its 4,000 clients with tailored staffing services to fulfill their human resources needs, CBS Personnel also offers employee leasing services, permanent staffing and temporary-to-permanent placement services. CBS Personnel operates 144 branch locations in various cities in 18 states. CBS Personnel had full-year operating income of approximately 47.6% for the year ended December 31, 2003. The increase is due to higher sales and production volume while costs did not increase proportionately due to Advanced Circuits’ ability to leverage its fixed production costs. Gross profit margin also was favorably impacted by improved margins associated with volume production external partners.
~~Selling, general and administrative expenses~~
      ~~Selling, general and administrative expenses for the year ended December 31, 2004 were approximately $6.6 million as compared to approximately $5.5~~$21.1 million for the year ended December 31, ~~2003, an increase~~2006.
Crosman
On May 16, 2006, concurrent with the IPO, we acquired a controlling interest in Crosman Acquisition Corporation, which we refer to as Crosman. Crosman, headquartered in East Bloomfield, New York, was one of the first manufacturers of airguns and is a manufacturer and distributor of recreational airgun products and related products and accessories. The Crosman brand is one of the pre-eminent names in the recreational airgun market and is widely recognized in the broader outdoor sporting goods industry. Crosman’s products are sold in over 6,000 retail locations worldwide through approximately 500 retailers, which include mass market and sporting goods retailers. On January 5, 2007, we sold Crosman on the basis of a total enterprise value of approximately ~~$1.0 million or 18.9%. Selling, general and administrative expenses increased by~~$143 million. We have reflected Crosman as a discontinued operation for all periods presented in this prospectus. For further information, see Note D “Discontinued Operations”, to our consolidated financial statements included elsewhere in this prospectus. Crosman had full-year operating income of approximately ~~$0.7 million due to higher management compensation, mainly in the form of bonuses, associated with performance improvements in 2004.~~
~~Income from operations~~
      ~~Income from operations was approximately $12.2~~$17.6 million for the year ended December 31, ~~2004~~2006.
Halo
On February 28, 2007, we acquired a controlling interest in Halo, and which operates under the brand names of Halo and Lee Wayne. Halo, headquartered in Sterling, Illinois, serves as ~~compared to~~a one-stop shop for over 30,000 customers, providing design, sourcing, management and fulfillment services across all categories of its customer’s promotional product needs. Halo has established itself as a leader in the promotional products and marketing industry through its focus on service through its approximately ~~$7.7~~700 account executives. Halo had full-year operating income of approximately $6.1 million for the year ended December 31, ~~2003, an increase of approximately $4.5 million or 58.4%. This increase was largely due to increased levels of sales and improved margins associated~~2006.
Silvue
On May 16, 2006, concurrent with ~~volume production external partners.~~
~~Interest expense~~
      ~~Interest expense was approximately $0.2 million for~~ the ~~year ended December 31, 2004 as compared to approximately $0.2 million for the year ended December 31, 2003, an increase of approximately $38 thousand.~~
~~Interest income~~
      Interest income was approximately $42 thousand for the year ended December 31, 2004 as compared to approximately $16 thousand for the year ended December 31, 2003, an increase of approximately $26 thousand or 162.5%. This increase was primarily due to an increaseIPO, we acquired a controlling interest in ~~average levels of cash held on Advanced Circuits’ balance sheet.~~
~~Net income~~
      Net income for the year ended December 31, 2004 was approximately $12.1 million as compared to approximately $7.5 million, an increase of approximately $4.6 million or 60.5%. Net income improved primarily due to growth in sales as Advanced Circuits increased production capacity at its Aurora, Colorado-based facility.
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~~Fiscal Year Ended December 31, 2003 Compared to Fiscal Year Ended December 31, 2002~~
      ~~The table below summarizes the combined statement of operations data for Advanced Circuits for the year ending December 31, 2003 and December 31, 2002.~~

Fiscal Year Ended
December 31,

2002 2003

($ in thousands)
Net sales $ 23,767 $ 27,796
Cost of sales 12,759 14,568

Gross profit 11,008 13,228
Selling, general and administrative expenses 5,032 5,521

Operating income 5,976 7,707
Interest expense (418 ) (204 )
Interest income 27 16
Other income (expense) (198 ) 15

Net income $ 5,387 $ 7,534

~~Net sales~~
      Net sales for the year ended December 31, 2003 was approximately $27.8 million as compared to approximately $23.8 million for the year ended December 31, 2002, an increase of approximately $4.0 million or 17.0%. This increase was largely due to the acquisition of new customers.
~~Cost of sales~~
      Cost of sales for the year ended December 31, 2003 was approximately $14.6 million as compared to approximately $12.8 million for the year ended December 31, 2002, an increase of approximately $1.8 million or 14.2%. This increase was largely due to increased material and labor costs associated with increased revenues and increased utility costs as a result of a large facility expansion which was completed in 2003 and resulted in additional square footage.
      Gross profit margin increased by approximately 1.3% to approximately 47.6% for the year ended December 31, 2003 as compared to approximately 46.3% for the year ended December 31, 2002. The increase is due to higher sales and production volume but was offset with increased production costs.
~~Selling, general and administrative expenses~~
      Selling, general and administrative expenses for the year ended December 31, 2003 were approximately $5.5 million as compared to approximately $5.0 million for the year ended December 31, 2002, an increase of approximately $0.5 million or 9.7%. This increase was a result of increased salary costs driven by the addition of employees focused on sales and marketing.
~~Income from operations~~
      Operating income for the year ended December 31, 2003 was approximately $7.7 million as compared to approximately $6.0 million for the year ended December 31, 2002, an increase of approximately $1.7 million or 29.0%. This increase was primarily due to higher revenue levels offset partially by increased production and selling, general and administrative expenses.
~~Interest expense~~
      ~~Interest expense for the year ended December 31, 2003 was approximately $0.2 million as compared to approximately $0.4 million for the year ended December 31, 2002, a decrease of approximately~~
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~~$0.2 million or 51.2%. This decrease was due to reduced levels of mortgage debt held on Advanced Circuits’ Aurora, Colorado facility.~~
~~Net income~~
      Net income for the year ended December 31, 2003 was approximately $7.5 million compared to approximately $5.4 million for the year ending December 31, 2002, an increase of approximately $2.1 million or 39.9%. This increase was primarily due to the higher operating income and lower interest and other expenses.
~~Liquidity and Capital Resources~~
      The ability of Advanced Circuits to satisfy its obligations will depend on its future performance, which will be subject to prevailing economic, financial business and other factors, most of which are beyond its control. Future capital requirements for Advanced Circuits are expected to be provided by cash flows from operating activities and cash on hand at September 30, 2005. As of September 30, 2005 Advanced Circuits had approximately $0.9 million in cash and cash equivalents and negative working capital of approximately $3.7 million. Working capital excluding current maturities of notes payable would have been approximately $0.1 million. To the extent future capital requirements exceed cash flows from operating activities, Advanced Circuits anticipates that:
• ~~working capital will be financed by Advanced Circuits line of credit facility as discussed below and repaid from subsequent reductions in current assets or from subsequent earnings;~~
• ~~capital expenditures will be financed from the line of credit facility; and~~
• ~~long-term debt will be refinanced with long-term debt with similar terms.~~
      At September 30, 2005, Advanced Circuits had a approximately $4.0 million revolving line of credit. The line of credit facility expires in September 2010. At September 30, 2005, approximately $0.8 million of borrowings was outstanding under the line of credit.
      At September 30, 2005, Advanced Circuits had approximately $50.5 million of long-term debt outstanding of which approximately $3.8 million was classified as current. This entire amount was incurred as part of the acquisition of Advanced Circuits and bears interest based on LIBOR or a base rate and is due in various installments through March 2012. Advanced Circuits intends to fund the repayment of the current maturity of approximately $3.8 million with proceeds generated from operations.
~~Discussion of changes in cash flows for the nine months ended September 30, 2005 versus the nine month ended September 30, 2004~~
      Cash provided by operating activities was approximately $12.0 million in the nine months ended September 30, 2005, compared to cash provided by operating activities of approximately $9.5 million in the nine months ended September 30, 2004. The cash provided by operating activities in the nine months ended September 30, 2005 was attributable to net income of approximately $11.3 million and non-cash charges of approximately $0.7 million partially offset by net changes in operating assets and liabilities of approximately $44,000. The impact of changes in operating assets and liabilities may change in future periods, depending on the timing of each period end in relation to items such as internal payroll and billing cycles, payments from customers, payments to vendors and interest payments. The cash provided by operating activities in the nine months ended September 30, 2004 was attributable to net income of approximately $9.1 million and non-cash charges of approximately $0.6 million partially offset by net changes in operating assets and liabilities of approximately $0.2 million. The non-cash charges consist of depreciation.
      Cash used in investing activities was approximately $75.6 million in the nine months ended September 30, 2005, compared to cash used in investing activities of approximately $0.9 million in the nine months ended September 30, 2004. Cash used in investing activities in the nine months ended
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September 30, 2005 included approximately $79.7 million relating to the acquisition of Advanced Circuits by a subsidiary of CGI and approximately $0.9 million in purchases of property plant and equipment partially offset by approximately $5.0 million in proceeds from the sale and leaseback of Advanced Circuits’ production and office facility. Cash used in investing activities in the nine months ended September 30, 2004 included approximately $0.7 million in purchases of property, plant and equipment and a $0.1 million increase in the cash surrender value of annuities.
      Cash provided by financing activities was approximately $57.9 million for the nine months ended September 30, 2005 as compared to cash used in financing activities of approximately $7.4 million for the nine months ended September 30, 2004. Cash provided by financing activities in the nine months ended September 30, 2005 included approximately $50.5 million related to the issuance of notes payable associated with CGI’s acquisition of Advanced Circuits, approximately $25.0 million of equity capital contribution related to the acquisition and approximately $0.8 million in net borrowings on Advanced Circuits’ line of credit partially offset by approximately $14.1 million in distributions to the former shareholder, approximately $3.1 million for the repayment of notes payable and for approximately $1.1 million of note payable issuance costs. Cash used in financing activities for the nine months ended September 30, 2004 was due to distributions to the former shareholder of approximately $6.8 million and the repayments of notes payable of approximately $0.6 million.
~~Discussion of changes in cash flows for the year ended December 31, 2004 versus the year ended December 31, 2003~~
      Cash provided by operating activities was approximately $12.7 million for the year ended December 31, 2004, compared to cash provided operating activities of approximately $8.0 million for the year ended December 31, 2003. The cash provided by operating activities in the year ended December 31, 2004 was attributable to net income of approximately $12.1 million and non-cash charges of approximately $0.9 million partially offset by net changes in operating assets and liabilities of approximately $0.3 million. The cash provided by operating activities in year ended December 31, 2003 was attributable to net income of approximately $7.5 million and non-cash charges of approximately $0.7 million partially offset by net changes in operating assets and liabilities of approximately $0.2 million. The non-cash charges consist of depreciation.
      Cash used in investing activities was approximately $1.3 million for the year ended December 31, 2004 as compared to cash used in investing activities of approximately $2.2 million for the year ended December 31, 2003. Cash used in investing activities for the year ended December 31, 2004 consisted of approximately $0.8 million from the purchase of property and equipment, approximately $0.4 million from the issuance of a note receivable and approximately $0.1 million for the increase in cash surrender value of an annuity. Cash used in investing activities for the year ended December 31, 2003 was primarily due to the purchase of approximately $2.1 million of property.
      Cash used in financing activities was approximately $8.8 million for the year ended December 31, 2004 as compared to cash used in financing activities of approximately $4.5 million for the year ended December 31, 2003. Cash used in financing activities for the year ended December 31, 2004 was principally due to approximately $8.1 million of cash for distributions to the former shareholder and the repayment of notes payable of approximately $0.7 million. Cash used in financing activities for the year ended December 31, 2003 was due to distributions to the former shareholder of approximately $4.8 million and the repayment of loans payable of approximately $1.3 million partially offset by proceeds from the issuance of notes payable of approximately $1.4 million and cash received from members of approximately $0.3 million.
~~Commitments and Contingencies~~
      Advanced Circuits’ principal commitments at September 30, 2005 consisted primarily of its commitments related to the long-term debt incurred as part of the acquisition and for obligations incurred under operating leases.
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      ~~The following table summarizes Advanced Circuits’ significant contractual obligations for the repayment of debt and payment of other contractual obligations as of September 30, 2005.~~

Payments Due by Period

Less than 1-3 3-5 More than
Total 1 Year Years Years 5 Years

($ in thousands)
Long-term debt^(a)
$ 50,500 $ 3,750 $ 9,250 $ 11,500 $ 26,000
Operating lease obligations 7,238 483 965 965 4,825

Total contractual cash obligations
$ 57,738 $ 4,233 $ 10,215 $ 12,465 $ 30,825

^(a) ~~Excludes line of credit payable of approximately $0.8 million which is classified within current liabilities.~~
     Advanced Circuits did not have any off-balance sheet arrangements at September 30, 2005. This is due to the expectation that all of Advanced Circuits’ debt will be refinanced as part of the contemplated transaction. However, Advanced Circuits would investigate using interest rate swap agreements to manage its exposure to interest rate movements on its variable rate debt if the proposed transaction did not occur.
      Advanced Circuits believes that, for the foreseeable future, it will have sufficient cash resources to meet the commitments described above and for current anticipated working capital and capital expenditure requirements. Advanced Circuits’ future liquidity and capital requirements will depend upon numerous factors, including retention of customers at current volume and revenue levels, ability to refinance long-term debt at acceptable terms and competing technological and market developments.
~~Quantitative and Qualitative Discussion about Market Risk~~
      Advanced Circuits is exposed to interest rate risk primarily through its revolving and long-term loan facilities since these instruments all pay interest based off of variable interest rates. At September 30, 2005, Advanced Circuits had approximately $51.3 million outstanding under these facilities. In the event that interest rates associated with these instruments were to increase by 100 basis points, the impact on future cash flows would be a decrease of approximately $0.5 million annually.
~~Silvue~~
~~Overview~~
Silvue. Silvue, headquartered in Anaheim, California, is a ~~leading~~ developer and producer of proprietary, high performance liquid coating systems used in the high-end eyewear, aerospace, automotive and industrial markets. Silvue’s patented coating systems can be applied to a wide variety of materials, including plastics, such as polycarbonate and acrylic, glass, metals and other ~~substrate~~ surfaces. ~~Silvue’s~~These coating systems impart properties, such as abrasion resistance, improved durability, chemical resistance, ultraviolet or UV protection, anti-fog and impact resistance, to the materials to which they are applied. Due to the fragile and sensitive nature of many of today’s manufacturing materials, particularly polycarbonate, acrylic and PET-plastics, these properties are essential for manufacturers seeking to significantly enhance product performance, durability or particular features.
      Silvue owns 11 patents relating to its coating systems and maintains a primary or exclusive supply relationship with many of the leading eyewear manufacturers in the world, as well as numerous manufacturers in other consumer industries. Silvue has sales and distribution operations in the United States, Europe and Asia, ~~and has~~as well as manufacturing operations in the United States and Asia. ~~Silvue’s coating systems are marketed under the company name~~~~SDC Technologies~~^tm ~~and the brand names~~~~Silvue~~®,~~CrystalCoat~~®,~~Statux~~^tm ~~and~~~~Resinrelease~~^tm~~. Silvue has also trademarked its marketing phrase~~~~“high performance chemistry~~^tm~~”. Silvue’s senior management, collectively, has approximately 80 years of experience in the global hardcoatings and closely related industries.~~
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      ~~For the nine months ended September 30, 2005 and September 30, 2004,~~ Silvue had ~~net sales of approximately $15.8 million and $11.9 million, respectively, and net~~full-year operating income of approximately ~~$1.5 million and $1.5 million, respectively. For the fiscal year ended December 31, 2004, Silvue had net sales of approximately $16.5 million and net income of approximately $2.2 million.~~
      Silvue’s net sales are comprised of sales from coating systems and, to a much lesser extent, from royalty and license fees. For the nine months period ended September 30, 2005 and prior periods, net sales also included sales from the application services provided by Silvue at its facility in Henderson, Nevada. In November 2005, Silvue’s management made the strategic decision to halt the operations at the application facility in Henderson, Nevada, which represented substantially all of Silvue’s application services business. Management made this decision because the applications business historically contributed little operating income and, as a result, adversely effected Silvue’s overall profit margin. Management does not believe that the closure will have a material impact on Silvue’s profitability.
      Silvue’s operating expenses are comprised of three components: cost of sales, research and development costs, and selling, general and administrative expenses. Cost of sales consists of raw materials, salaries and related personnel expenses, depreciation and manufacturing overhead. Silvue’s gross profit will primarily be effected by a mix of products sold and manufacturing volume.
      Silvue’s research and development costs are comprised primarily of salaries and related personnel costs, patent filing costs and expenses associated with patent defense. These costs relate to the design, development, testing, and pre-manufacturing associated with the development and improvement of new and existing coating systems. Silvue expenses research and development costs as incurred.
      Silvue’s selling expenses are primarily comprised of salaries and payroll related expenses for marketing, sales and customer service personnel as well as costs associated with traveling and other marketing expenses. Silvue’s general and administrative expenses consist primarily of salaries and related expenses for executive, finance, accounting and human resources personnel, rent, professional fees and other corporate expenses.
      On August 31, 2004, Silvue was formed by CGI and management to acquire SDC Technologies, Inc. and on September 2, 2004, it acquired 100% of the outstanding stock of SDC Technologies, Inc. Following this acquisition, on April 1, 2005, Silvue purchased the remaining 50% it did not previously own of Nippon Arc Co. LTD (“Nippon ARC”), which was formerly operated as a joint venture with Nippon Sheet Glass, LTD.
      The results for nine months ended September 30, 2005, the nine months ended September 30, 2004, the year ended December 31, 2004 and the year ended December 31, 2003 reflect the results of Silvue Technologies and its predecessor company, SDC Technologies. Results prior to April 1, 2005 reflect income from the Nippon ARC joint venture under the equity method of accounting. Results subsequent to April 1, 2005 fully incorporate all operations of Nippon ARC. To facilitate comparisons, the results of Silvue and the predecessor company were combined as applicable.
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~~Results of Operations~~
~~Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004~~
      ~~The table below summarizes the consolidated statement of operations for Silvue for the nine months ending September 30, 2005 and for the nine months ended September 30, 2004.~~

(Unaudited)
Nine Months Ended
September 30,

2004 2005

($ in thousands)
Net sales $ 11,859 $ 15,819
Cost of sales 4,091 5,593

Gross profit 7,768 10,226
Selling, general and administrative expenses 5,260 6,356
Research and development costs 500 838

Operating income 2,008 3,032
Other income (expense):
Interest income 6 —
Other income 10 110
Equity in net income of joint venture 183 70
Interest expense (106 ) (1,000 )

Total other (expense) income 93 (820 )

Income before provision for income taxes 2,101 2,212
Provision for income taxes (575 ) (695 )

Net income $ 1,526 $ 1,517

~~Net sales~~
      Net sales for the nine months ended September 30, 2005 was approximately $15.8 million as compared to approximately $11.9 million for the nine months ended September 30, 2004, an increase of approximately $4.0 million or 33.4%. This increase was primarily due to the acquisition of Nippon ARC of approximately $3.0 million, growth within Silvue’s core ophthalmic business and expansion in sales of Silvue’s coating systems of approximately $0.3 million to manufacturers of aluminum wheels.
~~Cost of sales~~
      Cost of sales for the nine months ended September 30, 2005 was approximately $5.6 million as compared to approximately $4.1 million for the nine months ended September 30, 2004, an increase of approximately $1.5 million or 36.7%. This increase was primarily due to cost of sales associated with the acquisition of Nippon ARC of approximately $1.5 million. As a percentage of sales, cost of sales increased over the comparable prior period primarily due to the acquisition of Nippon ARC, whose margins have historically been lower than those realized in the United States or Europe.
~~Selling, general and administrative expense~~
      Selling, general and administrative expenses for the nine months ended September 30, 2005 were approximately $6.4 million as compared to approximately $5.3 million for the nine months ended September 30, 2004, an increase of approximately $1.1 million or 20.8%. The increase in selling, general and administrative expenses was primarily due to the inclusion of Nippon ARC of approximately $1.1 million in the consolidated operating results.
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~~Research and development costs~~
      Research and development costs for the nine months ended September 30, 2005 were approximately $0.8 million as compared to approximately $0.5 million for the nine months ended September 30, 2004, an increase of approximately $0.3 million or 67.6%. This increase was due to increased development efforts for new coating applications.
~~Operating income~~
      Income from operations was approximately $3.0 million for the nine months ended September 30, 2005 as compared to approximately $2.0 million for the nine months ended September 30, 2004, an increase of approximately $1.0 million or 51.0%. This increase was primarily due to the acquisition of Nippon ARC of approximately $0.3 million, additional operating income from the growth in revenues from existing ophthalmic customers and from customers focused on manufacturing aluminum wheels.
~~Other income~~
      Other income was approximately $0.1 million for the nine months ended September 30, 2005 as compared to approximately $10 thousand for the nine months ended September 30, 2004, an increase of approximately $0.1 million. This increase was primarily due to the sale of one piece of equipment at a gain.
~~Equity in net income of joint venture~~
      Equity in net income of joint venture was approximately $0.1 million for the nine months ended September 30, 2005 as compared to approximately $0.2 million for the nine months ended September 30, 2004, a decrease of approximately $0.1 million. This decrease was primarily due to Silvue’s acquisition of the stake it did not previously own in its Japanese operations and a resulting change in accounting.
~~Interest expense~~
      Interest expense was approximately $1.0 million for the nine months ended September 30, 2005 as compared to approximately $0.1 million for the nine months ended September 30, 2004, an increase of approximately $0.9 million. This increase was primarily due to the acquisition of Silvue and the resulting recapitalization. The recapitalization resulted in the issuance of approximately $12.8 million of floating rate debt.
~~Provision for income taxes~~
      The provision for income taxes for the nine months ended September 30, 2005 was approximately $0.7 million as compared to approximately $0.6 million for the nine months ended September 30, 2004, an increase of approximately $0.1 million or 20.9% due largely to the increase in non-equity pre-tax income.
~~Net income~~
      Net income for the nine months ended September 30, 2005 was approximately $1.5 million as compared to approximately $1.5 million for the nine months ended September 30, 2004, a decrease of approximately $9 thousand or 0.6%. The relatively flat change was primarily due to the increase in operating income offset by the increase in interest expense.
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~~Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended December 31, 2003~~
      ~~The table below summarizes the consolidated statement of operations for Silvue Technologies for the fiscal years ended December 31, 2004 and December 31, 2003.~~

Fiscal Year Ended
December 31,

2003 2004

($ in thousands)
Net sales $ 12,813 $ 16,478
Cost of sales 4,194 5,571

Gross profit 8,619 10,907
Selling, general and administrative expenses 6,103 7,196
Research and development costs 549 627

Operating income 1,967 3,084
Other income (expense):
Interest income 8 5
Other income — 41
Equity in net income of joint venture 376 269
Interest expense (58 ) (389 )

Total other (expense) income 326 (74 )

Income before provision for income taxes 2,293 3,010
Provision for income taxes (576 ) (805 )

Net income $ 1,717 $ 2,205

~~Net sales~~
      ~~Net sales for the year ended December 31, 2004 was approximately $16.5 million as compared to approximately $12.8~~$6.7 million for the year ended December 31, ~~2003, an increase of approximately $3.7 million or 28.6%. This increase was primarily due to increased coating and applications sales to existing customers.~~
~~Cost of sales~~
      Cost of sales for the year ended December 31, 2004 was approximately $5.6 million as compared to approximately $4.2 million for the year ended December 31, 2003, an increase of approximately $1.4 million or 32.8%. This increase was primarily due to the growth in net sales. As a percentage of sales, cost of sales increased over the comparable prior year as a result of a proportionately greater increase in sales from applications than from coatings, which operate at a lower margin than the coatings business.
~~Selling, general and administrative expenses~~
      Selling, general and administrative expenses for the year ended December 31, 2004 were approximately $7.2 million as compared to approximately $6.1 million for the year ended December 31, 2003, an increase of approximately $1.1 million or 17.9%. This increase was primarily due to increases in payroll and related personnel costs as Silvue added new personnel to keep pace with the growth in revenues and due to higher commissions on the increase in net sales.
~~Research and development costs~~
      Research and development costs for the year ended December 31, 2004 were approximately $0.6 million as compared to approximately $0.5 million for the year ended December 31, 2003 an increase of approximately $0.1 million or 14.2%. This increase was due to increased development efforts for new coating applications.
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~~Operating income~~
      Income from operations was approximately $3.1 million for the year ended December 31, 2004 as compared to approximately $2.0 million for the year ended December 31, 2003, an increase of approximately $1.1 million or 56.8%. This increase was primarily due to increased gross profit from the sales increase as mentioned above partially offset by the increase in operating expenses.
~~Equity in net income of joint venture~~
      Equity in net income of joint venture was approximately $0.3 million for the year ended December 31, 2004 as compared to approximately $0.4 million for the year ended December 31, 2003, a decrease of approximately $0.1 million or 28.5% primarily due to lower sales at the Japanese joint venture due to the loss of certain customers in Japan and Korea.
~~Interest expense~~
      Interest expense was approximately $0.4 million for the year ended December 31, 2004 as compared to approximately $0.1 million for the year ended December 31, 2003, an increase of approximately $0.3 million. This increase was primarily due to the acquisition of Silvue and the resulting recapitalization. The recapitalization resulted in the issuance of approximately $12.8 million of floating rate debt that was outstanding for about a third of fiscal 2004.
~~Provision for income taxes~~
      The provision for income taxes for the year ended December 31, 2004 was approximately $0.8 million as compared to approximately $0.6 million for the year ended December 31, 2003, an increase of approximately $0.2 million or 39.8%. This increase was primarily due to higher taxes related to the increase in pre-tax income.
~~Net income~~
      Net income for the year ended December 31, 2004 was approximately $2.2 million as compared to approximately $1.7 million for the year ended December 31, 2003, an increase of approximately $0.5 million or 28.4%. This increase was primarily due to the increase in operating income as mentioned above partially offset by higher interest expense and provision for income taxes.
~~Liquidity and Capital Resources~~
      The ability of Silvue to satisfy its obligations will depend on its future performance, which will be subject to prevailing economic, financial, business and other factors, most of which are beyond its control. Future capital requirements for Silvue are expected to be provided by cash flows from operating activities and cash on hand at September 30, 2005. As of September 30, 2005 Silvue had approximately $1.3 million in cash and cash equivalents and working capital of approximately $1.8 million. To the extent future capital requirements exceed cash flows from operating activities, Silvue anticipates that:
• ~~working capital will be financed by Silvue’s line of credit facility as discussed below and repaid from subsequent reductions in current assets or from subsequent earnings;~~
• ~~capital expenditures will be financed by the use of the equipment line of credit as described below or from the line of credit facility; and~~
• ~~long-term debt will be refinanced with long-term debt with similar terms.~~
      At September 30, 2005, Silvue had an approximately $2.0 million revolving line of credit. The line of credit facility expires in September 2010. At September 30, 2005, approximately $0.3 million of borrowings was outstanding under the line of credit. Silvue also has a approximately $0.5 million equipment line of credit of which approximately $0.3 million was outstanding of which approximately $0.1 million was classified as current. This facility also expires in September 2010.2006.
At September 30, 2005, Silvue had approximately $14.0 million of long-term debt outstanding of which approximately $1.3 million was classified as current. Approximately $11.3 million of the outstanding amount was incurred as part of the acquisition of Silvue and bears interest based on LIBOR and is due in
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various installments through September 2010. The remaining approximately $2.8 million was incurred as part of the Nippon ARC acquisition. This note which is payable to the former joint venture partner for Nippon ARC is for 400 million Japanese Yen note and is non-interest bearing. Silvue recorded this note by discounting the note using a weighted average interest rate. The note is due in various installments through 2010.
~~Discussion of changes in cash flows for the nine months ended September 30, 2005 versus the nine months ended September 30, 2004~~
      Cash provided by operating activities was approximately $1.8 million in the nine months ended September 30, 2005, compared to cash provided by operating activities of approximately $1.7 million in the nine months ended September 30, 2004. The cash provided by operating activities in the nine months ended September 30, 2005 was attributable to net income of approximately $1.5 million and non-cash charges of approximately $0.7 million partially offset by net changes in operating assets and liabilities of approximately $0.5 million. The impact of changes in operating assets and liabilities may change in further periods, depending on the timing of each period end in relation to items such as internal payroll and billing cycles, payments from customers, payments to vendors and interest payments. The cash provided by operating activities in the nine months ended September 30, 2004 was attributable to net income of approximately $1.5 million, non-cash charges of approximately $0.3 million and net changes in operating assets and liabilities of approximately $0.2 million. The non-cash charges consist of depreciation and amortization, bad debt expense, gains on sales of plant and equipment and on foreign currency translations and equity in net income of a joint venture.Our Manager
Cash provided by investing activities was approximately $0.1 million in the nine months ended September 30, 2005, compared to cash used in investing activities of approximately $8.2 million in the nine months ended September 30, 2004. Cash provided by investing activities in the nine months ended September 30, 2005 included approximately $0.1 million from the sale of assets and approximately $0.1 million of cash acquired as part of the acquisition of Nippon ARC, partially offset by the purchase of approximately $0.1 million of equipment. Cash used in investing activities in the nine months ended September 30, 2004 included approximately $8.0 million related to the acquisition of Silvue by a subsidiary of CGI and approximately $0.2 million in purchases of property, plant and equipment.
      Cash used in financing activities was approximately $1.6 million for the nine months ended September 30, 2005 as compared to cash provided by financing activities of approximately $4.4 million for the nine months ended September 30, 2004. Cash used in financing activities in the nine months ended September 30, 2005 related exclusively to principal payments of long-term debt. Cash provided by financing activities in the nine months ended September 30, 2004 related to the capital contribution of approximately $7.5 million made in conjunction with the acquisition of Silvue by CGI, partially offset by dividends paid to the former shareholders of approximately $3.0 million and the principal payments of long term debt of approximately $0.1 million.
~~Discussion of changes in cash flows for the fiscal year ended December 31, 2004 versus the fiscal year ended December 31, 2003~~
      Cash provided by operating activities was approximately $2.4 million for the year ended December 31, 2004, as compared to cash provided by operating activities of approximately $1.9 million for the year ended December 31, 2003. The cash provided by operating activities in the year ended December 31, 2004 was attributable to a net income of approximately $2.2 million and non-cash charges of approximately $0.4 million, partially offset by net changes in operating assets and liabilities of approximately $0.2 million. The cash provided by operating activities in year ended December 31, 2003 was attributable to net income of approximately $1.7 million and non-cash charges of approximately $0.3 million partially offset by net changes in operating assets of approximately $0.1 million. The non-cash charges consist of depreciation and amortization, bad debt expense, obsolescence reserves, deferred income tax expenses, foreign currency translations and equity in net income of a joint venture.
      Cash used in investing activities was approximately $8.0 million in the year ended December 31, 2004 as compared to cash used in investing activities of approximately $0.1 million in year ended December 31,
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2003. Cash used in investing activities in the year ended December 31, 2004 consisted primarily of approximately $8.1 million related to the acquisition of Silvue by CGI and approximately $0.2 million from the purchase of assets. These uses were partially offset by dividends received from Nippon ARC of approximately $0.4 million. Cash used in investing activities in the year ended December 31, 2003 was due primarily to the purchase of approximately $0.3 million of property plant and equipment partially offset by approximately $0.2 million in dividends received from Nippon ARC.
      Cash provided by financing activities was approximately $3.4 million for the year ended December 31, 2004 as compared to cash used in financing activities of approximately $1.0 million for the year ended December 31, 2003. Cash provided by financing activities in the year ended December 31, 2004 was principally due to a capital contribution made in conjunction with the acquisition of Silvue by CGI. This capital contribution was partially offset by dividends paid to Silvue’s former shareholders of approximately $3.0 million and by the payment of long-term debt of approximately $1.0 million. Cash used in financing activities in the year ended December 31, 2003 was mainly as a result of dividends of approximately $0.4 million, payments on Silvue’s credit line of approximately $0.3 million, payments on Silvue’s equipment line of approximately $0.2 million and payments of long-term debt of approximately $0.1 million.
~~Commitments and Contingencies~~
      Silvue’s principal commitments at September 30, 2005 consisted primarily of its commitments related to the long-term debt incurred as part of the acquisition of Silvue and for the acquisition of Nippon ARC and for obligations incurred under operating leases.
      ~~The following table summarizes Silvue’s significant contractual obligations for the repayment of debt and payment of other contractual obligations as of September 30, 2005.~~

Payments Due by Period

Less than More than
Total 1 Year 1-3 Years 3-5 Years 5 Years

($ in thousands)
Long-term debt^(a)
$ 14,343 $ 1,369 $ 5,221 $ 7,752 $ —
Operating lease obligations $ 1,310 $ 418 $ 442 $ 293 $ 157

Total contractual cash obligations
$ 15,653 $ 1,787 $ 5,663 $ 8,046 $ 157

^(a) — ~~Includes borrowings under Silvue’s equipment line of credit.~~
     ~~In December 2004, Silvue~~We have entered into ~~an interest rate swap~~a management services agreement to manage its exposure to interest rate movements in its variable rate debt. Silvue pays interest at a fixed rate of 3.6% and receives interest from the counter-party at three month LIBOR (2.56% at December 31, 2004). The notional principal amount was approximately $8.5 million at December 31, 2004 and decreases to $4.4 million over the term of the agreement. The agreement terminates on September 30, 2007.
      Silvue believes that, for the foreseeable future, it will have sufficient cash resources to meet the commitments described above and for current anticipated working capital and capital expenditure requirements. Silvue’s future liquidity and capital requirements will depend upon numerous factors, including retention of customers at current volume and net sales levels, ability to refinance long-term debt at acceptable terms and competing technological and market developments.
~~Quantitative and Qualitative Disclosures about Market Risk~~
~~Currency Risk Exposure~~
      Silvue is exposed to currency risk on cash flows it receives from operations located outside of the United States (principally in Japan and the United Kingdom) and on the translation of earnings. Silvue’s current policy is not to hedge the currency risk associated with ~~foreign currency denominated income and~~
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cash flows, due to the size and uncertain timing of the distributions that Silvue expects to receive. Foreign currency translation losses were approximately $0.1 million and $0.1 million, during the nine months ended September 30, 2005 and for the fiscal year ended December 31, 2004, respectively, and are reflected in accumulated other comprehensive loss. Silvue had approximately $1.8 million of assets located overseas.
~~Interest Rate Exposure~~
      Silvue is exposed to interest rate risk primarily through its Bank equipment and revolving credit facilities and on its Bank Note Payables since these instruments all pay interest based off of variable interest rates. At September 30, 2005, Silvue had outstanding borrowings under these debt instruments that totaled approximately $11.3 million. In the event that interest rates associated with these instruments were to increase by 100 basis points, the impact on future cash flows would be a decrease of approximately $0.1 million annually.
      Silvue also selectively uses derivative financial instruments to manage its exposure to interest rate movements on its variable rate debt. See the section entitled “— Other” above for a description of the interest rate swap agreement.
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~~BUSINESS~~
~~Overview~~
      We have been formed to acquire and manage a group of small to middle market businesses with stable and growing cash flows that are headquartered in the United States. Through our structure, we offer investors an opportunity to participate in the ownership and growth of businesses that traditionally have been owned and managed by private equity firms, private individuals or families, financial institutions or large conglomerates. Through the acquisition of a diversified group of businesses with these characteristics, we also offer investors an opportunity to diversify their own portfolio risk while participating in the ongoing cash flows of those businesses through the receipt of distributions.
      We will seek to acquire controlling interests in businesses that we believe operate in industries with long-term macroeconomic growth opportunities, and that have positive and stable cash flows, face minimal threats of technological or competitive obsolescence and have strong management teams largely in place. We believe that private company operators and corporate parents looking to sell their businesses may consider us an attractive purchaser of their businesses because of our ability to:
• ~~provide ongoing strategic and financial support for their businesses;~~
• ~~maintain a long-term outlook as to the ownership of those businesses where such an outlook is required for maximization of our shareholders’ return on investment; and~~
• ~~consummate transactions efficiently without being dependent on third-party financing on a transaction-by-transaction basis.~~
      In particular, we believe that our ability to be long-term owners will alleviate the concern that many private company operators and parent companies may have with regard to their businesses going through multiple sale processes in a short period of time or the potential that their businesses may be sold at unfavorable points in the overall market cycle. In addition, we believe that our ownership outlook provides us the significant opportunity for, and advantage of, developing a comprehensive strategy to grow the earnings and cash flows of our businesses, which we expect will better enable us to meet our long-term objective of growing distributions to our shareholders and increasing shareholder value.
      We will use approximately $315 million of the proceeds of this offering and the related transactions to retire the third-party debt of, and acquire controlling interests in, the following businesses, whichCompass Group Management LLC, who we refer to as our manager or CGM, pursuant to which our manager manages theday-to-day operations and affairs of the ~~initial businesses, from certain subsidiaries~~company and oversees the management and operations of our businesses. While working for a subsidiary of Compass Group Investments, Inc., which we refer to as CGI, ~~as well as certain minority owners~~our management team originally oversaw the acquisition and operations of ~~such businesses:~~
• ~~CBS Personnel Holdings, Inc. and its consolidated subsidiaries, which we refer to as CBS Personnel, a human resources outsourcing firm;~~
• ~~Crosman Acquisition Corporation and its consolidated subsidiaries, which we refer to as Crosman, a recreational products company;~~
• ~~Compass AC Holdings, Inc. and its consolidated subsidiary, which we refer to as Advanced Circuits, an electronic components manufacturing company; and~~
• ~~Silvue Technologies Group, Inc. and its consolidated subsidiaries, which we refer to as Silvue, a global hardcoatings company.~~
      We believe that our initial businesses operate in strong markets and have defensible market shares and long-standing customer relationships. As a result, we also believe that our initial businesses should produce stable growth in earnings and long-term cash flows to meet our objective of growing distributions to our shareholders and increasing shareholder value.
      ~~We intend to acquire a controlling interest in~~ each of our initial businesses ~~in conjunction with the closing of this offering. The acquisitions will be subject to certain closing conditions that will need to be~~
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~~satisfied~~and Anodyne prior to ~~this offering. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for further information about the acquisition of~~ our ~~initial businesses.~~
~~Our Manager~~acquiring them from CGI.
We will engage our manager to manage the day-to-day operations and affairs of the company and to execute our strategy, as discussed below. Our manager will initially consist of at least nine experienced professionals, which we refer to as our management team. Our management team, while working for a subsidiary of CGI, acquired our initial businesses and has overseen their operations prior to this offering. Our management team has worked together since 1998. Collectively, our management team has approximately 74 years of experience in acquiring and managing small and middle market businesses. We believe our manager is unique in the marketplace in terms of the success and experience of its employees in acquiring and managing diverse businesses of the size and general nature of our initial businesses. We believe this experience will provide us with a significant advantage in executing our overall strategy.
      Our manager will own 100% of the management interests of the company. The company and our manager will enter into a management services agreement pursuant to which our manager will manage the day-to-day operations and affairs of the company and will oversee the management and operations of our businesses. We ~~will~~ pay our manager a quarterly management fee equal to 0.5% (2.0% annualized) of our adjusted net assets as of the last day of each fiscal quarter for the services ~~performed by~~it performs on our ~~manager.~~behalf. In addition, our manager ~~will~~is entitled to receive a profit allocation upon the occurrence of certain trigger events and has the

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right to cause the company to purchase the allocation interests that it owns upon termination of the management services agreement. See “Our Manager — Our Relationship with ~~respect to its management interests in the company. See the sections entitled “Management Services~~our Manager” and “— Supplemental Put Agreement” and ~~“Description of Shares”~~“Certain Relationships and Related Party Transactions” for further descriptions of the management fees and profit allocation ~~to be paid to~~and our ~~manager.~~manager’s supplemental put right.

The company’s ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer will be~~chief financial officer are employees of our manager and ~~will be~~have been seconded to ~~the company.~~us. Neither the trust nor the company ~~will have~~has any other employees. Although our ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer will be~~chief financial officer are employees of our manager, they ~~will~~ report directly to the company’s board of directors. The management fee paid to our manager ~~will cover~~covers all expenses related to the services performed by our manager, including the compensation of our ~~Chief Executive Officer~~chief executive officer and other personnel providing services to ~~us pursuant to the management services agreement. However, the~~us. The company ~~will reimburse~~reimburses our manager for the salary and related costs and expenses of our ~~Chief Financial Officer~~chief financial officer and his ~~staff. See~~staff, who dedicate 100% of their time to the ~~section entitled “Management” for more information about our Chief Executive Officer and Chief Financial Officer.~~
      CGI and Pharos have each agreed, in conjunction with the closing of this offering, to acquire shares at the initial public offering price for an aggregate purchase price of $96 million and $4 million, respectively. See the section entitled “— Corporate Structure” below for more information about these investments. Pharos is owned and controlled by employeesaffairs of the manager. CGI is wholly owned by the Kattegat Trust, whose sole beneficiary is a philanthropic foundation established by the late J. Torben Karlshoej, the founder of Teekay Shipping. Teekay Shipping is the world’s largest crude oilcompany. See “Our Manager — Our Relationship with our Manager and ~~petroleum product marine transportation company with 16 worldwide offices~~“Certain Relationships and ~~approximately $3 billion in market capitalization.~~Related Party Transactions.”
Market Opportunity
~~We will seek to acquire and manage small to middle market businesses. We characterize small to middle market businesses as those that generate annual cash flows of up to $40 million.~~
We believe that the merger and acquisition market for ~~small to~~ middle market businesses is highly fragmented and provides ~~more~~ opportunities to purchase businesses at attractive prices. For example, according to Mergerstat, during the twelve month period ended ~~September 30, 2005,~~December 31, 2006, businesses that sold for less than $100 million were sold for a median of approximately ~~6.7x~~7.9x the trailing twelve months of earnings before interest, taxes, depreciation and amortization ~~versus~~as compared to a median of approximately ~~9.8x~~9.3x for businesses that
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were sold for between $100 million and $300 million and 11.7x for businesses that were sold for over $300 million. We expect to acquire companies in the first two categories described above, and our manager has, to date, typically been successful in consummating attractive acquisitions at multiples at or below 7x the trailing twelve months of earnings before interest, taxes, depreciation and amortization, both on behalf of the company and prior to our formation while working for a subsidiary of CGI. We believe that among the ~~following~~ factors ~~contribute~~contributing to lower acquisition multiples for ~~small~~businesses of the size we target are the fact that sellers of these frequently consider non-economic factors, such as continuing board membership or the effect of the sale on their employees and customers and that these businesses are less frequently sold pursuant to ~~middle market businesses:~~an auction process.
• ~~there are fewer potential acquirers for these businesses;~~
• ~~third-party financing generally is less available for these acquisitions;~~
• ~~sellers of these businesses frequently consider non-economic factors, such as continuing board membership or the effect of the sale on their employees; and~~
• ~~these businesses are less frequently sold pursuant to an auction process.~~
      ~~We believe that our~~Our management team’s strong relationship with business brokers, investment and commercial bankers, accountants, attorneys and other potential sources of acquisition opportunities offers us substantial opportunities to purchase ~~small to~~ middle market businesses.
~~We also believe that significant opportunities exist to augment the management teams and improve the performance of the businesses upon their acquisition.~~
In the past, our management team has acquired businesses that ~~are often formerly~~were owned by ~~seasoned~~ entrepreneurs or large corporate parents. In these cases, our management team has frequently found that there have been opportunities to ~~further build upon~~improve the operating performance of these businesses by augmenting the management teams, ~~of acquired businesses beyond those in existence at~~enhancing the ~~time of acquisition. In addition, our management team has frequently found that~~ financial reporting and management information systems ~~of acquired businesses may be improved, both of which can lead to substantial improvements in earnings and cash flow. Finally, because these businesses tend to be too small to have their own~~and/or bolstering corporate development efforts ~~we believe opportunities exist~~ to ~~assist~~help these businesses ~~in meaningful ways as they~~ pursue organic or external growth ~~strategies that were often not pursued by their previous owners.~~strategies.
Our Strategy
~~We have two primary strategies that we will use in~~
In seeking to ~~grow distributions to our shareholders and increase~~maximize shareholder ~~value. First,~~value, we ~~will~~ focus on ~~growing~~ the ~~earnings~~acquisition of new platforms and ~~cash flow from our businesses. We believe that~~ the ~~scale and scope~~management of our ~~initial~~existing businesses ~~give us a diverse base~~(including acquisition of ~~cash flow from which~~add-on businesses by those existing businesses). While we continue to further build the company. Importantly, we believe that our initial businesses alone will allow us to generate distributions to our shareholders, independent of whether we acquire any additional businesses in the future. Second, we will identify, perform due diligence on, negotiate and consummate additional platform acquisitions of ~~small to~~attractive middle market businesses ~~in attractive industry sectors.~~
~~Management Strategy~~
      ~~Our management strategy involves the financial~~that meet our acquisition criteria, we believe that our current businesses alone will allow us to pay and ~~operational management of the businesses that we own in a manner that seeks to~~ grow distributions to our ~~shareholders and increase shareholder value. In general, our manager will oversee and support the management teams of each of our businesses by, among other things:~~
• ~~recruiting and retaining talented managers to operate our businesses by using structured incentive compensation programs, including minority equity ownership, tailored to each business;~~
• ~~regularly monitoring financial and operational performance;~~
• ~~instilling consistent financial discipline;~~
• ~~assisting management in their analysis and pursuit of prudent organic growth strategies; and~~
• ~~working with management to identify possible external growth strategies and acquisition opportunities.~~
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      Specifically, while our businesses have different growth opportunities and potential rates of growth, we expect our manager to work with the management teams of each of our businesses to increase the value of, and cash generated by, each business through various initiatives, including:
• ~~making selective capital investments to expand geographic reach, increase capacity, or reduce manufacturing costs of our businesses;~~
• ~~investing in product research and development for new products, processes or services for customers;~~
• ~~improving and expanding existing sales and marketing programs;~~
• ~~pursuing reductions in operating costs through improved operational efficiency or outsourcing of certain processes and products; and~~
• ~~consolidating or improving management of certain overhead functions.~~
      ~~Our businesses may also acquire and integrate complementary businesses. We believe that complementary acquisitions will improve our overall financial and operational performance by allowing us to:~~
• ~~leverage manufacturing and distribution operations;~~
• ~~leverage branding and marketing programs, as well as customer relationships;~~
• ~~add experienced management or management expertise;~~
• ~~increase market share and penetrate new markets; and~~
• ~~realize cost synergies by allocating the corporate overhead expenses of our businesses across a larger number of businesses and by implementing and coordinating improved management practices.~~
      We intend to incur debt financing primarily at the company level, which we may use, in combination with our equity capital, to provide debt financing to each of our businesses or to acquire additional businesses. We believe this financing structure will be beneficial to the financial and operational activities of each of our businesses by aligning our interests as both equity holders of, and a lender to, our businesses in a fashion that we believe is more efficient than our businesses borrowing from third-party lenders.shareholders.
~~Pursuant to this~~
Acquisition Strategy
Our strategy ~~we expect to be able to, over the long-term, grow distributions to our shareholders and increase shareholder value.~~
~~Acquisition Strategy~~
      ~~Our acquisition strategy~~for new platforms involves the acquisition of businesses that we expect ~~will produce stable growth~~to be accretive to our cash flow available for distribution. An ideal acquisition candidate for us is a North American company which demonstrates a “reason to exist”, that is, it is a leading player in ~~earnings~~its market niches, has predictable and growing cash flows, ~~as well as achieve attractive returns on our investment. In this respect, we expect to make acquisitions~~operates in ~~industries other than those in which our initial businesses currently operate if we believe~~ an ~~acquisition presents an attractive opportunity.~~industry with long-term macroeconomic growth and has a strong and

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incentivizable management team. We believe that attractive opportunities to make such acquisitions will ~~increasingly~~continue to present themselves, as private sector owners seek to monetize their interests ~~in longstanding and privately-held businesses~~ and large corporate parents seek to dispose of their ~~“non-core”~~non-core operations.
We ~~expect to~~ benefit from our manager’s ability to identify potential diverse acquisition opportunities in a variety of industries. In addition, we ~~intend to~~ rely upon our management team’s ~~extensive~~ experience and expertise in researching and valuing prospective target businesses, as well as negotiating the ultimate acquisition of such target businesses. In particular, because there may be a lack of information available about these target businesses, which may make it more difficult to understand or appropriately value such target businesses, we expect our manager will:
• ~~engage in a substantial level of internal and third-party due diligence;~~
• ~~critically evaluate the management team;~~
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Management Strategy
• ~~identify and assess any financial and operational strengths and weaknesses of any target business;~~
• ~~analyze comparable businesses to assess financial and operational performances relative to industry competitors;~~
• ~~actively research and evaluate information on the relevant industry; and~~
• ~~thoroughly negotiate appropriate terms and conditions of any acquisition.~~
~~We expect the process of acquiring new businesses to be time-consuming and complex.~~
Our management ~~team historically has taken from 2~~strategy involves our active financial and operational management of our businesses in order to ~~24 months to perform due diligence, negotiate~~improve financial and close acquisitions. Although we expect our management team to be at various stages of evaluating several transactions at any given time, there may be significant periods of time during which our management team does not recommend any new acquisitions to us.
      ~~Upon acquisition of~~operational efficiencies and achieve appropriate growth rates. After acquiring a controlling interest in a new business, we ~~intend to~~ rely on our management team’s experience and expertise to work efficiently and effectively with the management of the new business to jointly develop and execute a business ~~plan.~~
      ~~While we will primarily seek~~plan and to ~~acquire controlling interests in a~~manage the business ~~we may also acquire non-control or minority equity positions in businesses where we believe it is~~ consistent with our ~~long-term~~management strategy.
      As discussed in more detail below, we intend to raise capital for additional acquisitions primarily through debt financing at the company level, additional equity offerings by the trust, the sale of all or a part of our businesses or by undertaking a combination of any of the above.
In addition, ~~to acquiring businesses,~~ we expect to ~~also~~ sell businesses that we own from time to time when attractive opportunities arise. Our decision to sell a business ~~will be~~is based on our belief that ~~the return on the investment~~doing so will increase shareholder value to a greater extent than would continued ownership of that business. Our sale of Crosman is an example of our ~~shareholders that would be realized by means of such a sale is more favorable than the returns that may be realized through continued ownership. Upon~~ability to successfully execute this strategy. With respect to the sale of Crosman, we recognized a ~~business, we may use~~gain of $35.9 million, having owned Crosman for under eight months and having earned operating income of $13.3 million through December 31, 2006.
In general, our manager oversees and supports the ~~resulting proceeds to retire debt or build cash for future acquisitions or general corporate purposes. Generally, we do not expect to make special distributions at the time~~management teams of ~~a sale of one~~each of our ~~businesses; instead, we expect that we will seek to gradually increase shareholder distributions over time.~~businesses by, among other things:
~~Strategic Advantages~~• recruiting and retaining talented managers to operate our businesses by using structured incentive compensation and equity ownership programs tailored to each business;
• regularly monitoring financial and operational performance, instilling consistent financial discipline, and supporting management in the development and implementation of information systems to effectively achieve these goals;
• assisting management in their analysis and pursuit of prudent organic growth strategies, potentially involving capacity-related capital expenditures, introduction of new products or services, or expansion of sales or marketing programs; and
• forming strong subsidiary level boards of directors to supplement management in their development and implementation of strategic goals and objectives.
~~In conjunction with the closing of this offering, all of the employees of The Compass Group will resign and become employees~~
A critical component of our ~~manager~~management strategy involves the acquisition and ~~comprise~~integration of add-on businesses. Acquisitions of add-on businesses can be an effective way of improving financial and operational performance by allowing us to:
• leverage manufacturing and distribution operations;
• capitalize on existing branding and marketing programs, as well as customer relationships;
• increase market share and penetrate new markets;
• realize cost synergies, effectively reducing the multiple paid for the add-on acquisition target; and
• add experienced management or management expertise;
We incur third-party debt financing almost entirely at the company level, which we use, in combination with our equity capital, to provide debt financing to each of our businesses or to acquire additional businesses. We believe this financing structure is beneficial to the financial and operational activities of each of our businesses by allowing our businesses to have maximum flexibility in pursuing opportunities for growth, whether organically or through acquisitions.
As a final component of our management ~~team.~~ strategy, we expect to sell businesses that we own from time to time when attractive opportunities arise. Our decision to sell a business is based on our belief that doing so will increase shareholder value to a greater extent than through continued ownership of that business.

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Through the sale process, we work with third party service providers to identify appropriate buyers, maximize valuation and optimize terms to us as sellers.
Strategic Advantages
Based on the experience of our management team and its ability to identify and negotiate acquisitions, we ~~expect to be strongly~~believe we are positioned to acquire, on favorable terms, additional ~~businesses.~~businesses that will increase our cash flows. Our management team has strong relationships with thousands of accountants, attorneys, business brokers, commercial and investment ~~and commercial~~ bankers ~~accountants, attorneys~~ and other potential sources of acquisition ~~opportunities.~~ opportunities which it has cultivated over the years, and which it maintains through consistent contact. Through this network, as well as our management team’s proprietary transaction sourcing efforts, we have a substantial pipeline of potential acquisition targets.
In addition, ~~we believe~~ our management team, ~~also~~both while working for our manager and while working with a subsidiary of CGI prior to our formation, has a successful track record of ~~acquiring~~ and ~~managing small to~~a reputation for acquiring middle market businesses ~~including our initial businesses,~~ in various ~~industries. In negotiating these acquisitions, we believe~~industries through a variety of processes. These include, in some cases on behalf of CGI prior to our ~~management team has been able to successfully navigate complex situations surrounding acquisitions, including~~formation, corporate spin-offs (Silvue), transitions of family-owned businesses (CBS Personnel and Aeroglide), management buy-outs (ACI), management basedroll-ups (Anodyne), auction-based acquisitions from financial owners (Halo), reorganizations and ~~reorganizations.~~
      We believe that the cash flows of our initial businesses will support quarterly distributions to our shareholders and that any future sales of our businesses will provide additional long-term shareholder returns. Accordingly, we believe that we will be able to focus our resources on producing stable growth in our earnings and long-term cash flows so that we can achieve our long-term objective of growing distributions to shareholders and increasing shareholder value.
      ~~We expect that the~~bankruptcy sales. The flexibility, creativity, experience and expertise of our management team in structuring complex transactions ~~will provide~~provides us with strategic advantages by allowing us to consider non-traditional and complex transactions tailored to fit a specific acquisition ~~target. Likewise,~~targets.
Finally, because ~~we intend~~our model is to fund both the equity and debt required to consummate acquisitions ~~by means other than third-party financing relating~~through the utilization of our revolving credit facility, we expect to ~~a specific acquisition, we do not expect~~
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~~to be subject to~~eliminate the cumbersome delays ~~in or~~and closing conditions ~~to closing acquisitions~~ that ~~would be~~are typically associated with transaction-specific financing, as is typically the case in such acquisitions.
      ~~Our management team also has~~ We believe this advantage is a large network of over 2,000 deal intermediaries who we expect to expose us to potential acquisitions. Through this network, as well as our management team’s proprietary transaction sourcing efforts, we expect to have a substantial pipeline of potential acquisition targets. Our management team also has a well established network of contacts, including professional managers, attorneys, accountantspowerful one and ~~other third-party consultants and advisors, who may be available to assist us~~is highly unusual in the ~~performance of due diligence~~marketplace in which we operate.
Valuation and ~~the negotiation of acquisitions, as well as the management and operation of our businesses once acquired.~~Due Diligence
~~In addition, through its affiliation with Teekay Shipping, CGI has a global network of relationships with both financial and operational managers and third-party service providers.~~
~~Valuation and Due Diligence~~
When evaluating businesses or assets for acquisition, ~~we will undertake~~our management team performs a rigorous due diligence and financial evaluation process. In doing so, ~~we will seek to evaluate~~our management team evaluates the operations of the target business as well as the outlook for the industry in which the target business operates. While valuation of a business is, by definition, a subjective process, we perform valuations using a variety of analyses, including discounted cash flow analyses, development of expected value matrices, and evaluation of comparable trading and transaction values.
One outcome of this process is ~~an effort to project~~a projection of the expected cash flows from the target ~~business as accurately as possible.~~business. A further outcome is an understanding of the types and levels of risk associated with those projections. While future performance and projections are always uncertain, we believe that with a detailed due diligence, ~~review,~~ future cash flows ~~may~~will be better estimated and the prospects for operating the business in the future better evaluated. To assist us in identifying material risks and validating key assumptions in our financial and operational analysis ~~in addition to our own analysis,~~ we ~~intend to~~ engage third-party experts to review key risk areas, including legal, tax, regulatory, accounting, insurance and environmental. We ~~may~~ also engage technical, operational or industry consultants, as necessary.

A ~~further~~ critical component of the evaluation of potential target businesses ~~will be~~is the assessment of the capability of the existing management team, including recent performance, expertise, experience, culture and incentives to perform. Where necessary upon acquisition, and consistent with our management strategy, we ~~will~~ actively seek to augment, supplement or replace existing members of management who we believe are not likely to execute ~~the~~our business plan for the target business. Similarly, we ~~will~~ analyze and evaluate the financial and operational information systems of target businesses and, where necessary upon acquisition, we ~~will actively seek to~~ enhance and improve those existing systems that are deemed to be inadequate or insufficient to support our business plan for the target business. In both of these cases, ownership of a controlling interest in these businesses is an important factor in implementing necessary changes.

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Financing
~~Financing~~
      ~~At the closing of this offering, our capital will consist of proceeds from this offering and a third-party credit facility of approximately $           million.~~ We ~~will~~intend to finance future acquisitions ~~primarily~~first, through excess cash on hand; second, through our revolving credit facility; and third, as necessary, from additional equity ~~and~~or debt financings. Cash flow available for distribution that is not utilized to pay distributions to our shareholders is either added to cash on hand or used to repay amounts owed under the revolving credit facility, increasing availability under that facility. In this way, this excess cash available for distribution is ultimately reinvested in the long-term growth of the Company.
We believe that having the ability to finance ~~most, if not all, acquisitions with the general capital resources raised by our company,~~an entire transaction ourselves, rather than through transaction-specific third-party financing, ~~relating to the acquisition of individual businesses,~~ provides us with an important and unusual strategic advantage in acquiring attractive businesses by ~~minimizing~~enabling us to eliminate the delay and closing conditions ~~that are often related~~inherent to ~~acquisition-specific~~transaction-specific financings. ~~In this respect, we~~We further believe that ~~at some point~~being both the lender to and controlling equity owner of our businesses provides those businesses with the flexibility required to pursue interesting growth opportunities both organically and externally, as well as provides us with the maximum security and ability to mitigate risk in the ~~future, we may need to pursue~~case of industry or company underperformance.
We have a ~~debt or equity financing, or offer equity in the trust or target businesses to the sellers of such target businesses, in order to fund acquisitions.~~
      We intend to leverage our individual businesses primarily with debt financing provided by the company. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for more information regarding the loans that the company will make to each of our initial businesses. In addition to using ourrevolving credit facility ~~to fund future acquisitions, we may use the~~with a group of lenders led by Madison. The revolving credit facility was entered into in November 2006 and matures in November 2011. It provides for a revolving line of credit of up to ~~fund other corporate cash needs, including distributions to our shareholders.~~
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~~Corporate Structure~~
      ~~We are selling                      shares of~~$255 million with an option for a $45 million increase. The revolving credit facility is secured by all the ~~trust, each representing one undivided beneficial interest in the trust. The purpose of the trust is to hold 100% of the non-management interests~~assets of the company ~~which is one of two classes of~~including all its equity interests in ~~the company that will be~~and loans to our subsidiaries. As of February 28, 2007, we had $94.5 million outstanding ~~following this offering. The trust has the authority to issue shares in one or more series. Each beneficial~~under our revolving credit facility. Amounts outstanding under our revolving credit facility bear interest in the trust corresponds to one non-management interest of the company. We refer to the other class of equity interest in the company as the management interests. As described above, our manager will own 100% of the management interests. See the section entitled “Description of Shares” for more information about the shares, non-management interests and management interests.
      ~~CGI and Pharos have agreed to purchase, in conjunction with the closing of this offering in separate private placement transactions, the number of shares,~~ at a fluctuating rate per ~~share price~~annum equal to the ~~initial public offering price, having~~greater of (i) the prime rate of interest published by the Wall Street Journal and (ii) the sum of the Federal Funds Rate plus 0.5% for the relevant period, plus a ~~purchase price~~margin ranging from 1.50% to 2.50% based upon the company’s ratio of ~~$96 million~~total debt to adjusted consolidated earnings before interest expense, tax expense, and ~~$4 million, respectively. See~~depreciation and amortization expenses for such period (the “total debt to EBITDA ratio”). LIBOR loans bear interest at a fluctuating rate per annum equal to the ~~section entitled “Certain Relationships~~London Interbank Offer Rate, or LIBOR, for the relevant period plus a margin ranging from 2.50% to 3.50% based on the company’s total debt to EBITDA ratio. We are required to pay commitment fees ranging between 0.75% and ~~Related Party Transactions” for more information regarding~~1.25% per annum on the terms and conditions relating to these transactions. As a result of this investment, CGI and Pharos will have an approximately      % and      % interest in the trust, respectively, immediately following this offering.
      ~~In connection with this offering, the company will use a~~unused portion of the ~~proceeds from this offering~~revolving credit facility. Simultaneous with entering into the revolving credit facility on November 21, 2006, we terminated our prior financing arrangement, a $225 million secured credit facility with Ableco Finance, LLC and ~~the related transactions to acquire from the sellers:~~
• ~~approximately 98.1% of CBS Personnel on a primary and approximately 95.6% on a fully diluted basis;~~
• ~~approximately 75.4% of Crosman on a primary and fully diluted basis;~~
• ~~approximately 85.7% of Advanced Circuits on a primary basis and approximately 73.2% on a fully diluted basis; and~~
• ~~approximately 73.0% of Silvue on a primary and fully diluted basis, after giving effect to the conversion of preferred stock of Silvue that we will acquire.~~
      See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for more information about the calculation of the percentage of equity interest we are acquiring of each initial business. Following the closing of this offering, the remaining equity interests in each initial business will be held by the senior management of each of our initial businesses, as well as certain other ~~minority shareholders.~~lenders.
The board of directors of the company will oversee the management of each initial business and the performance by our manager and, initially, will be composed of seven directors, all of whom will be appointed by our manager as holder of the management interests. Following this initial appointment, six of the directors will be elected by our shareholders, four of whom will be the company’s independent directors.
      As holder of the management interests, our manager will have the right to appoint one director to the company’s board of directors commencing with the first annual meeting following the closing of this offering. Our manager’s appointed director on the company’s board of directors will not be required to stand for election by the shareholders. See the section entitled “Description of Shares — Voting and Consent Rights — Board of Directors Appointee” for more information about the manager’s right to appoint directors.
~~Company Loans and Financing Commitments to Our Initial Businesses~~Corporate Information
In connection with this offering, the company will use a portion of the proceeds of this offering and the related transaction to make loans and financing commitments to each of our initial businesses as follows:
• ~~Approximately $70.2 million to CBS Personnel. The $70.2 million is comprised of approximately $64.0 million in term loans, approximately $31.2 million of which will be used to pay down third~~
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party debt and approximately $32.8 million of which represents a capitalization loan and, therefore, considered part of the purchase price of equity interests in CBS Personnel, and an approximately $42.5 million revolving loan commitment, approximately $6.2 million of which will be funded to CBS Personnel in conjunction with the closing of this offering.
• Approximately $50.1 million to Crosman. The $50.1 million is comprised of approximately $47.8 million in term loans and an approximately $15.0 million revolving loan commitment, approximately $2.3 million of which will be funded to Crosman in conjunction with the closing of this offering.
• Approximately $51.3 million to Advanced Circuits. The $51.3 million is comprised of approximately $50.5 million in term loans and an approximately $4.0 million revolving loan commitment, approximately $0.8 million of which will be funded to Advanced Circuits in conjunction with the closing of this offering.
• Approximately $14.7 million to Silvue. The $14.7 million is comprised of approximately $14.3 million in term loans and an approximately $4.0 million revolving loan commitment, approximately $0.4 million of which will be funded to Silvue in conjunction with the closing of this offering.
      The term loans will be comprised of a senior secured term loan and a senior subordinated secured term loan. The term loans will be used to refinance all of the third party debt outstanding at each of our initial businesses immediately prior to the offering and, in certain cases, to capitalize our initial business. The revolving loans will also be secured and will be used to provide a source of working capital for each of our initial businesses, as necessary. The aggregate principal amount of term loans and the revolving loan commitments will be adjusted to give effect to payments made by or other borrowings of each initial business from September 30, 2005 until the closing of this offering. In addition, the aggregate principal amount of the term loan and revolving loan commitment to CBS Personnel will be adjusted to achieve a specific leverage with respect to CBS Personnel. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for more information regarding the loans and commitments made by the company to each initial business.
~~Corporate Information~~
Compass Diversified Trust is a Delaware statutory trust formed on November 18, 2005. Compass Group Diversified Holdings LLC is a Delaware limited liability company formed on November 18, 2005. Our principal executive offices are located at Sixty One Wilton Road, Second Floor, Westport, Connecticut 06880, and our telephone number is203-221-1703. Our website is at www.CompassDiversifiedTrust.com. The information on our website is not incorporated by reference and is not part of this prospectus.
~~Acquisition of~~ Our ~~Initial~~ Businesses
We will enter into a stock purchase agreement with CGI, certain of CGI’s subsidiaries and certain other investors to acquire a controlling interest in our initial businesses in conjunction with the closing of this offering. The acquisitions will be subject to certain closing conditions and will be contingent upon each other. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for further information about the acquisitions of our initial businesses. The management and board of directors of our initial businesses will continue to operate their respective business on a day-to-day basis following our acquisition. We discuss each of our initial businesses below.
~~CBS Personnel~~
~~Overview~~
      CBS Personnel, headquartered in Cincinnati, Ohio, is a leading provider of temporary staffing services in the United States. In order to provide its clients with a comprehensive solution to their human
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resources needs, CBS Personnel also offers employee leasing services, permanent staffing and temporary-to-permanent placement services. CBS Personnel operates 136 branch locations in various cities in 18 states and seeks to have a dominant market share in each city in which it operates. CBS Personnel and its subsidiaries have been associated with quality service in their markets for more than 30 years.
      CBS Personnel serves over 3,000 corporate and small business clients and on an average week places over 21,000 temporary employees in a broad range of industries, including manufacturing, transportation, retail, distribution, warehousing, automotive supply, construction, industrial, healthcare and financial sectors. We believe the quality of CBS Personnel’s branch operations and its strong sales force provide CBS Personnel with a competitive advantage over other placement services. CBS Personnel’s senior management, collectively, has approximately 50 years of experience in the human resource outsourcing industry and other closely related industries.
      For the nine months ended September 30, 2005 and the fiscal year ended December 31, 2004, temporary staffing generated approximately 96.9% and 96.8%, respectively, of CBS Personnel’s revenues, while the employee leasing and temporary-to-permanent staffing and permanent placement accounted for the remaining revenues. For the nine months ended September 30, 2005 and September 30, 2004, CBS Personnel had revenues of approximately $405.5 million and $179.3 million, respectively, and net income, of approximately $4.9 million and $4.7 million, respectively. Venturi Staffing Partners, Inc., or VSP, was acquired in September 2004 and therefore the nine months ended September 30, 2004 operating results only reflect revenues from VSP since its acquisition. For the fiscal year ended December 31, 2004, CBS Personnel had revenues of approximately $315.3 million and net income of approximately $7.4 million.
~~History of CBS Personnel~~
      In August 1999, The Compass Group acquired Columbia Staffing through a newly formed holding company. Columbia Staffing is a provider of light industrial, clerical, medical, and technical personnel to clients throughout the southeast. In October 2000, The Compass Group acquired through the same holding company CBS Personnel Services, Inc., a Cincinnati-based provider of human resources outsourcing. CBS Personnel Services, Inc. began operations in 1971 and is a leading provider of temporary staffing services in Ohio, Kentucky and Indiana, with a particularly strong presence in the metropolitan markets of Cincinnati, Dayton, Columbus, Lexington, Louisville, and Indianapolis. The name of the holding company that made these acquisitions was later changed to CBS Personnel.
      In February 2001, The Compass Group recruited its current president and chief executive officer who brought to CBS Personnel extensive related industry experience and has substantial managerial experience. The new president and chief executive officer immediately started a number of initiatives to build upon CBS Personnel’s leading market position and increase profitability, such as streamlining the administrative cost structure, implementing budget-based bonus plans and increasing investment in sales personnel and marketing programs. In October 2003, he recruited a new chief financial officer, further strengthening its senior management team and positioning CBS Personnel for organic and external growth.
      In 2004, CBS Personnel expanded geographically through the acquisition of VSP, formerly a wholly owned subsidiary of Venturi Partners. VSP is a leading provider of temporary staffing, temp-to-hire and permanent placement services through 79 branch offices located primarily in economically diverse metropolitan markets including Boston, New York, Atlanta, Charlotte, Houston and Dallas, as well as both Southern and Northern California.
      Approximately 75% of VSP’s temporary staffing revenue related to the clerical staffing, with the remaining 25% relating to the light industrial staffing. Based on its geographic presence, VSP was a complementary acquisition for CBS Personnel as their combined operations did not overlap and the merger created a more national presence for CBS Personnel. In addition, the acquisition helped diversify CBS Personnel’s revenue base to be more balanced between the clerical and light industrial staffing, with each representing about 50% of the business post-acquisition.
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~~Industry~~
      According to Staffing Industry Analysts, Inc., the staffing industry generated approximately $107 billion in revenues in 2004. The staffing industry is comprised of four product lines: (i) temporary staffing; (ii) employee leasing; (iii) permanent placement; and (iv) outplacement, representing approximately 76%, 10%, 13% and 1% of the market, respectively, according to the American Staffing Association. According to the American Staffing Association, Annual Economic Analysis of the Staffing Industry, the temporary staffing business grew by 12.5% in 2004. Over 95% of CBS Personnel’s revenues are generated in temporary staffing.
      CBS Personnel competes in both the light industrial and clerical categories of the temporary staffing product line. The light industrial category is comprised of providers of unskilled and semi-skilled workers to clients in manufacturing, distribution, logistics and other similar industries. The clerical category is comprised of providers of administrative personnel, data entry professionals, call center employees, receptionists, clerks and similar employees.
      According to the U.S. Bureau of Labor Statistics, or BLS, more jobs were created in professional and business services (which includes staffing) than in any other industry between 1992 and 2002. Further, BLS has projected that the professional and business services sector is expected to be the second fastest growing sector of the economy between 2002 and 2012. Companies today are operating in a more global and competitive environment, which requires them to respond quickly to fluctuating demand for their products and services. As a result, companies seek greater workforce flexibility translating to an increasing demand for temporary staffing services. This growing demand for temporary staffing should remain consistent in the near future as temporary staffing becomes an integral component of corporate human capital strategy.
~~Services~~
      CBS Personnel provides temporary staffing services tailored to meet each client’s unique staffing requirements. We believe CBS Personnel maintains a strong reputation in its markets for providing a complete staffing solution that includes both high quality candidates and superior client service. CBS Personnel’s management believes it is one of only a few staffing services companies in each of its markets that is capable of fulfilling the staffing requirements of both small, local clients and larger, regional or national accounts. To position itself as a key provider of human resources to its clients, CBS Personnel has developed a client-centric approach to service that focuses on the following:
• ~~providing excellent service to existing clients in a consistent and efficient manner;~~
• ~~attempting to cross-sell additional service offerings to existing clients to increase revenue per client;~~
• ~~engaging in targeted selling practices to prospective clients to expand the client base; and~~
• ~~providing incentives to employees through well-balanced incentive and bonus plans to encourage increased sales per client and the establishment of new client relationships.~~
      ~~CBS Personnel offers its clients a comprehensive staffing solution by providing the following services:~~
• ~~temporary staffing services in categories such as light industrial, clerical, healthcare, construction, transportation, professional and technical staffing;~~
• ~~employee leasing and related administrative services; and~~
• ~~temporary-to-permanent and permanent placement services.~~
~~Temporary Staffing Services~~
      CBS Personnel endeavors to understand and address the individual staffing needs of its clients and has the ability to serve a wide variety of clients, from small companies with specific personnel needs to large companies with extensive and varied requirements. To achieve its goal of client-centric service, CBS
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Personnel devotes significant resources to the development of customized programs designed to fulfill the client’s need for certain services with quality personnel in a prompt and efficient manner. CBS Personnel’s primary temporary staffing categories are described below.
• ~~Light Industrial~~ — The majority of CBS Personnel’s revenues are derived from the placement of low- to mid-skilled temporary workers in the light industrial category, which comprises primarily the distribution (“pick-and-pack”) and light manufacturing (such as assembly-line work in factories) sectors of the economy. Approximately 45% of CBS Personnel’s temporary staffing revenues were derived from light industrial for the nine months ended September 30, 2005 and the fiscal year ended December 31, 2004.
• ~~Clerical~~ — CBS Personnel provides clerical workers that have been screened, reference-checked and tested for computer ability, typing speed, word processing and data entry capabilities. Clerical workers are often employed at client call centers and corporate offices. Approximately 41% of CBS Personnel’s temporary staffing revenues were derived from clerical for the nine months ended September 30, 2005 and the fiscal year ended December 31, 2004.
• ~~Technical~~ — CBS Personnel provides placement candidates in a variety of skilled technical capacities, including plant managers, engineering management, operations managers, designers, draftsmen, engineers, materials management, line supervisors, electronic assemblers, laboratory assistants and quality control personnel. Approximately 4% of CBS Personnel’s temporary staffing revenues were derived from technical for the nine months ended September 30, 2005 and the fiscal year ended December 31, 2004.
• ~~Healthcare~~ — Through its expert placement agents in its Columbia Healthcare division, CBS Personnel provides trained candidates in the following healthcare categories: medical office personnel, medical technicians, rehabilitation professionals, management and administrative personnel and radiology technicians, among others. Approximately 2% of CBS Personnel’s temporary staffing revenues were derived from healthcare for the nine months ended September 30, 2005 and the fiscal year ended December 31, 2004.
• ~~Niche/ Other~~ — In addition to the light industrial, clerical, healthcare and technical categories, CBS Personnel also provides certain niche staffing services, placing candidates in the skilled industrial, construction and transportation sectors, among others. CBS Personnel’s wide array of niche service offerings allows the company to meet a broad range of client needs. Moreover, these niche services typically generate higher margins for the CBS Personnel. Approximately 8% of CBS Personnel’s temporary staffing revenues were derived from niche/other for the nine months ended September 30, 2005 and the fiscal year ended December 31, 2004.
      As part of its temporary staffing solutions offering, CBS Personnel provides an on-site program to clients employing, generally, 50 or more of its temporary employees. The on-site program manager works full-time at the client’s location to help manage the client’s temporary staffing and related human resources needs and provides detailed administrative support and reporting systems, which reduce the client’s workload and costs while allowing its management to focus on increasing productivity and revenues. CBS Personnel’s management believes this on-site program offering creates strong relationships with its clients by providing consistency and quality in the management of clients’ human resources and administrative functions. In addition, through its on-site program, CBS Personnel often gains visibility into the demand for temporary staffing services in new markets, which has helped management identify possible areas for geographic expansion.
~~Employee Leasing Services~~
      Through the employee leasing and administrative service offerings of its Employee Management Services, or EMS, division, CBS Personnel provides administrative services, handling the client’s payroll, risk management, unemployment services, human resources support and employee benefit programs. This results in reduced administrative requirements for employers and, most importantly, by having EMS take
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~~over the non-productive administrative burdens of an organization, affords clients the ability to focus on their core businesses.~~
      EMS offers also a full line of benefits, including medical, dental, vision, disability, life insurance, 401(k) retirement and other premium options for employers to provide to their employees. As a result of economies of scale, clients are offered multiple plan and premium options at affordable rates. The client has the flexibility to determine what benefits to offer and how the program will be implemented in order to attract more qualified employees.
~~Temporary-to-Permanent and Permanent Staffing Services~~
      Complementary to its temporary staffing and employee leasing services, CBS Personnel offers temporary-to-permanent and permanent placement services, often as a result of requests made through its temporary staffing activities. In addition, temporary workers will sometimes be hired on a permanent basis by the clients to whom they are assigned. CBS Personnel earns fees for permanent placements, in addition to the revenues generated from providing these workers on a temporary basis before they are hired as permanent employees.
      A unique component of CBS Personnel’s permanent placement services is its Japanese American Connection program (“JAC”), which provides contract and permanent placement services to Japanese-owned companies in the Ohio Valley. JAC professionals are predominantly Japanese-American, are fluent in both English and Japanese and have a keen understanding of, and appreciation for, the unique needs of Japanese companies operating in the mid-western United States. In addition, JAC serves an important marketing function for CBS Personnel, as JAC’s efforts offer CBS Personnel unique opportunities to build relationships with Japanese companies that maintain significant operations in CBS Personnel’s markets. CBS Personnel’s temporary-to-permanent and permanent placement services contribute higher margins and are scalable, thereby making them a potential opportunity for future growth.
~~Competitive Strengths~~
      CBS Personnel has established itself as a leading provider of human resource solutions by providing its customers with flexible employee solutions in a timely and cost effective manner. A key to CBS Personnel’s success has been its tenure and density in virtually all of its markets. This strategy has allowed CBS Personnel to build a premium reputation in each of its markets and has resulted in the following competitive strengths:
• ~~Large employee database/customer list~~ — Through its long tenure and dense operating model, CBS Personnel has built a leading presence in its markets in terms of both clients and employees. CBS Personnel is successful in recruiting additional employees because of its reputation as having numerous job openings with a wide variety of clients. Feeding off of its strong employee database, CBS Personnel attracts clients through its reputation as having a strong database of reliable employees with a wide ranging skill set. CBS Personnel’s strength in its employee database and client list has been built over a number of years in each of its markets and serves as a major competitive strength in most of its markets.
• ~~Higher operating margins~~ — By creating a dense network of offices, CBS Personnel is able to better leverage its selling, general and administrative expenses at the regional and field level and create higher operating income margins than its less dense competitors.
• ~~Scalable business model~~ — By having multiple office locations in each of its markets, CBS Personnel is able to quickly scale its business model in both good and bad economic environments. For example, in 2001 and 2002, CBS Personnel was able to close offices and reduce overhead expenses while shifting business to adjacent offices. For competitors with only one office per market, closing an office requires abandoning the clients and employees in that market. During 2001 and 2002, CBS Personnel was able to reduce its overhead costs by approximately 13% while maintaining its dominant presence in each of its markets and retaining its clients and employees.
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• ~~Marketing synergies~~ — By having a number of offices in each of its markets, CBS Personnel allocates additional resources to marketing and selling and amortizes those costs over a larger office network. For example, while many of its competitors use selling branch managers who split time between operations and sales, CBS Personnel uses outside sales reps that are exclusively focused on bringing in new sales.
~~Business Strategies~~
      CBS Personnel’s business strategy is to (i) leverage its position in its existing markets, (ii) build a presence in contiguous markets, and (iii) pursue and selectively acquire other staffing resource providers.
• ~~Leverage its position in its existing markets~~ — In many of its existing markets, CBS Personnel has a leading market share with multiple branch locations. CBS Personnel plans on capitalizing on its market position by continuing to invest heavily in sales and marketing in order to increase market share. With its leading database of clients and candidates in its markets, CBS Personnel offers high margin complimentary services such as full time recruiting, consulting, and administrative outsourcing. CBS Personnel has implemented an incentive plan that highly rewards cross-selling of high margin services into its existing customer base in order to increase its profitability per client.
• ~~Build a presence in contiguous markets~~ — Under each of its brand names, CBS Personnel has built a strong reputation over a number of years in its markets. To capitalize on its strong brand recognition, CBS Personnel plans to expand its office network in contiguous markets by opening new offices. CBS Personnel’s strong brand awareness in its existing markets provides a platform to launch into contiguous markets and leverage off of CBS Personnel’s brand recognition.
• ~~Pursue selective acquisitions~~ — As with the most recent acquisition of VSP, CBS Personnel plans on selectively acquiring other leading staffing providers. CBS Personnel views acquisitions as an attractive means to enter into a new geographical market. In evaluating acquisition targets, CBS Personnel looks for characteristics that are similar to its own, such as longevity and density. In some cases, CBS Personnel will also look at acquiring within its existing markets to add to its market position.
~~Clients~~
      CBS Personnel serves over 3,000 clients in a broad range of industries, including manufacturing, technical, transportation, retail, distribution, warehousing, automotive supply, construction, industrial, healthcare services and financial. These clients range in size from small, local firms to large, regional or national corporations. One of CBS Personnel’s largest client is Chevron Corporation, which accounted for 5% of revenues for the year ended December 31, 2004. None of CBS Personnel’s other clients individually accounted for more than 2% of its revenues for the year ended December 31, 2004. CBS Personnel’s client assignments can vary from a period of a few days to long-term, annual or multi-year contracts. We believe CBS Personnel has a strong relationship with its clients.
~~Sales, Marketing and Recruiting Efforts~~Advanced Circuits
CBS Personnel’s marketing efforts are principally focused on branch-level development of local business relationships. Local salespeople are incentivized to recruit new clients and increase usage by existing clients through their compensation programs, as well as through numerous contests and competitions. Regional or company-based specialists are utilized to assist local salespeople in closing potentially large accounts, particularly where they may involve an on-site presence by CBS Personnel. On a regional and national level, efforts are made to expand and align its services to fulfill the needs of clients with multiple locations, which may also include using on-site CBS Personnel professionals and the opening of additional offices to better serve a client’s broader geographic needs.
Overview
In terms of recruitment of qualified employees, CBS Personnel utilizes a variety of methods to recruit its work force including, among others, rewarding existing employees for qualifying referrals, newspaper
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and other media advertising, internet sourcing, marketing brochures distributed at colleges and vocational schools and community- or education-based job fairs. CBS Personnel actively recruits in each community in which it operates, through educational institutions, evening and weekend interviewing and open houses. At the corporate level, CBS Personnel maintains an in-house web-based job posting and resume submission engine which allows distribution of job descriptions to over 3,000 online job boards. Individuals may also submit a resume through CBS Personnel’s website.
      Following a prospective employee’s identification, CBS Personnel systematically evaluates each candidate prior to placement. The employee application process includes an interview, skills assessment test, education verification and reference verification, and may include drug screening and background checks depending upon customer requirements.
~~Competition~~
      The temporary staffing industry is highly fragmented and, according to the U.S. Census Bureau in 2002, was comprised of approximately 11,500 service providers, the vast majority of which generate less than $10 million in annual revenues. Of the total number of service providers, over 80% are single-office firms. Staffing services firms with more than 10 establishments account for only 1.6% of the total number of service providers, or 187 companies, but generate 49.3% of revenues in the temporary staffing industry. The employee leasing industry consists of approximately 4,200 service providers.
      CBS Personnel competes with both large, national and small, local staffing companies in its markets for clients. Notwithstanding this level of competition, CBS Personnel’s management believes CBS Personnel benefits from a number of competitive advantages, including:
• ~~a high density of offices in its core markets;~~
• ~~long-standing relationships with its clients;~~
• ~~a strong database of qualified temporary workers which enables CBS Personnel to fill orders rapidly;~~
• ~~well-recognized brands and leadership positions in its core markets; and~~
• ~~a reputation for treating employees well and offering competitive benefits.~~
      Numerous competitors, both large and small, have exited or significantly reduced their presence in many of CBS Personnel’s markets. CBS Personnel’s management believes that this trend has resulted from the increasing importance of scale, client demands for broader services and reduced costs, and the difficulty that the strong positions of market leaders, such as CBS Personnel, present for competitors attempting to grow their client base.
      CBS Personnel also competes for qualified employee candidates in each of the markets in which it operates. Management believes that CBS Personnel’s scale and concentration in each of its markets provides it with significant recruiting advantages. Key among the factors affecting a candidate’s choice of employers is the likelihood of reassignment following the completion of an initial engagement. CBS Personnel typically has numerous clients with significantly different hiring patterns in each of its markets, increasing the likelihood that it can reassign individual employees and limit the amount of time an employee is in transition. As employee referrals are also a key component of its recruiting efforts, management believes local market share is also key to its ability to identify qualified candidates.
~~Tradenames~~
      ~~CBS Personnel uses the following tradenames:~~~~CBS Personnel~~^tm,~~CBS Personnel Services~~^tm,~~Columbia Staffing~~^tm,~~Columbia Healthcare Services~~^tm ~~and~~~~Venturi Staffing Partners~~^tm~~. These trade names have strong brand equity in their markets and have significant value to CBS Personnel’s business.~~
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~~Facilities~~
      CBS Personnel, headquartered in Cincinnati, Ohio, provides staffing services through all 136 of its branch offices located in 18 states. The following table shows the number of branch offices located in each state in which CBS Personnel operates and the employee hours billed by those branch offices for the nine months ended September 30, 2005.

Number of Employee
State Branch Offices Hours Billed

(In thousands)
Ohio 26 7,166
California 20 2,947
Kentucky 14 3,263
Texas 13 3,465
South Carolina 12 1,956
North Carolina 9 1,384
Illinois 8 807
Indiana 7 1,661
Pennsylvania 6 719
Massachusetts 5 344
Georgia 4 456
Virginia 3 830
New York 2 567
Alabama 2 294
New Jersey 2 123
Washington 1 100
Florida 1 89
Rhode Island 1 46
      All of the above branch offices, along with CBS Personnel’s principal executive offices in Cincinnati, Ohio, are leased. Lease terms are typically 3 to 5 years. CBS Personnel does not anticipate any difficulty in renewing these leases or in finding alternative sites in the ordinary course of business.
~~Regulatory Environment~~
      In the United States, temporary employment services firms are considered the legal employers of their temporary workers. Therefore, state and federal laws regulating the employer/employee relationship, such as tax withholding and reporting, social security and retirement, equal employment opportunity and Title VII Civil Rights laws and workers’ compensation, including those governing self-insured employers under the workers’ compensation systems in various states, govern CBS Personnel’s operations. By entering into a co-employer relationship with employees who are assigned to work at client locations, CBS Personnel assumes certain obligations and responsibilities of an employer under these federal and state laws. Because many of these federal and state laws were enacted prior to the development of nontraditional employment relationships, such as professional employer, temporary employment, and outsourcing arrangements, many of these laws do not specifically address the obligations and responsibilities of nontraditional employers. In addition, the definition of “employer” under these laws is not uniform.
      Although compliance with these requirements imposes some additional financial risk on CBS Personnel, particularly with respect to those clients who breach their payment obligation to CBS Personnel, such compliance has not had a material adverse impact on CBS Personnel’s business to date. CBS Personnel believes that its operations are in compliance in all material respects with applicable federal and state laws.
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~~Workers’ Compensation Program~~
      As the employer of record, CBS Personnel is responsible for complying with applicable statutory requirements for workers’ compensation coverage. State law (and for certain types of employees, federal law) generally mandates that an employer reimburse its employees for the costs of medical care and other specified benefits for injuries or illnesses, including catastrophic injuries and fatalities, incurred in the course and scope of employment. The benefits payable for various categories of claims are determined by state regulation and vary with the severity and nature of the injury or illness and other specified factors. In return for this guaranteed protection, workers’ compensation is considered the exclusive remedy and employees are generally precluded from seeking other damages from their employer for workplace injuries. Most states require employers to maintain workers’ compensation insurance or otherwise demonstrate financial responsibility to meet workers’ compensation obligations to employees.
      In many states, employers who meet certain financial and other requirements may be permitted to self-insure. CBS Personnel self-insures its workers’ compensation exposure for a portion of its employees. Regulations governing self-insured employers in each jurisdiction typically require the employer to maintain surety deposits of government securities, letters of credit or other financial instruments to support workers’ compensation claims in the event the employer is unable to pay for such claims.
      As a self-insured employer, CBS Personnel’s workers’ compensation expense is tied directly to the incidence and severity of workplace injuries to its employees. CBS Personnel seeks to contain its workers’ compensation costs through an aggressive approach to claims management, including assigning injured workers, whenever possible, to short-term assignments which accommodate the workers’ physical limitations, performing a thorough and prompt on-site investigations of claims filed by employees, working with physicians to encourage efficient medical management of cases, denying questionable claims and attempting to negotiate early settlements to mitigate contingent and future costs and liabilities. Higher costs for each occurrence, either due to increased medical costs or duration of time, may result in higher workers’ compensation costs to CBS Personnel with a corresponding material adverse effect on its financial condition, business and results of operations.
~~Legal Proceedings~~
      CBS Personnel is, from time to time, involved in litigation and various claims and complaints arising in the ordinary course of business. In the opinion of CBS Personnel’s management, the ultimate disposition of these matters will not have a material adverse effect on CBS Personnel’s financial condition, business and results of operations.
~~Capital Structure~~
      As of November 25, 2005, CBS Personnel’s authorized capital stock consisted of (i) 5,000,000 shares of Class A common stock, par value $0.001 per share, of which 2,830,909 shares were issued and outstanding, (ii) 5,000,000 shares of Class B common stock, par value $0.001 per share, of which 3,548,384 shares were issued and outstanding, and (iii) 2,000,000 shares of Class C common stock, par value $0.001 per share, of which 181,699 were issued and outstanding. As of the same date, two subsidiaries of CGI owned all of the issued and outstanding shares of Class A common stock and 2,274,052 of the issued and outstanding shares of Class B common stock, with Robert Lee Brown, the founder of CBS Personnel Services, Inc., owning all the remaining issued and outstanding shares of Class B common stock and CBS Personnel’s senior managers and certain other investors owning all the issued and outstanding shares of Class C common stock. The rights of all holders of common stock are substantially identical except that each holder of Class B common stock and Class C common stock is entitled to only one vote per share, whereas each holder of Class A common stock is entitled to 10 votes per share.
      As of November 25, 2005, such subsidiaries of CGI, together, held warrants to acquire an additional 23,457.15 shares of Class B common stock, and Mr. Brown held warrants to acquire an additional 922,993.45 shares of Class B common stock, which warrants are expected to be exercised prior to the
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closing of this offering. Upon such exercise, there will be no warrants to purchase capital stock of CBS Personnel issued or outstanding. Also as of such date, CBS Personnel’s senior managers and certain other investors held unexercised outstanding options to purchase an additional 573,051 shares of Series C common stock. If all vested, non-contingent warrants and vested, in-the-money options were exercised, CGI’s ownership would be diluted from approximately 98.1% to approximately 95.6%.
      In the event of any merger or exchange as described in the DGCL, each then issued and outstanding share of Class B common stock and Class C common stock would be automatically converted into one issued and outstanding share of Class A common stock. There are no other securities convertible or exchangeable into shares of capital stock issued and outstanding.
      We have entered into a stock purchase agreement pursuant to which we will acquire all of the shares of Class A common stock and all of the Class B common stock then held by CGI’s subsidiaries, all of the shares of Class B common stock then held by Mr. Brown and 65,000 shares of Class C common stock then held by certain directors and former directors of CBS personnel. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses — CBS Personnel” for a discussion of the material terms of the stock purchase agreement.
~~Employees~~
      As of September 30, 2005, CBS Personnel employed approximately 90 individuals in it its corporate staff and approximately 758 staff members in its branch locations. For the nine months ended September 30, 2005, CBS Personnel placed over 25,000 people.
      Temporary employees placed by CBS Personnel are generally CBS Personnel’s employees while they are working on assignments. As employer of its temporary employees, CBS Personnel maintains responsibility for applicable payroll taxes and the administration of the employee’s share of such taxes.
      CBS Personnel’s staffing services employees are not under its direct control while working at a client’s business. CBS Personnel has not experienced any significant liability due to claims arising out of negligent acts or misconduct by its staffing services employees. The possibility exists, however, of claims being asserted against CBS Personnel, which may exceed its liability insurance coverage, with a resulting material adverse effect on its financial condition, business and results of operations.
~~Crosman~~
~~Overview~~
      Crosman, headquartered in East Bloomfield, New York, was one of the first manufacturers of airguns and is a leading manufacturer and distributor of recreational airgun products and related accessories. Crosman also designs, markets and distributes paintball products and related accessories through Diablo Marketing, LLC (d/b/a Game Face Paintball), or GFP, its 50%-owned joint venture. Crosman’s products are sold in over 6,000 retail locations worldwide through approximately 500 retailers, which include mass retailers, such as Wal-Mart and Kmart, and sporting goods retailers, such as Dick’s Sporting Goods and Big 5 Sporting Goods. While Crosman’s primary market is the United States (accounting for approximately 87% of net sales for the fiscal year ended June 30, 2005 and approximately 85% and approximately 86% of net sales for the quarters ended September 26, 2004 and October 2, 2005, respectively), Crosman distributes its products in 44 countries worldwide.
      ~~The~~~~Crosman~~^tm brand is one of the pre-eminent names in the recreational airgun market and is widely recognized in the broader outdoor sporting goods industry. Crosman markets a full line of recreational airgun products, airgun accessories and related products under its own trademark brands as well as under other well-established brands through licensing or distribution agreements. Crosman markets paintball products, including markers (which are paintball projection devices), paintballs, paintball accessories and related products, primarily under the~~Game Face~~^tm ~~brand. Crosman’s senior management, collectively, has approximately 77 years of experience in the recreational products industry and closely related industries.~~
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      For the quarters ended October 2, 2005 and September 26, 2004, Crosman had net sales of approximately $20.5 million and $15.5 million, respectively, and net income of approximately $0.6 million and $0.3 million, respectively. For the fiscal year ended June 30, 2005, Crosman had net sales of approximately $70.1 million and net income of approximately $0.5 million.
~~History of Crosman~~
      Crosman was founded in 1923 as Crosman Rifle Company and was one of the first manufacturers of recreational airguns in the United States. In 1971, Coleman Corporation, or Coleman, acquired Crosman. In 1990, Coleman sold Crosman to Worldwide Sports and Recreation, Inc., or Worldwide Sports, a marketer of outdoor recreational products and sporting goods. In 1997, certain executives of Crosman and other equity investors acquired Crosman from Worldwide Sports. In January 2002, Crosman formed GFP through a 50%-owned joint venture called Diablo Marketing LLC to market paintball products and related accessories primarily under the~~Game Face~~^tm ~~brand. A subsidiary of CGI acquired a majority interest in Crosman in February 2004, as part of a transaction involving a simultaneous stock purchase, stock redemption and recapitalization.~~
~~Industry~~
      Crosman competes in the recreational airgun and paintball markets within the outdoor sporting goods industry. According to the Sporting Goods Manufacturers Association International, or SGMA, the United States outdoor sporting goods industry generated approximately $22.9 billion in retail sales in 2004. Within this industry, Crosman’s management estimates that sales in the market categories in which Crosman competes were approximately $235 million in 2004.
~~Recreational Airgun Market~~
      For the year ended December 31, 2004, management estimates that the worldwide recreational airgun industry was approximately $315 million and the United States recreational airgun market represented approximately 75% of this amount, or $235 million. Management estimates that United States 2004 sales consisted of approximately $125 million in air rifles and air pistols, approximately $55 million in soft airguns and approximately $55 million in airgun consumables. Crosman estimates that it has an approximately 40% share of the United States recreational airgun market based on its net sales of $20.5 million and $70.1 million for the quarter ended October 2, 2005 and fiscal year ended June 30, 2005, respectively.
      The recreational airgun market is a mature industry and experiencing slow and steady growth through increasing popularity of target shooting in the United States and increased spending by baby boomers.
      ~~Crosman’s management believes several factors will likely stimulate further market growth, including:~~
• ~~Broad Distribution~~ — Mass retailers have become the primary distribution channel for recreational airguns, airgun accessories and related products because of the high margin and high turnover attributes of such products. Continued mass retailer participation in the recreational airgun market should continue to broaden the audience of potential consumers.
• ~~Increasing Popularity of Recreational Airguns~~ — The popularity of activities involving recreational airguns, such as target shooting, has increased according to the SGMA, and management believes it will continue to grow. This has resulted in increased participation in such activities, which has resulted in increased sales, partly due to the mini-baby boom of the early 1990s, which is expected to drive up sales in the next decade. Management of Crosman believes that sales of recreational airguns, and in particular soft air guns, should continue to grow as participation in activities involving recreational airguns increases.
• ~~Increased Level of Regulations on Firearms~~ ~~— As laws concerning the purchase and use of firearms become more stringent, management of Crosman believes that sales of airguns, particularly~~
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~~in the high-end sector, should continue to increase because of the similar nature to firearms and the less restrictive regulatory environment concerning the purchase and use of airguns.~~
~~Paintball Market~~
      For the year ended December 31, 2004, wholesale sales in the United States paintball market, consisting of paintball products and accessories, was estimated at $417 million according to the SGMA. While there are a number of manufacturers who make only paintball guns and accessories, a few airgun manufacturers also participate in the paintball market due to the close relations between paintball products and airgun products. Most paintball manufacturers provide both paintball products and accessories.
      Paintball participation levels in the United States have increased from 5.9 million in 1998 to approximately 9.6 million in 2004, with more than 1.7 million participants playing on a frequent basis (more than 15 times a year) according to the SGMA. This increase is due to the increasingly broader group of players, including corporate groups, youth leagues, church organizations and others, that have begun participating in paintball as well as the availability of paintball and related products through mass retailers.
      ~~Crosman’s management believes that several factors will likely stimulate further paintball market growth, including:~~
• ~~Broad Distribution~~ — Paintball products are currently sold in over 3,500 retail outlets in the United States, generally through specialty retailers and some mass retailers. Management believes that the number of mass retailers that carry paintball products in the future may increase and that such broadened distribution channels for paintball products would increase the audience of potential consumers.
• ~~Increasing Availability of Paintball Facilities~~ — The number of paintball facilities have increased as the sport has become more popular. Paintball facilities are being designed to fit into small areas, such as existing family amusement centers, and facility owners are upgrading and constructing facilities that cater to beginners. Crosman believes that as the number of paintball facilities grows, the audience of potential consumers increases as well.
• ~~Increasing Visibility~~ — Public awareness of paintball is increasing through an expanding base of publications, web sites and increased media coverage. There are also professional paintball leagues, such as the National X-Ball League, whose tournaments have been featured on ESPN.
• ~~Popularity Among Youth~~ ~~— Young people are attracted to the unique attributes of paintball, its physical competition, perceived “alternative” culture and team-oriented focus.~~
~~Products~~
      ~~Crosman designs, manufactures and distributes recreational airgun products and paintball products. Crosman currently sells products in approximately 38 product families under the following trademarks:~~~~Crosman~~^tm~~, Benjamin Sheridan~~^tm~~, Copperhead~~ ^tm~~, Powerlets~~^tm~~, AirSource~~^tm~~, Game Face~~^tm ~~and~~~~Crosman Soft Air~~^tm~~, as well as other well-known brands through licensing or distribution agreements.~~
~~Recreational Airgun Products~~
      ~~Crosman’s recreational airgun products are comprised of a variety of product categories of airguns, with different propellant technologies (such as pneumatic pump-action, CO~~₂ ~~gas-powered, and spring air), styles, materials, sizes and types of ammunition, consumables (such as BBs, pellets and CO~~₂ ~~cartridges and accessories) and other products (such as scopes and targets). The following is an overview of Crosman’s product lines:~~
• ~~Air Rifles~~ — Crosman offers 14 air rifle product families with typical retail prices ranging from $30 to $150, with high-end models retailing for prices up to $800. Crosman markets its air rifles under the following brands:~~Crosman~~^tm,~~Benjamin Sheridan~~^tm~~, and, through licensing agreements,~~
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~~Logun~~^tm,~~Remington~~^tm ~~and~~~~Walther~~^tm. For the fiscal year ended June 30, 2005, air rifles accounted for approximately $24.1 million, or 34%, of Crosman’s net sales. For the quarter ended September 26, 2004 and the quarter ended October 2, 2005, air rifles accounted for approximately $5.3 million, or 34%, and $5.9 million, or 29% of net sales, respectively.
• ~~Air Pistols~~ ~~— Crosman markets 14 air pistol product families with average retail prices ranging from $20 to $100. Crosman markets its air pistols under the following brands:~~~~Crosman~~^tm ~~and, through licensing agreements,~~~~Beretta~~^tm,~~Colt~~^tm,~~Smith & Wesson~~^tm~~, and~~~~Walther~~^tm. For the fiscal year ended June 30, 2005, air pistols accounted for approximately $11.8 million, or 17%, of Crosman’s net sales. For the quarter ended September 26, 2004 and the quarter ended October 2, 2005, air pistols accounted for approximately $3.0 million, or 19%, and $3.3 million, or 16% of net sales, respectively.
• ~~Soft Air Airguns~~ ~~— Soft air airguns fire plastic BBs at low velocities. Crosman began selling soft air airguns in May 2002. Crosman markets its soft air airguns under the~~~~Crosman Soft Air~~^tm brand. For the fiscal year ended June 30, 2005, Soft Air accounted for approximately $15.6 million, or 22%, of Crosman’s net sales. For the quarter ended September 26, 2004 and the quarter ended October 2, 2005, Soft Air accounted for approximately $2.9 million, or 18%, and $7.2 million, or 35% of net sales, respectively.
• ~~Consumables~~ ~~— Crosman is a leading manufacturer of airgun consumables, including CO~~₂ ~~cartridges and ammunition (BBs and pellets). Crosman markets its consumables under the~~~~Crosman~~^tm ~~and~~~~Copperhead~~^tm ~~brands and markets its CO~~₂ ~~cartridges product families under the~~~~Powerlets~~^tm ~~and~~~~AirSource~~^tm brands. For the fiscal year ended June 30, 2005, consumables accounted for approximately $16.9 million, or 24%, of Crosman’s net sales. For the quarter ended September 26, 2004 and the quarter ended October 2, 2005, consumables accounted for approximately $3.9 million, or 25%, and $3.7 million, or 18% of net sales, respectively.
• ~~Accessories and Other Products~~ — Crosman also offers a variety of miscellaneous recreational airgun accessories, such as scopes, laser sights and targets, as well as other products such as slingshots. Crosman markets its products in this category under the~~Crosman~~^tm brand. For the fiscal year ended June 30, 2005, accessories and other products accounted for approximately $1.6 million, or 2%, of Crosman’s net sales. For the quarter ended September 26, 2004 and the quarter ended October 2, 2005, accessories and other products accounted for approximately $0.5 million, or 3%, and $0.3 million, or 2% of net sales, respectively.
~~Paintball Products~~
      Crosman designs, manufactures and distributes paintball products and related accessories through GFP, its 50%-owned joint venture. Crosman is responsible for all operational aspects of GFP, including product development, sales, warehousing, shipping, administration, finance and accounting. Crosman is paid 5% of GFP’s net sales for these services. Crosman includes 50% of this payment from GFP in non-operating income and 50% as a reduction to its selling expenses. For the quarters ended October 2, 2005 and September 26, 2004, GFP had approximately $2.5 million and $2.4 million in net sales, respectively.
      ~~Paintball products sold through GFP include the following:~~
• ~~Markers~~ — GFP designs, markets and distributes five paintball marker product families with average retail prices ranging from $100 to $190. In 2004, GFP introduced a family of high-end markers with retail prices ranging from $500 to $800. GFP also offers the only ready-to-play paintball kit on the market, complete with marker and pre-filled CO₂ ~~cartridges. GFP markets its marker products under the~~~~Game Face~~^tm brand. For the fiscal year ended June 30, 2005, markers accounted for approximately $2.5 million, or 18%, of GFP’s net sales. For the quarter ended September 26, 2004 and the quarter ended October 2, 2005, markers accounted for approximately $0.7 million, or 28%, and $0.5 million, or 22% of GFP’s net sales, respectively.
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• ~~Accessories and Related Products~~ ~~— GFP offers paintball accessories and related products, including paint, disposable CO~~₂ ~~tanks, facemasks, protective gear and marker components, such as ammunition hoppers, gloves and protective vests. GFP markets its paintball accessories and related products under the~~~~Game Face~~^tm brand. For the fiscal year ended June 30, 2005, accessories and related products accounted for approximately $11.1 million, or 82%, of GFP’s net sales. For the quarter ended September 26, 2004 and the quarter ended October 2, 2005, accessories and related products accounted for approximately $1.7 million, or 72%, and $1.9 million, or 78% of GFP’s net sales, respectively.
~~Competitive Strengths~~
      Crosman’s management believes that Crosman possesses the following competitive strengths, which have enabled it to maintain its leadership position in its markets while continuing to grow by successfully introducing new products:
• ~~Leading Market Position~~ — Management believes Crosman has achieved a leading position in the design, manufacturing and distribution of recreational airgun products by investing the necessary resources to establish its strong brands, broad product offering, efficient manufacturing capabilities, excellent sourcing and distribution relationships and by assembling a strong management team. It currently has an approximately 40% share of the United States recreational airgun market which it expects will allow it to further penetrate the paintball market and introduce new products in the recreational airgun market.
• ~~Strong Brand Portfolio~~ — Crosman owns one of the pre-eminent brand portfolios in the recreational airgun market and is widely recognized in the broader outdoor sporting goods industries. Crosman’s recreational airgun products are recognized for their quality features and craftsmanship. The strength of Crosman’s brands portfolio has positioned it as a source for a broad variety of recreational airgun and paintball products and should enable it to capture additional market share.
• ~~Established, Long Term Relationships with Leading Retailers~~ — Crosman has served two of its top retailers, Wal-Mart and Kmart, for over 25 years and its top ten retailers for an average of 14 years. Crosman invests in its retailer relationships by working closely with retailers in an effort to increase their sales and margins, manage inventory levels and provide superior service to the consumer. Such dedication to relations with their retailers contributes to Crosman’s strong and long-term relationships with its leading retailers.
• ~~High Margin Product Focus~~ — Crosman’s focus on products in the mid- to high-end of the retail price spectrum combined with its low-cost manufacturing capabilities generate higher margins for Crosman and its retailers. We believe that such a focus permits Crosman and its retailers to earn greater margins as compared to major competitors’ lower-priced products.
• ~~Dedication to High Product Quality Standards~~ — Crosman closely monitors the quality of its manufacturing process, beginning by routinely verifying the quality of its raw material used in the manufacturing process. In addition, each component is inspected on the assembly line prior to assembly of the final product. After production, each product is tested and undergoes a final inspection prior to packaging. Such attentive detail to quality has resulted in Crosman experiencing an approximately 1% defect rate with respect to its recreational air guns.
• ~~Proven Product Development Capability~~ — Since 2001, under Crosman’s current management team, Crosman became dedicated to bringing innovative new products to market. For example, since 2001, Crosman has introduced several new products including the 88-gram~~AirSource~~^tm CO₂ ~~cartridges, the~~~~Benjamin Sheridan~~^tm ~~and~~~~Crosman~~^tm ~~break-barrel spring air rifles, an innovative blow-back semi-automatic air rifle, and soft air airguns marketed under the~~~~Crosman Soft Air~~^tm ~~brand name. GFP also introduced a new 88-gram~~~~AirSource~~^tm ~~disposable CO~~₂ ~~tank in January~~
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~~2003. Crosman’s strength in developing new products is demonstrated by net sales of new products introduced since 2001 of approximately $33.6 million, or 48%, for fiscal year ended June 30, 2005.~~
• ~~Experienced Management Team~~ — Crosman’s senior management, collectively, has approximately 77 years of experience in the recreational products industry and closely related industries. Since 2001, the current management team has effected significant improvements in Crosman’s financial performance by focusing on developing new products, leveraging distribution channels to improve market penetration, improving operational efficiencies and expanding and refining supplier networks.
~~Business Strategies~~
      ~~Crosman’s strategy is to continue to build on its position as a leading manufacturer and distributor of recreational airgun and paintball products by focusing on:~~
• ~~Driving Organic Growth~~ — Crosman’s management believes that Crosman can leverage its competitive strengths to increase sales of its current products and introduce new products to capitalize on the expected growth in the recreational airgun and paintball markets. Management believes that Crosman can continue to increase its sales by maintaining and building upon its strong relationships with its retailers to more aggressively promote its products and to introduce and promote new products.
• ~~Maintaining Focus on Cost Control and Operating Efficiency~~ — In an effort to achieve further sustainable margin improvements, Crosman plans to maintain its focus on cost control by continuing to improve its manufacturing efficiency and to refine its supplier network. Crosman’s budgeting process allows it to measure departmental spending against budgets each month and to compensate supervisors based partially on their ability to spend at or below budgeted levels. Crosman also has a capital expenditure approval process in which projects must meet return on investment and payback period guidelines before capital projects may be initiated.
• ~~Pursuing Complementary Acquisitions~~ — Crosman intends to pursue strategic acquisition opportunities that will allow it to leverage its competitive strengths to increase sales or improve margins. Such opportunities may include the acquisition of products or recognized brands to broaden or deepen Crosman’s product portfolio as well as the acquisition of suppliers to reduce the costs of its finished goods. Crosman’s management intends to make acquisitions only to the extent it believes such acquisitions will be accretive to its cash flow.
~~Research and Development~~
      Crosman uses a highly systematized and formalized new product development process that involves all of its senior managers and select members of its sales force. Since 2002, Crosman has introduced several new products including the 88-gram~~AirSource~~^tm CO₂ ~~cartridges, an innovative blow-back semi-automatic air rifle and the~~~~Benjamin Sheridan~~^tm ~~and~~~~Crosman~~^tm break-barrel spring air rifles. Crosman is dedicated to bringing innovative new products to market and has spent an average of approximately $500,000 annually during the past four years on new product development. Crosman has provided for approximately $800,000 annually to fund new product development in the future. In addition, Crosman utilizes third-party service providers to assist in new product development.
~~Customers~~
      Crosman sells recreational airguns, accessories and related products at over 6,000 retail locations to approximately 500 retailers worldwide, including mass retailers, sporting goods retailers and distributors. GFP’s paintball products are sold through the same base of retailers currently selling Crosman’s recreational airguns. Approximately 86% of Crosman’s net sales are to retailers and 14% are to distributors or original equipment manufacturers.
      Crosman’s top ten customers accounted for approximately 71.3% of net sales for fiscal year ended June 30, 2005, with Wal-Mart, Crosman’s largest customer, accounting for approximately 35.7% of gross
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sales for fiscal year ended June 30, 2005. On average, Crosman has sold products to its top 10 customers for 14 years. Crosman has been selling recreational airguns to each of Wal-Mart and another top customer, Kmart, for over 25 years. Crosman is able to maintain its long-term relationships with these customers as a result of its quality products, brand recognition and leading position in the mid- to high-end market for airguns, where there are limited competitors that provide similar quality products and brand recognition. This has enabled both Crosman and its customers to maintain consistent margins on Crosman products over the long term.
~~Sales and Marketing~~
      Crosman markets and sells several brands of recreational airgun products and, through GFP, paintball products to major mass retailers, sporting goods retailers and other distributors. Each brand is generally positioned to have a combination of overall product quality, features and retail price ranges that differentiate it from other brands marketed by Crosman and GFP. Crosman and GFP’s marketing programs emphasize the high level of quality of their products to consumers. They also engage in marketing and sales initiatives to assist their retailers’ sales to their end consumers. Crosman and GFP proactively pursue product sales promotions with their retailers by coordinating specific price discounts during holidays to increase shelf space during critical retail sales periods. GFP uses a similar retail distribution network for markers and paintball products.
      Crosman also provides structured programs taught by professionals to educate people about the safe and responsible use of recreational airguns and to attract new participants to shooting sports. These programs include Education in Recreational Airgun Shooting for Youth, a program delivered by Crosman to non-profit groups, such as the Boy/ Girl Scouts of America, 4-H and Future Farmers of America.
      Crosman’s sales team possesses substantial experience in the sporting goods industry and encompasses both internal and manufacturer’s sales representatives. Crosman has seven sales representatives and six manufacturer’s representative groups.
~~Competition~~
~~Recreational Airgun Market~~
      Crosman’s management estimates that it currently has approximately 40% of the United States recreational airgun market. Competitors in the recreational airgun market include numerous manufacturers of recreational airguns located in the United States as well as abroad. Crosman’s most significant competitor is Daisy Manufacturing Company, Inc. (“Daisy”). Daisy is primarily established in the low- to middle-range product price range with products typically retailing between $15 and $40. Crosman has a number of competitors in the soft air airgun market, but Crosman considers Cybergun SA to be its primary competitor in that market.
~~Paintball Products~~
      The paintball industry is highly fragmented and is comprised of many manufacturers of markers, related products and accessories. GFP’s major competitors are Brass Eagle, Inc., which is owned by K2, Inc., The Kingman Group, Tippmann Pneumatics, LLC, Zap Paintball Inc. and Pursuit Marketing, Inc. These companies distribute and sell their products primarily through the same distribution network as that of GFP.
~~Suppliers~~
      To manufacture its products, Crosman utilizes raw materials, including metals, plastics and wood as well as manufactured parts, purchased from independent suppliers. Crosman also purchases a number of products manufactured by external vendors, including soft air airguns, certain replica airguns and airgun accessories, which it then distributes under its own brand names. Crosman considers its relationship with its suppliers to be good. Crosman has not experienced interruptions in operations due to a lack of supply of
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~~materials and Crosman’s management does not anticipate any such interruptions in the foreseeable future. Crosman maintains flexibility with its sourcing and is not reliant on any one supplier.~~
~~Intellectual Property~~
      ~~Crosman currently has 11 patents in the United States, the most material of which was issued on September 13, 2005 and covers the design of the paintball marker adapter for the 88-gram CO~~₂ ~~cartridge sold under the~~~~AirSource~~^tm ~~name.~~
      Although Crosman believes that patents are useful in maintaining Crosman’s competitive position, it considers other factors, such as Crosman’s trademarked brand names, pre-eminent name recognition, ability to design innovative products and technical and marketing expertise to be its primary competitive advantages. Crosman’s products are marketed under the following company-owned and trademarked brand names:~~Crosman~~^tm~~, Benjamin Sheridan~~^tm~~, Copperhead~~^tm~~, Game Face~~^tm,~~Powerlets~~^tm,~~AirSource~~^tm ~~and~~~~Crosman Soft Air~~^tm ~~brand names.~~
      ~~In 2002, Crosman began marketing and distributing recreational airgun products under several other well established brands under licensing or distribution agreements.~~
~~Facilities~~
      Crosman conducts its manufacturing operations in a 225,000 square-foot facility on a company-owned 49-acre campus located in East Bloomfield, New York, approximately 30 miles southeast of Rochester. In addition, Crosman utilizes approximately 43,500 square feet of leased warehouse space in nearby Canandaigua, New York for paintball warehousing and shipping operations. Crosman also owns an 8,000 square-foot manufacturing operation in Stover, Missouri devoted to fabricating wood components. Crosman has the ability to expand its plant on its 49-acre East Bloomfield, New York property.
~~Regulatory Environment~~
      Crosman’s management believes Crosman is in compliance with all regulations governing recreational airguns and paintball products in the markets where those products are sold. United States federal firearms laws do not apply to recreational airguns or paintball products, however, various United States state and municipal laws and regulations do. These laws generally pertain to the retail sale and use of recreational airguns and paintball products.
      In the United States, recreational airgun and paintball products are within the jurisdiction of the CPSC. Under CPSC regulations, a manufacturer of consumer goods is obligated to notify the CPSC if, among other things, the manufacturer becomes aware that one of its products has a defect that could create a substantial risk of injury. If the manufacturer has not already undertaken to do so, the CPSC may require a manufacturer to recall a product, which may involve product repair, replacement or refund. Crosman’s products may also be subject to recall pursuant to regulations in other jurisdictions where Crosman’s products are sold. Crosman initiated four product recalls during the last five years, in each case resulting in non-material financial consequences for Crosman and no personal injuries associated with the recalled products were reported to Crosman. Three of the four products were not manufactured by Crosman and Crosman is fully indemnified by its supplier for such products.
      The American Society of Testing Materials (“ASTM”), a non-governmental self-regulating association, has been active in developing voluntary standards regarding recreational airguns, paintball markers, paintball fields and paintball face protection. Crosman’s representatives are active on the relevant ASTM subcommittees and in developing the relevant product safety standards. Crosman’s management believes that Crosman routinely follows, and is in compliance with, ASTM standards. Any failure to comply with any current or pending ASTM standard may have a material adverse effect on Crosman’s financial condition, results of operations and cash flows.
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      Many jurisdictions outside of the United States also have legislation limiting the power, distribution and/or use of Crosman’s products. Crosman works with its distributors in each jurisdiction to ensure that it is in compliance with applicable law.
      Crosman’s facilities and operations are subject to extensive and constantly evolving federal, state and local environmental and occupational health and safety laws and regulations, including laws and regulations governing air emissions, wastewater discharges, the storage and handling of chemicals and hazardous substances. See the section entitled “— Legal Proceedings” for more information. Although Crosman’s management believes that Crosman is in compliance, in all material respects, with applicable environmental and occupational health and safety laws and regulations, there can be no assurance that new requirements, more stringent application of existing requirements, or discovery of previously unknown environmental conditions will not result in material environmental expenditures in the future.
~~Legal Proceedings~~
      As a manufacturer of recreational airguns, Crosman is involved in various litigation matters that occur in the ordinary course of business. Crosman has experienced limited product liability and related expenses over the company’s history. Crosman’s management believes that this record is a result of Crosman’s focus on producing quality products that incorporate proven and reliable safety features, the consistent use of packaging materials that contain clear consumer instructions and safety warnings and Crosman’s practice of consistently defending itself from product liability claims.
      Since the beginning of 1994, Crosman has been named as a defendant in 56 lawsuits and has been the subject of 89 other claims made by persons alleging to have been injured by its products. To date, 92 of these cases have been terminated without payment and 25 of these cases have been settled at an aggregate settlement cost of approximately $1,125,000. As of the date of this prospectus, Crosman is involved in 23 product liability cases brought against Crosman by persons alleging to have been injured by its products.
      In addition, GFP has been the subject of three claims made by persons alleging to be injured by its products. Two of these claims have been resolved without payment and, as of the date of this prospectus, the third has not been resolved and remains active.
      Crosman maintains product liability insurance to insure against potential claims. Management believes such insurance will be adequate to cover Crosman’s products liability claims exposure, but no assurance can be given that such coverage will be adequate to cover product liability claims against Crosman.
      Crosman has signed consent orders with the DEC to investigate and remediate soil and groundwater contamination at its facility in East Bloomfield, New York. Pursuant to a contractual indemnity and related agreements, the costs of investigation and remediation have been paid by a third-party that is the successor to the prior owner and operator of the facility, which also has signed the consent orders with the DEC. In 2002, the DEC indicated that additional remediation of ground water may be required. Crosman has engaged in discussions with the DEC regarding the need for additional remediation. To date, the DEC has not required any additional remediation. Although management believes that the third party is contractually obligated to pay any additional costs for resolving site remediation issues with the DEC and that the third party will continue to honor its commitments, there can be no assurance that the third party will have the financial ability to pay or will continue to pay for future site remediation costs, which could be material if the DEC requires additional groundwater remediation.
      While the outcome of these legal proceedings and other matters cannot at this time be predicted with certainty, Crosman’s management does not expect that the outcome of these matters will have a material effect upon Crosman’s financial condition or results of operations.
~~Capital Structure~~
      As of November 25, 2005, Crosman’s authorized capital stock consisted of 1,500,000 shares of common stock, par value $.001 per share, of which 577,360 shares were issued and outstanding. As of such
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date, a subsidiary of CGI owned 428,292 shares of common stock and Crosman’s senior management team and certain other investors owned the remaining shares of common stock. We have entered into a stock purchase agreement pursuant to which we will acquire all such shares owned by such subsidiary of CGI, together with 6,825 shares owned by certain of such other investors. See the section entitled “The Acquisition of and Loans to Our Initial Businesses — Crosman” for a discussion about the material terms of the stock purchase agreement.
      Crosman has a stock incentive plan that permits it to issue stock options and other stock-related awards to its officers, non-employee directors and employees. As of November 25, 2005, Crosman’s senior management team held options to purchase 30,000 shares of Crosman’s common stock. CGI’s subsidiary and an unaffiliated investor hold contingent, unvested warrants to purchase shares of common stock of Crosman. The warrants were received as an inducement for the holders to guarantee certain obligations of Crosman in connection with the agreement pursuant to which CGI’s subsidiary acquired its controlling interest in Crosman. The holders are entitled to purchase that number of shares that could be purchased with the amounts paid in satisfaction of the holders’ guarantees. Such warrants would be exercisable if (1) Crosman were obligated to pay to the former owners of Crosman an earn-out based on the attainment of certain financial performance benchmarks for the fiscal year ending June 30, 2006 and (2) Crosman failed to make such payments and the warrant holders were required to satisfy such obligation pursuant to their guaranty. A similar earn-out with respect to the fiscal year ended June 30, 2005 was not triggered. There are currently no other options or other securities convertible or exchangeable into shares of common stock issued and outstanding.
      Crosman also maintains a senior management stock purchase and loan program pursuant to which Crosman made loans to certain managers of Crosman for the purpose of purchasing Crosman’s common stock. With respect to a loan made to its chief executive officer, such loan is secured by a pledge of approximately 46% of his shares. In addition, approximately 35% of the shares of the chief executive officer are subject to a repurchase option held by Crosman and exercisable upon the termination of his employment for any reason. The repurchase option in respect of the shares of the chief executive officer lapses at a rate of 25% on each anniversary of the initial acquisition of Crosman by CGI’s subsidiary, with the repurchase option lapsing in total on February 10, 2008. Each loan to a senior manager other than the chief executive officer is secured by a pledge of all of the shares of common stock of Crosman acquired by such senior manager pursuant to this stock purchase and loan program. In addition, some of the shares of common stock acquired by such senior managers are subject to a repurchase option held by Crosman and exercisable upon such senior manager’s termination of employment with Crosman for any reason. The repurchase options on the shares of these senior managers do not lapse.
~~Employees~~
      As of September 30, 2005, Crosman employed approximately 214 people, consisting of 53 salaried and 161 hourly personnel. GFP’s operations are largely integrated into Crosman’s operations. Crosman supplements its full-time work force with up to 200 temporary employees during periods of increased production demand.
~~Advanced Circuits~~
~~Overview~~
Advanced Circuits, headquartered in Aurora, Colorado, is a ~~leading~~ provider of prototype and quick-turn ~~rigid~~ printed circuit boards, or PCBs, throughout the United States. Advanced Circuits also provides its customers high volume production services in order to meet its clients’ complete PCB needs. The prototype and quick-turn portions of the PCB industry are characterized by customers requiring high levels of responsiveness, technical support and timely delivery. Due to the critical roles that PCBs play in the research and development process of electronics, customers often place more emphasis on the turnaround time and quality of a customized PCB than on the price. Advanced Circuits meets this market need by manufacturing and delivering custom PCBs in as little as 24 hours, providing customers with approximately

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~~145~~
~~approximately 98.5%~~
98% error-free production and real-time customer service and product tracking 24 hours per day. In ~~2004,~~2006, approximately 66% of Advanced Circuits’ net sales were derived from highly profitable prototype and quick-turn production PCBs. Advanced Circuits’ success is demonstrated by its broad base of over ~~3,500~~8,000 customers with which it does business ~~each month.~~throughout the year. These customers represent numerous end markets, and for the ~~nine months~~year ended ~~September 30, 2005,~~December 31, 2006, no single customer accounted for more than 2% of net sales. Advanced Circuits’ senior management, collectively, has approximately 90 years of experience in the electronic components manufacturing industry and closely related industries.

Concurrent with the IPO, we made loans to and purchased a controlling interest in Advanced Circuits totaling $81.0 million. Our controlling interest represents approximately 70.2% of the outstanding stock of Advanced Circuits on a primary and fully diluted basis. For the ~~nine months~~fiscal year ended ~~September 30,~~December 31, 2006 and December 31, 2005, ~~and September 30, 2004,~~ Advanced Circuits had net sales of approximately ~~$31.5~~$48.1 million and ~~$27.5 million, respectively, and net income of approximately $11.3 million and $9.1~~$42.0 million, respectively. ~~For~~Since May 16, 2006, the ~~fiscal year ended~~date of our acquisition, through December 31, ~~2004,~~2006. Advanced Circuits had ~~net sales~~revenues of ~~approximately $36.6~~$30.6 million and ~~net~~operating income of ~~approximately $12.1~~$7.5 million. Advanced Circuits had total assets of $77.9 million at December 31, 2006. Revenues from Advanced Circuits represented 7.4% of our total revenues for 2006.
~~History of Advanced Circuits~~
History of Advanced Circuits

Advanced Circuits commenced operations in 1989 through the acquisition of the assets of a small Denver based PCB manufacturer, Seiko Circuits. During its first years of operations, Advanced Circuits focused exclusively on manufacturing high volume, production run PCBs with a small group of proportionately large customers. In 1992, after the loss of a significant customer, Advanced Circuits made a strategic shift to limit its dependence on any one customer. In this respect, Advanced Circuits began focusing on developing a diverse customer base, and in particular, on providing research and development professionals at equipment manufacturers and academic institutions with low volume, customized prototype and quick-turn PCBs.

In 1997 Advanced Circuits increased its capacity and consolidated its facilities into its current headquarters in Aurora, Colorado. During 2001 through 2003, despite a recession and a reduction in United States ~~rigid~~ PCB manufacturing, Advanced Circuits’ sales expanded by 29% as its research and development focused customer base continued to require ~~consumable~~ PCBs to performday-to-day activities. In 2003, to support its growth, Advanced Circuits expanded its PCB manufacturing facility by approximately ~~40,000~~37,000 square feet or approximately ~~188%~~150%.
A subsidiary of CGI acquired a majority interest in Advanced Circuits in September 2005. That subsidiary currently owns approximately 71% and other members of our manager own approximately 1%, respectively, of Advanced Circuits’ common stock on a fully diluted basis.
Industry
~~Industry~~

The PCB industry, which consists of both large global PCB manufacturers and small regional PCB manufacturers, is a vital component to all electronic equipment supply chains as PCBs serve as the foundation for virtually all electronic products, ~~ranging from consumer products, such as~~including cellular telephones, appliances, ~~and~~ personal ~~computer, to high-end commercial electronic equipment, such as medical equipment, data communications~~computers, routers, ~~and~~ switches and network servers. PCBs are used by manufacturers of these types of electronic products, as well as by persons and teams engaged in research and development of new types of equipment and technologies. According to ~~Custer Consulting Group’s February~~the World Electronic Circuits Council’s “WECC Global/PCB Production Report — 2005 ~~Business Outlook Global Electronics Industry, the global~~Baseline Data”, total PCB ~~market, including both captive and merchant~~ production ~~was approximately $38.2 billion~~ in ~~2004 and~~2005 is ~~expected~~estimated to ~~grow by~~be over ~~6% annually through 2008.~~$42.4 billion.

In contrast to global trends, however, production of ~~rigid~~ PCBs in ~~the United States~~North America has declined by approximately ~~60%~~55% since 2000, to approximately ~~$3.8~~$4.7 billion in ~~2004,~~2005, and is expected to ~~remain flat~~grow slightly over the next several years according to the ~~TMRC~~Executive Market Technology Forum — A Business Intelligence Program for IPC Members which we refer to as EMTF, survey: Analysis of the North American Rigid Printed Circuit Board and Related Materials Industries for the year ~~2004,~~2005, which we refer to as the ~~TMRC 2004~~EMTF 2005 Analysis. The rapid decline in United States production was caused by (i) reduced demand for and spending on PCBs following the technology and telecom industry decline in early ~~2000~~2000; and (ii) increased competition for ~~longer lead time~~ volume production of PCBs from Asian competitors benefiting from both lower labor costs and less restrictive waste and environmental regulations. While Asian manufacturers have made large

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market share gains in the PCB industry overall, both prototype production and the more complex volume production have remained strong in the United States.
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Both globally and domestically, the PCB market can be separated into three categories based on required lead time and order volume:
• Prototype PCBs — These PCBs are manufactured typically for customers in research and development departments of original equipment manufacturers, or OEMs, and academic institutions. Prototype PCBs are manufactured to the specifications of the customer, within certain manufacturing guidelines designed to increase speed and reduce production costs. Prototyping is a critical stage in the research and development of new products. These prototypes are used in the design and launch of new electronic equipment and are typically ordered in volumes of 1 to 50 PCBs. Because the prototype is used primarily in the research and development phase of a new electronic product, the life cycle is relatively short and requires accelerated delivery time frames of usually less than five days and very high, error-free quality are required. Order, production and delivery time, as well as responsiveness with respect to each, are key factors for customers as PCBs are indispensable to their research and development activities.quality.

• Quick-Turn Production PCBs — These PCBs are used for intermediate stages of testing for new products prior to full scale production. After a new product has successfully completed the prototype phase, customers undergo test marketing and other technical testing. This stage requires production of larger quantities of PCBs in a short period of time, generally 10 days or less, while it does not yet require high production volumes. This transition stage between low-volume prototype production and volume production is known as quick-turn production. Manufacturing specifications conform strictly to end product requirements and order quantities are typically in volumes of 10 to 500. Similar to prototype PCBs, response time remains crucial as the delivery of quick-turn PCBs can be a gating item in the development of electronic products. ~~Orders for quick-turn production PCBs conform specifically to the customer’s exact end product requirements.~~

• Volume Production PCBs — These PCBs are used in the full scale production of electronic equipment and specifications conform strictly to end product requirements. Production PCBs are ordered in large quantities, usually over 100 units, and response time is less ~~important.~~important, ranging between 15 days to 10 weeks or more.

These categories can be further distinguished based on board complexity, with each portion facing different competitive threats. Advanced Circuits competes largely in ~~low-to mid-technology~~the prototype and quick-turn production portions of the North American market, which have not been significantly impacted by the Asian based manufacturers due to the quick response time required for these products. The North American prototype and quick-turn production sectors combined represent approximately ~~$1.4~~$1.7 billion in the PCB production industry according to the ~~TMRC 2004~~EMTF 2005 Analysis.

Several significant trends are present within the PCB manufacturing industry, including:
• Increasing ~~customer demand~~Customer Demand for ~~quick-turn production solutions~~Quick-Turn Production Services — Rapid advances in technology are significantly shortening product life-cycles and placing increased pressure on OEMs to develop new products in shorter periods of time. In response to these pressures, OEMs invest heavily on research and development, which results in a demand for PCB companies that can offer engineering support and quick-turn production services to minimize the product development process.

• Increasing ~~complexity~~Complexity of ~~electronic equipment~~Electronic Equipment — OEMs are continually designing more complex and higher performance electronic equipment, requiring sophisticated PCBs. To satisfy the demand for more advanced electronic products, PCBs are produced using exotic materials and increasingly have higher layer counts and greater component densities. Maintaining the production infrastructure necessary to manufacture PCBs of increasing complexity often requires significant capital expenditures and has acted to reduce the competitiveness of local and regional PCB manufacturers lacking the scale to make such investments.

• Shifting of ~~high volume production~~High Volume Production to Asia — Asian based manufacturers of PCBs are capitalizing on their lower labor costs and are increasing their market share of volume production of PCBs used, for example, in high-volume consumer electronics applications, such as personal computers and cell

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phones. Asian based manufacturers have been generally unable to meet the lead time requirements for prototype or quick-turn PCB production or the volume production of the most complex PCBs. This “offshoring” of high-volume production orders has placed increased pricing pressure and margin compression on many small domestic manufacturers that are no longer
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operating at full capacity. Many of these small producers are choosing to cease operations, rather than operate at a loss, as their scale, plant design and customer relationships do not allow them to focus profitably on the prototype and quick-turn sectors of the market.
~~Products and Services~~
Products and Services

A PCB is comprised of layers of laminate ~~and copper~~ and contains patterns of electrical circuitry to connect electronic components. Advanced Circuits manufactures 2 to 12 layer ~~rigid~~ PCBs, and has the capability to manufacture up to 14 layer ~~rigid~~ PCBs. The level of PCB complexity is determined by several characteristics, including size, layer count, density (line width and spacing), materials and functionality. High-end commercial equipment manufacturers require complex PCBs fabricated with higher layer counts, greater density and advanced materials and have highly complex and sophisticated production requirements. By contrast, PCBs used in other electronic products are generally less complex and have less sophisticated production requirements. Beyond complexity, a PCB’s unit cost is determined by the quantity of identical units ordered, as engineering and production setup costs per unit decrease with order volume, and required production time, as longer times often allow increased efficiencies and better production management. ~~PCBs of the complexity manufactured by~~ Advanced Circuits ~~are used by customers to design and produce low-and mid-technology products, including consumer electronics, medical devices and testing equipment, among many other types of electronic equipment.~~primarily manufactures lower complexity PCBs.

To manufacture PCBs, Advanced Circuits generally receives circuit designs from its customers in the form of computer data files emailed to one of its sales representatives or uploaded on its interactive website. These files are then reviewed to ensure data accuracy and product manufacturability. Processing these computer files, Advanced Circuits generates images of the circuit patterns that are then physically developed on individual layers, using advanced photographic processes. Through a variety of plating and etching processes, conductive materials are selectively added and removed to form horizontal layers of thin circuits, called traces, which are separated by insulating material. A finished multilayer PCB laminates together a number of layers of circuitry. Vertical connections between layers are achieved by metallic plating through small holes, called vias. Vias are made by highly specialized drilling equipment capable of achieving extremely fine tolerances with high accuracy.

Advanced Circuits assists its customers throughout the life-cycle of their products, from product conception through volume production. Advanced Circuits works closely with customers throughout each phase of the PCB development process, beginning with the PCB design verification stage using its unique online FreeDFM.com tool. FreeDFM.com^tmTM, which was launched in 2002, enables customers to receive a free manufacturability assessment report within minutes, ~~resolving design problems that would prohibit manufacturability~~indicating whether Advanced Circuits has the files and data necessary to build the job before the order process is completed and manufacturing begins. The combination of Advanced Circuits’ user-friendly website and its design verification tool reduces the amount of human labor involved in the manufacture of each order as PCBs move from Advanced Circuits’ website directly to its computer numerical control, or CNC, machines for production, saving Advanced Circuits and customers cost and time. As a result of its ability to rapidly and reliably respond to the critical customer requirements, Advanced Circuits generally receives a premium for their prototype and quick-turn PCBs as compared to volume production PCBs.
The products and services Advanced Circuits provides fall into the following three categories, which are differentiated based on complexity, order quantity, lead time and the number of repeat orders or PCBs without changes:
• ~~Prototype PCBs~~ — Advanced Circuits manufactures PCBs from specifications provided generally by electronics product engineers who work within research and development departments and academic engineering departments. Because these prototypes are for design testing and launch phase of a new product, the life cycle is generally short. Orders for prototype PCBs are typically required to conform to Advanced Circuits’ specifications, allowing Advanced Circuits to combine numerous low-volume orders into a single, 18” by 24” panel design, increasing production
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~~efficiencies. Prototype PCBs are typically ordered in quantities of less than 50 units and have delivery requirements of under five days.~~
• ~~Quick-turn Production PCBs~~ — Advanced Circuits’ quick-turn production PCBs are typically used by customers to produce a small number of end products prior to full production or to spot fill for shortfalls in production inventory. Quick-turn production PCBs are typically ordered in quantities of 10 to 500 units, and as response time remains critical, delivery requirements are generally 10 days or less.
• ~~Volume Production PCBs~~ — Advanced Circuits also manufactures standard long lead-time, volume production PCBs, designed to be used as components in certain customers’ volume manufacturing runs. These PCBs are typically ordered in quantities of over 100 units and customers place far less emphasis on response time, with response times ranging between 15 days to 10 weeks or more.
Advanced Circuits manufactures all high margin prototype and quick-turn orders internally but often utilizes external partners to manufacture production orders that do not fit within its capabilities or capacity constraints at a given time. Advanced ~~Circuits’~~Circuits has ~~seven~~11 external partners, ~~in the United States and Canada and one external partner in Asia~~some with multiple production facilities. As a result, Advanced Circuits constantly adjusts the portion of volume production PCBs produced internally to both maximize profitability and ensure that internal capacity is fully utilized.

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The following table shows Advanced Circuits’ gross revenue by products and services for the periods indicated:
Gross Sales by Products and ~~Services~~⁽¹⁾Services(1)

Fiscal Year Ended Fiscal Year Ended Nine Months Ended
December 31, 2003 December 31, 2004 September 30, 2005

Prototype Production 41.8% 36.2% 34.0%
Quick-Turn Production 27.7% 29.6% 31.9%
Volume Production 17.0% 19.0% 19.8%
Third Party 13.5% 15.2% 14.3%

Total
100.0% 100.0% 100.0%

December 31, 2006 December 31, 2005

Prototype Production 33.4 % 34.0 %
Quick-Turn Production 32.1 % 32.0 %
Volume Production 20.4 % 20.1 %
Third Party 14.1 % 13.9 %

Total
100.0 % 100.0 %

⁽¹⁾ As a percentage of gross sales, exclusive of sale discounts.
~~Competitive Strengths~~
Competitive Strengths

Advanced Circuits has established itself as a ~~leading~~ provider of prototype and quick-turn PCBs in North America ~~by focusing~~and focuses on satisfying customer demand for on-time delivery of high-quality PCBs. Advanced Circuits’ management believes the following factors differentiate it from many industry competitors:
• Numerous ~~unique orders per day~~Unique Orders Per Day — For the year ended December 31, ~~2004,~~2006, Advanced Circuits received an average of over ~~260~~290 customer orders per day. Due to the large quantity of orders received, Advanced Circuits is able to combine multiple orders in a single panel design prior to production. Through this process, Advanced Circuits is able to significantly reduce the number of costly, labor intensive equipmentset-ups required to complete several manufacturing orders. As labor represents the single largest cost of production, management believes this capability gives Advanced Circuits a unique advantage over other industry participants. Advanced Circuits maintains proprietary software to maximize the number of units placed on any one panel design. A single panelset-up typically accommodates 1 to 12 orders. Further, as a “critical mass” of like orders are required to maximize the efficiency of this process, management believes Advanced Circuits is uniquely positioned as a low cost manufacturer of prototype and quick-turn PCBs.
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• Diverse ~~customer base~~Customer Base — Advanced Circuits possesses a customer base with little industry or customer concentration exposure. ~~Each month during~~During fiscal year ended December 31, ~~2004,~~2006, Advanced Circuits did business with ~~approximately 3,500~~over 8,000 customers and added ~~over 200~~approximately 225 new ~~customers.~~customers per month. Advanced Circuits’ website receives thousands of hits per day and, each month during 2005, it ~~receives~~received approximately 600 requests to establish new web accounts. For the ~~nine months~~year ended ~~September 30, 2005,~~December 31, 2006, no customer represented over 2% of net ~~revenue.~~sales.

• Highly ~~responsive culture~~Responsive Culture and ~~organization~~Organization — A key strength of Advanced Circuits is its ability to quickly respond to customer orders and complete the production process. In contrast to many competitors that require a day or more to offer price quotes on prototype or quick-turn production, Advanced Circuits offers its customers quotes within seconds and the ability to place or track orders any time of day. In addition, Advanced Circuits’ production facility operates three shifts per day and is able to ship a customer’s product within 24 hours of receiving its order.

• Proprietary FreeDFM.com ~~software~~^TMSoftware — Advanced Circuits offers its customers unique design verification services through its online FreeDFM.com^TM tool. This tool, which was launched in 2002, enables customers to receive a free manufacturability assessment report, within minutes, resolving design problems before customers place their orders. The service is relied upon by many of Advanced Circuits’ customers to reduce design errors and minimize production costs. Beyond improved customer service, FreeDFM.com^TM has the added benefit of improving the efficiency of Advanced Circuits’ engineers, as many routine design problems, which typically require an engineer’s time and attention to identify, are identified and sent back to customers automatically.

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• Established ~~partner network~~Partner Network — Advanced Circuits has established ~~third-party~~third party production relationships with PCB manufacturers in North America and Asia. Through these relationships, Advanced Circuits is able to offer its customers a full suite of products including those outside of its core production capabilities. Additionally, these relationships allow Advanced Circuits to outsource orders for volume production ~~of longer lead time orders~~ and focus internal capacity on higher margin, short lead time, production and quick-turn manufacturing.
~~Business Strategies~~
Business Strategies

Advanced Circuits’ management is focused on strategies to increase market share and further improve operating efficiencies. The following is a discussion of these strategies:
• Increase ~~portion~~Portion of ~~revenue~~Revenue from ~~prototype~~Prototype and ~~quick-turn production~~Quick-Turn Production — Advanced Circuits’ management believes it can grow revenues and cash flow by continuing to leverage its core prototype and quick-turn capabilities. Over its history, Advanced Circuits has developed a suite of capabilities that its management believes allow it to offer a combination of price and customer service unequaled in the market. Advanced Circuits intends to leverage this factor, as well as its core skill set, to increase net sales derived from higher margin prototype and quick-turn production PCBs. In this respect, marketing and advertising efforts focus on attracting and acquiring customers that are likely to require these premium services. And while production composition may shift, growth in these products and services is not expected to come at the cost of declining sales in volume production PCBs as Advanced Circuits intends to leverage its extensive network of third-party manufacturing partners to continue to meet customers’ demand for these services.

• Acquire ~~customers~~Customers from ~~local~~Local and ~~regional competitors~~Regional Competitors — Advanced Circuits’ management believes the majority of its competition for prototype and quick-turn PCB orders comes from smaller scale local and regional PCB manufacturers. As an early mover in the prototype and quick-turn sector of the PCB market, management believes that Advanced Circuits has been able to grow faster and achieve greater production efficiencies than many industry participants. Management believes Advanced Circuits can continue to use these advantages to gain market share. Further, Advanced Circuits has begun to enter into prototype and quick-turn manufacturing relationships with several subscale local and regional PCB manufacturers. According to Fabfile online, in ~~2004~~2006 there were over 400 small PCB manufacturers with annual sales of under $10 million. Management believes that while many of these
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manufacturers maintain strong, longstanding customer relationships, they are unable to produce PCBs with short ~~lead~~turn-around times at competitive prices. As a result, Advanced Circuits is beginning to seize upon a significant opportunity for growth by providing production support to these manufacturers or direct support to the customers of these manufacturers, whereby the manufacturers act more as a broker for the relationship.

• Remain ~~committed~~Committed to ~~customers~~Customers and ~~employees~~Employees — Over its history, Advanced Circuits has remained focused on providing the highest quality product and service to its customers. ~~This~~Management believes this focus has ~~resulted in an on time~~allowed Advanced Circuits to achieve its outstanding delivery and quality ~~record that is unequalled in the industry.~~record. Advanced Circuits’ management believes this reputation is a key competitive differentiator and is focused on maintaining and building upon it. Similarly, management believes its committed base of employees is a key differentiating factor. Advanced Circuits currently has a profit sharing program and tri-annual bonuses for all of its employees. Management also occasionally sets additional performance targets for individuals and departments and establishes rewards, such as lunch celebrations or paid vacations, if these goals are met. Management believes that Advanced Circuits’ emphasis on sharing rewards and creating a positive work environment has led to increased loyalty. As a result, Advanced Circuits plans on continuing to focus on similar programs to maintain this competitive advantage.

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~~Research and Development~~

Research and Development
Advanced Circuits engages in continual research and development activities in the ordinary course of business to update or strengthen its order processing, production and delivery systems. By engaging in these activities, Advanced Circuits expects to maintain and build upon the competitive strengths from which it benefits currently.
~~Customers~~
Customers

Advanced Circuits’ focus on customer service and product quality has resulted in a broad base of ~~over 17,000~~ customers in a variety of end markets, including industrial, consumer, telecommunications, aerospace/defense, biotechnology and electronics manufacturing. These customers range in size from large, blue-chip manufacturers to small,not-for-profit university engineering departments. For the ~~nine months~~year ended ~~September 30, 2005,~~December 31, 2006, no single customer ~~accounts~~accounted for more than 2% of net sales.
The following table sets forth management’s estimate of Advanced Circuits’ approximate customer breakdown by ~~product~~industry sector for the fiscal year ended December 31, ~~2004:~~2006:

~~2004~~2006 Customer
Industry Sector
Distribution

Electrical Equipment and Components ~~35%~~40 %
Measuring Instruments ~~20%~~15 %
Electronics Manufacturing Services 11 %
Engineer Services 9%5 %
Industrial and Commercial Machinery 5%5 %
Business Services 5%5 %
Wholesale Trade-Durable Goods 4%3 %
Educational Institutions 3%2 %
Transportation Equipment 2%5 %
All Other Sectors Combined ~~17%~~9 %

Total
~~100%~~100 %

Management estimates that ~~approximately 85%~~over 70% of all Advanced Circuits’ orders are new, first time designs and approximately 90% of orders are generated from ~~either new or~~ existing customers. Moreover, approximately 65% of Advanced Circuits’ orders are derived from orders delivered within five days.
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~~Sales and Marketing~~

Sales and Marketing
Advanced Circuits has established a “consumer products” marketing strategy to both acquire new customers and retain existing customers. Advanced Circuits uses initiatives such as direct mail postcards, web banners, aggressive pricing specials and proactive outbound customer call programs. Advanced Circuits spends approximately 2% of net sales each year on its marketing initiatives and has 1920 people dedicated to its marketing and sales efforts. These individuals are organized geographically and each is responsible for a region of North America. The sales team takes a systematic approach to placing sales calls and receiving inquiries and, on average, will place between 200 and 300 outbound sales calls and receive between 160 and 220 inbound phone inquiries per day. Beyond proactive customer acquisition initiatives, management believes a substantial portion of new customers are acquired through referrals from existing customers. Many other customers are acquired over the internet where Advanced Circuits generates approximately ~~75%~~90% of its orders from its website.

Once a new client is acquired, Advanced Circuits offers an easy to use ~~customer-centric~~customer-oriented website and proprietary online design and review tools to ensure high levels of retention. By maintaining contact with its customers to ensure satisfaction with each order, Advanced Circuits has developed strong customer loyalty, as demonstrated by ~~the 200 to 300~~over 90% of its orders ~~a day it receives~~being received from existing customers. Included in each customer order is an Advanced Circuits postage pre-paid “bounce-back” card on which a customer can

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evaluate Advanced Circuits’ services and send back any comments or recommendations. Each of these cards is read by senior members of management, and Advanced Circuits adjusts its services to respond to the requests of its customer base.
~~Competition~~
Competition

There are currently an estimated ~~500~~460 active domestic PCB manufacturers. Advanced Circuits’ competitors differ ~~amongst~~among its products and services.

Competitors in the prototype and quick-turn PCBs production industry include generally large companies as well as small domestic manufacturers. The three largest independent domestic prototype and quick-turn PCB manufacturers in North America are DDi Corp., TTM Technologies, Inc. and Merix Corporation. Though each of these companies produces prototype PCBs to varying degrees, in many ways they are not direct competitors with Advanced Circuits. In recent years, each of these firms has primarily focused on producing boards with higher layer counts in response to the offshoring of low and medium layer count technology to Asia. Compared to Advanced Circuits, prototype and quick-turn PCB production accounts for much smaller portions of each of these ~~firm’s~~firms’ revenues. Further, these competitors often have much greater customer concentrations and a greater portion of sales through large electronics manufacturing services intermediaries. Beyond large, public companies, Advanced Circuits’ competitors include numerous small, local and regional manufacturers, often with revenues of under $10 million, that have ~~long term~~long-term customer relationships and typically produce both prototype and quick-turn PCBs and production PCBs for small OEMs and EMS companies. The competitive factors in prototype and quick-turn production PCBs are response time, quality, error-free production and customer service. Competitors in the long lead-time production PCBs generally include large companies, including Asian manufacturers, where price is the key competitive factor.

New market entrants into prototype and quick-turn production PCBs confront substantial barriers including significant investments in equipment, highly skilled workforce with extensive engineering knowledge and compliance with environmental regulations. Beyond these tangible barriers, Advanced Circuits’ management believes that its network of ~~17,000~~ customers, established over the last 1617 years, would be very difficult for a competitor to replicate.
~~Suppliers~~
Suppliers

Advanced Circuits’ raw materials inventory is small relative to sales and must be regularly and rapidly replenished. Advanced Circuits uses ajust-in-time procurement practice to maintain raw materials inventory at low levels. Additionally, Advanced Circuits has established consignment relationships with
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several vendors allowing it to pay for raw materials as used. Because it provides primarily lower-volume quick-turn services, this inventory policy does not hamper its ability to complete customer orders. Raw material costs constituted approximately ~~12.6%~~13.3% of net sales for the fiscal year ended December 31, ~~2004.~~2006.

The primary raw materials that are used in production are core materials, (~~e.g.~~,such as copper clad layers of ~~glass)~~glass and chemical solutions, (~~e.g.~~,such as copper and ~~gold)~~gold for plating operations, photographic film and carbide drill bits. Multiple suppliers and sources exist for all materials. Adequate amounts of all raw materials have been available in the past, and Advanced Circuits’ management believes this will continue in the foreseeable future. Advanced Circuits works closely with its suppliers to incorporate technological advances in the raw materials they purchase. Advanced Circuits does not believe that it has significant exposure to fluctuations in raw material prices. Though Advanced Circuits’ primary raw material, laminates, ~~have~~has recently experienced a significant increase in price, the impact on its cost of sales was minimal as the increase accounted for only a 0.5% increase in cost of sales as a percentage of net sales. Further, as price is not the primary factor affecting the purchase decision of many of Advanced Circuits’ customers, management has historically passed along a portion of raw material price increases to its customers.

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Intellectual Property
~~Intellectual Property~~

Advanced Circuits seeks to protect certain proprietary technology by entering into confidentiality and non-disclosure agreements with its employees, consultants and customers, as needed, and generally limits access to and distribution of its proprietary information and processes. Advanced Circuits’ management does not believe that patents are critical to protecting Advanced Circuits’ core intellectual property, but, rather, that its effective and quick execution of fabrication techniques, its websiteFreeDFM.com^tmTM and its highly skilled ~~workforces’~~workforce’s expertise are the primary factors in maintaining its competitive position.

Advanced Circuits uses the following brand names:FreeDFM.com^tmTM,4pcb.com^tmTM,4PCB.com^tmTM,33each.com^tmTM,barebonespcb.com^tmTM andAdvanced Circuits^tmTM. These trade names have strong brand equity and have significant value and are material to Advanced Circuits’ business.
~~Facilities~~
Regulatory Environment
Advanced Circuits operates in a state-of-the-art facility comprised of 61,233 square feet of factory and office space located in Aurora, Colorado, which is approximately 15 miles from the Denver International Airport. This facility, which is leased, houses Advanced Circuits’ corporate offices as well as its manufacturing facility on approximately 4.24 acres. Advanced Circuits operates at this facility under a 15 year lease with the option to renew the lease for a period of 10 years.
~~Regulatory Environment~~
In light of Advanced Circuits manufacturing operations, its facilities and operations are subject to evolving federal, state and local environmental and occupational health and safety laws and regulations. These include laws and regulations governing air emissions, wastewater discharge and the storage and handling of chemicals and hazardous substances. Advanced Circuits’ management believes that Advanced Circuits is in compliance, in all material respects, with applicable environmental and occupational health and safety laws and regulations. New requirements, more stringent application of existing requirements, or discovery of previously unknown environmental conditions may result in material environmental expenditures in the future. Advanced Circuits has been recognized ~~twice~~three times for exemplary environmental compliance as it was awarded the Denver Metro Wastewater Reclamation District Gold Award for the years 2002, 2003 and ~~2003.~~2005.
Employees
As of December 31, 2006, Advanced Circuits employed approximately 200 persons. Of these employees, there were 22 in sales and marketing, 5 in information technology, 9 in accounting and finance, 30 in engineering, 14 in shipping and maintenance, 115 in production and 5 in management. None of Advanced Circuits’ employees are subject to collective bargaining agreements. Advanced Circuits believes its relationship with its employees is good.
Aeroglide
Overview
Aeroglide, headquartered in Cary, North Carolina, is a leading global designer and manufacturer of industrial drying and cooling equipment. Aeroglide’s machinery is used in the production of a variety of human foods, animal and pet feeds and industrial products. On February 28, 2007, we made loans to and purchased a controlling interest in Aeroglide totaling $57 million. Our controlling interest represents approximately 89% of the stock of Aeroglide on a fully diluted basis. Aeroglide had revenues of $48.1 million and operating income of $3.1 million for the full-year ended December 31, 2006.
Aeroglide produces specialized thermal processing equipment designed to remove moisture and heat from, as well as roast, toast and bake, a variety of processed products. These lines include conveyor driers and coolers, impingement driers, drum driers, rotary driers, toasters, spin cookers and coolers, truck and tray driers, and related auxiliary equipment. Aeroglide is an original equipment manufacturer fabricating its equipment in carbon or stainless steel and providing training, aftermarket components, and field service. Aeroglide utilizes an extensive engineering department to custom engineer each machine for a particular application.
History of Aeroglide
Aeroglide was founded in 1940 as a designer and manufacturer of potato packing house equipment. Within ten years of inception, Aeroglide’s focus had shifted to tower driers used for grain processing. From

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the 1950s through the 1970s, grain driers were the dominant product line, and Aeroglide was well known by major grain processors such as ADM, Bunge, and Cargill.
Through in-house development and acquisitions during the late 1960s, Aeroglide began to market conveyor driers and rotary driers. While initially overshadowed by tower units, conveyor driers began to emerge as the most promising future opportunity for Aeroglide in the 1980s and have since become Aeroglide’s dominant product line.
In the early 1990s, a newly installed management team implemented a series of strategic initiatives intended to capitalize on the inherent value of Aeroglide’s thermal processing capabilities in the areas of drying and cooling. As a result, Aeroglide began to exit activities and products that did not reinforce its heat transfer expertise. As part of this strategic repositioning, Aeroglide sold a Florida subsidiary that had been purchased in 1965. Additionally, in recognition of the Aeroglide’s global sales opportunity, management proactively began to develop international markets through direct foreign sales representatives. As international sales volumes increased over time, Aeroglide added foreign offices in the United Kingdom (1996), Malaysia (2002), and China (2006).
As sales momentum began to build in the late 1990s, Aeroglide focused on new product development and add-on acquisitions as future growth opportunities. Aeroglide’s talented in-house development team produced several new products, including a toaster and an impingement drier. Aeroglide subsequently acquired Food Engineering Corporation, which we refer to as FEC, in 2002, and National in 2004, adding lines of drum driers and a greater breadth of impingement drier capabilities through the latter acquisition.
Industry
Aeroglide provides equipment and aftermarket services to processing customers across three primary markets: human food, animal feed, and diversified industrial products. Within the food processing industry, Aeroglide provides equipment to manufacturers in the ready to eat cereal, snack food, fruit and vegetable, cookie, cracker and pasta, and other segments. Within the animal feed market, Aeroglide supplies machinery to end-users across the industry’s two primary segments, pet food and aquaculture feed ingredients. In the industrial sectors, Aeroglide’s primary customer base consists of manufacturers of chemicals, polymers, nonwovens/fibers, charcoal, and a variety of other specialized industrial products.
Food Processing:  The food processing industry consists of grain and oil seed milling, sugar and confectionary product manufacturing, fruit and vegetable processing, specialty food manufacturing, dairy product manufacturing, seafood preparation and packaging, and baked goods manufacturing. A large and non-cyclical market, the food processing industry consists of many large multinational corporations and thousands of smaller-scale local and regional manufacturers.
Feed Processing:  The processing of animal feed is very similar to the production of many human foods and utilizes a range of common equipment. The feed processing industry consists of twosub-segments: dog and cat food; and animal feed. The dog and cat food manufacturing industry focuses on the processing of grains, oilseed mill products, and meats into common pet food. The animal feed manufacturing industry includes all other forms of animal food, such as livestock feed, poultry feed, and aquaculture feed.
Industrial Processing:  The sector is broadly defined to capture a variety of processed products. Aeroglide defines its participation to the following categories:
• Chemicals — The chemicals segment includes catalyst/clay products and pigment manufacturers.
• Polymers — The polymers segment includes absorbent gels and synthetic rubber manufacturers.
• Non-Wovens/Fibers — The non-wovens/fibers segment includes filter, non-woven, and synthetic fiber manufacturers.
• Charcoal — The charcoal segment includes charcoal and coal processors and manufacturers.
• Other Industrial — The other industrial segment includes minerals, metals, waste, recycling, pharmaceuticals, plastics, tobacco, and wood processors and manufacturers.

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Products and Services
Aeroglide’s capital equipment sales include conveyor driers and coolers, impingement driers, drum driers, rotary driers, toasters, spin cookers and coolers, truck and tray driers, and related auxiliary equipment. To complement its capital equipment sales, Aeroglide has grown its aftermarket service offering. Aeroglide’s aftermarket business focuses on processing line expansions, equipment retrofits and refurbishments, spare parts and general maintenance needs.
Conveyor Driers:  Conveyor driers generally account for a large portion of Aeroglide’s capital equipment sales and address the widest range of end-use applications. Employed across all of the Aeroglide’s primary served markets (e.g., food, feed and industrial), the conveyor drier transports a given product through a large tunnel, where airflow initially delivers heat to the product and then serves as the medium to discharge moisture from the process chamber. Aeroglide offers single-pass, multi-pass, and multi-stage conveyor driers in a broad array of configurations. A typical conveyor drier is 10 feet wide, 40 feet long, and 15 feet high. However, the size, bed configuration, and thermal processing capabilities of a conveyor drier are ultimately determined by the specific product application and the customer’s facility space. Conveyor driers are available in fully assembled modules (to minimize installation time) or in knock-down form (to minimize transportation and installation costs, particularly overseas). The typical selling price for a conveyor drier ranges from $200,000 to $1.5 million.
Impingement Driers:  Aeroglide impingement driers use air pressure to hold and/or agitate products during processing. Ideal for smaller products such as pharmaceuticals and snack foods, impingement driers are primarily applicable across an array of food and industrial product processes. The typical selling price for an impingement drier ranges from $500,000 to $2.0 million.
Rotary Driers:  Aeroglide rotary driers are utilized in a variety of high-volume processing applications across Aeroglide’s three primary served markets. Used to efficiently dry high-moisture products capable of tolerating vigorous agitation (including pet food, aquaculture feed, grains, chemicals, and wood products), rotary driers have been offered by Aeroglide for nearly 40 years. The typical selling price for a rotary drier ranges from $250,000 to $750,000.
Toasters:  Aeroglide’s AeroFlow^TM line of toasters offers an effective and expedited processing solution for a variety of human foods. Relative to driers, toasters operate at higher temperatures and higher airflow velocities and are predominantly used in the ready to eat cereal market. The AeroFlow^TM line offers faster cycle times and can be used for a range drying, toasting, roasting, and cooling applications. The typical selling price for a toaster ranges from $300,000 to $700,000.
Pulsed Fluid Bed Driers:  Introduced in 2002, Aeroglide’s pulsed fluid bed driers are one of Aeroglide’s newest product lines. Aeroglide holds an exclusive license from the Canadian government for the product line’s underlying technology, which offers a unique improvement over conventional fluid bed drying methods. Marketed under the AeroPulse^TM brand name, this technology provides high thermal efficiency while using significantly less air than conventional fluid bed systems. Primarily incorporated in food and pharmaceutical processing applications, the new pulsed-air fluid bed drier technology represents a relatively untapped growth opportunity for Aeroglide. The typical selling price for a pulsed fluid bed drier ranges from $200,000 to $600,000.
Aftermarket Services:  Aeroglide’s aftermarket service offering includes mechanical redesign services related to customers’ line expansions and equipment refurbishments in addition to customized and standard replacement parts programs. Aeroglide also offers evaluative field engineering services designed to assist customers in maximizing drying equipment efficiency. Collectively, these services afford Aeroglide multiple touch points with customers between funded capital equipment projects and support Aeroglide’s overall business strategy.
Aeroglide’s aftermarket service offering leverages Aeroglide’s diverse mechanical design experience acquired through decades of workingside-by-side with customers to evaluate and resolve equipment-related expansion and maintenance issues. The aftermarket services provide an incremental opportunity to expand

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Aeroglide’s customer base, as such services are not exclusive to Aeroglide’s estimated installed equipment base.
Aeroglide’s field engineering and drier evaluation services are offered to operators of industrial process driers to assist in optimizing the performance of installed equipment. Aeroglide’s worldwide field engineering staff has extensive experience in identifying and evaluating both immediate and longer-term drier performance improvement opportunities. Aeroglide’s expertise extends to all makes, models, and vintages of driers across a wide variety of products and processes.
Competition
Aeroglide is the largest global designer and manufacturer of industrial drying and cooling process equipment in the world, primarily competing within a $300 million global market for conveyor driers and coolers. An estimated 50 drier and cooler manufacturers participate in the worldwide market. However, due to the fragmented nature of the industry, Aeroglide competes most directly with a handful of suppliers. Growth within the broader industry and, by extension, Aeroglide’s served market, is driven by manufacturing sector expansion, capacity utilization, and capital investments in machinery and equipment.
Manufacturers of conveyor driers and coolers compete based on a common set of criteria that includes the following factors:
• ~~Legal Proceedings~~Reliability — Since many driers and coolers are operated continuously over a 10 year to 20 year period, customers are heavily focused on equipment reliability. Many processors are, therefore, willing to pay a premium for higher quality, more reliable equipment to mitigate the cost and inconvenience of unscheduled maintenance.
• Process Knowledge — Design parameters for drying and cooling equipment include incoming and outgoing moisture levels, heat sensitivity, airflow requirements, and necessary retention times. As a result, manufacturers with significant thermal processing knowledge are usually differentiated in the marketplace. This is particularly important in the food and feed processing segments, where moisture uniformity failures can have a significant impact on a customer’s corporate image and profitability.
• Time to Delivery — Typical times to delivery for Aeroglide’s products range from 18 weeks to 24 weeks from the order date. Given these lead times, customers typically seek suppliers who are most capable of delivering equipment on schedule.
• Energy Efficiency — Depending on the application, drying and cooling equipment can consume a significant amount of energy. Accordingly, a more efficient machine can provide processors with enormouscost-of-ownership savings over the life of the equipment.
• Sanitation — Many processors use a single conveyor or drier machine to produce multiple products. As a result, ease of maintenance and cleaning becomes a critical factor in the selection of an equipment manufacturer to minimize cross-contamination. Effective machinery design can minimize change-over times, thereby increasing overall equipment productivity and value to the customer.
~~Advanced Circuits~~
Competitive Strengths/Growth Opportunities
Experienced, Proactive Senior Management Team:  Aeroglide’s senior management team, which has worked together since 1992, possesses over 75 years of collective tenure with Aeroglide. During the 1990s, the team proactively developed and implemented a plan that has positioned Aeroglide for long-term growth and profitability based on its core thermal processing expertise.
Proprietary Process Engineering Expertise:  Aeroglide maintains a broad base of process engineering expertise that has been developed over the past 66 years. Aeroglide’s technical expertise enables Aeroglide customers to manufacture consumable products in a more consistent and efficient manner than its competitors.

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Stable, Blue-Chip Customer Base:  Aeroglide maintains long-standing relationships with many of the world’s most well-known food, feed, and industrial processors. In each year since 2002, 60% to 90% of Aeroglide’s top-10 customers represented repeat purchasers.
Outsourcing Strategy
Aeroglide has developed a network of high-quality third-party component manufacturers to augment in house manufacturing capabilities. These third-party manufacturers provide production flexibility, expanded capabilities and additional manufacturing capacity. Aeroglide’s primary sourcing relationships are local, yet it has established new outsourcing relationships in China which it expects to develop and grow in the future. Quality and delivery of all outsourced production is managed by experienced Aeroglide personnel.
Proactive Marketing of New and Redesigned Products
Management targeted new product development as a key growth catalyst in the late 1990s, and Aeroglide has continued to invest in this area over the past several years. Aeroglide is looking to build upon recent success through proactive marketing of its impingement driers, rotary driers, toasters, and drum driers, and management expects strong organic growth from these lines going forward.
Further Penetration of the High-Growth China Market
China represents a significant and rapidly evolving growth opportunity for Aeroglide, both with respect to its sales potential and sourcing opportunities. Accordingly, Aeroglide is aggressively positioning itself in the Chinese market. To further capitalize on expected robust annual growth in the Chinese industrial drier and cooler market, Aeroglide recently opened its Shanghai office, which is supported by Aeroglide’s office based in Malaysia.
Strategic Acquisitions
There may be opportunity to capitalize on the fragmented nature of the industrial drier and cooler market by proactively pursuing acquisitions. Aeroglide’s prior acquisitions of FEC and national demonstrate management’s ability to fulfill this growth strategy and have established Aeroglide as the industry’s natural consolidator.
Customers
Aeroglide has developed long-standing relationships with many leading multinational processors of human food, animal feed, and industrial products. Due to the project-oriented nature of the business, it is common for the top customer list to vary from year to year. However, in each year since 2002, 60% to 90% of Aeroglide’s top ten customers represent repeat purchasers. Over the past five years, Aeroglide’s top ten customers have accounted for approximately 40% to 50% of total annual sales.
Sales and Marketing
Sales Strategy:  Aeroglide possesses the largest sales and marketing organization in the industrial process drying and cooling industry. Aeroglide’s integrated, highly technical outreach effort, which spans Aeroglide’s applications engineering, service and installation, product testing, and traditional capital equipment and aftermarket sales departments, services current and prospective customers from four branch offices (one domestic and three international). Aeroglide approaches the market with a value-added strategy, and management reinforces this message by utilizing selected media advertising outlets and participating in numerous annual industry trade shows around the world. Aeroglide provides a high level of customer service, product-specific knowledge, and customized technical expertise through the depth of its team.
The nature of customers’ capital equipment purchasing decisions results in a dynamic sales cycle. For long-time customers with tightly defined thermal processing parameters, a new equipment order can

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conclude in three months. For prospective customers with more flexible processing requirements and rigorous internal approval processes, the sales cycle can extend for up to 12 months. On average, Aeroglide’s typical sales cycle is 6 months to 9 months in duration.
Facilities
Aeroglide’s Cary, North Carolina, facility serves as Aeroglide’s corporate headquarters and primary manufacturing location. Aeroglide performs all of its administration, in-house production, design, and the vast majority of its process engineering work at the Cary facility. Aeroglide also leases a product testing laboratory facility and storage space in the Cary area. The combined facilities in the Cary area contain approximately 130,000 square feet and houses Aeroglide’s capital equipment and aftermarket fabrication and assembly functions. In addition, Aeroglide leases sales and service facilities in Trevose, Pennsylvania; Stamford, England; Shanghai, China; and Malaysia.
Legal Proceedings
Aeroglide is, from time to time, involved in litigation and the subject of various claims and complaints arising in the ordinary course of business. In the opinion of ~~Advanced Circuits’~~Aeroglide’s management, the ultimate disposition of these matters will not have a material adverse effect on ~~Advanced Circuits’~~Aeroglide’s business, results of operations and financial condition.
Employees
Aeroglide employs a non-unionized workforce of 205 full-time employees. In addition, Aeroglide utilizes an experienced pool of part-time direct laborers to satisfy increased production demand.
Anodyne
Overview
Anodyne headquartered in Los Angeles, California, is a leading manufacturer of medical support surfaces and patient positioning devices used primarily for the prevention and treatment of pressure wounds experienced by patients with limited or no mobility.
On August 1, 2006 we made loans to and purchased a controlling interest in Anodyne totaling $30.4 million, approximately $17.3 million of which we paid in cash and the remainder of which we paid by issuing 950,000 of our newly issued shares at a price of $13.77 per share. Our controlling interest represents approximately 47.3% of the outstanding capital of Anodyne stock on a fully diluted basis and approximately 69.8% of the voting power on a fully diluted basis.
For the full year ended December 31, 2006, Anodyne had net sales of approximately $23.4 million and had operating income of approximately $0.3 million. Since August 1, 2006, the date of our acquisition, Anodyne had revenues of $12.2 million and an operating loss of approximately $0.5 million. Anodyne had total assets of $44.7 million at December 31, 2006. Revenues from Anodyne, since our acquisition, represented approximately 3.0% of our total revenues for the 2006 fiscal year.
History of Anodyne
Anodyne was initially formed in early 2006 to acquire AMF and SenTech, located in Corona, California and Coral Springs, Florida, respectively. AMF was a leading manufacturer of powered and static mattress replacement systems, mattress overlays, seating cushions and patient positing devices. SenTech was a leading designer and manufacturer of advanced electronically controlled alternating pressure, low air loss and lateral rotation specialty support surfaces for the wound care industry. Prior to its acquisition, SenTech had established a premium brand in the less price sensitive therapeutic market while AMF competed in the more price sensitive preventive market.

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~~Capital Structure~~
      AsOn October 5, 2006, Anodyne acquired the patient positioning device business of ~~November 25, 2005, Advanced Circuits’ authorized capital stock consisted of (i) 500,000 shares of Series A common stock, par value $0.01 per share, of which 232,363 shares~~Anatomic, for approximately $8.6 million. In addition, acquisition costs totaling $0.5 million were issued and outstanding, and (ii) 1,400,000 shares of Series B common stock, par value $0.01 per share, of which 904,000 shares were issued and outstanding. As of such date, a subsidiary of CGI owned 882,120 shares of Series B common stock, and Advanced Circuits’ senior management team and certain other investors, collectively, owned 21,880 shares of Series B common stock and all of the shares of Series A common stock. The rights of all holders of common stock are substantially identical except that each holder of Series A common stock is entitled to only one vote per share, whereas each holder of Series B common stock is entitled to ten votes per share. We have entered into a stock purchase agreement pursuant to which we will acquire all of such shares owned by such subsidiary of CGI, together with 1,880 shares of Series B common stock and 80,000 shares of Series A common stock owned by certain other investors. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses — Advanced Circuits” for a discussion about the material terms of the stock purchase agreement.
      Also, as of November 25, 2005, there were unexercised outstanding options to purchase 106,113 shares of Series A common stock and, Advanced Circuits intended to issue, on or before December 31, 2005, additional options to purchase 87,253 shares of Series A common stock. If these additional options, together with the options outstanding as of such date, were to be exercisedaccrued in full, CGI’s ownership would be diluted from approximately 85.7% to approximately 73.2%. There are no other options or securities convertible or exchangeable into shares of capital stock that are currently issued and outstanding.
~~Employees~~
      As of September 30, 2005, Advanced Circuits employed approximately 191 persons. Of these employees, there were 19 in sales and marketing, six in information technology, eight in accounting and finance, 36 in engineering, four in shipping, 11 in maintenance, 103 in production and four in management. None of Advanced Circuits’ employees are subject to collective bargaining agreements. Advanced Circuits believes its relationship with its employees is good.
      In connection with the ~~acquisition~~purchase transaction. The acquired operations were merged into Anodyne’s operations.
Industry
The medical support surfaces industry is fragmented in nature. Management estimates the market is comprised of ~~Advanced Circuits~~approximately 70 small participants who design and manufacture products for preventing and treating decubitus ulcers. Decubitus ulcers, or pressure ulcers, are formed on immobile medical patients through continued pressure on one area of skin. Manufacturers of medical support surfaces typically sell to one of several large medical distribution companies who rent or sell the products to hospitals, long-term care facilities and home health care organizations.
Decubitus ulcers are caused by ~~CGI’s subsidiary, such subsidiary and Advanced Circuits extended loans to certain members~~the placement of ~~Advanced Circuits’ senior management team to facilitate their investment~~continuous pressure on some point of skin for a prolonged period of time. Immobility caused by injury, old age, chronic illness or obesity are the main causes for the development of pressure ulcers. In these cases, the person lying in ~~Advanced Circuits. Each such loan is secured by~~the same position for a ~~pledge~~long period of ~~all~~time puts pressure on a small portion of the ~~shares~~body surface. This pressure, if continued for a sustained period, can close blood capillaries that provide oxygen and nutrition to the skin. Over a period of ~~common stock~~time, these cells deprived of ~~Advanced Circuits acquired~~oxygen begin to break down and form sores. Contributing factors to the development of pressure ulcers are sheer, or pull on the skin due to the underlying fabric, and moisture, which increases propensity to deteriorate.
The total U.S. market for specialty beds and medical support surfaces was estimated to be $1.6 billion in 2005 and was forecasted to reach $2.9 billion by ~~such senior manager.~~2012 (Frost and Sullivan). Management believes the medical support surfaces industry will continue to grow due to several favorable demographic and industry trends including the increasing incidence of obesity in the United states, increasing life expectancies, and an increasing emphasis on prevention of pressure ulcers by hospitals and long term care facilities.
According to the Centers for Disease Control and Prevention, between the years 1980 and 2000, obesity rates more than doubled among adults in the United States. Studies have shown that this increase in obesity has been a key factor in rising medical costs over the last 15 years. According to one study done at Emory University, increases in obesity rates have accounted for 27% of the increase in health care spending between 1987 and 2001. As an individual’s weight increases, so to does the probability that the individual will become immobile and, according to studies performed at the University of North Carolina, greater than 40% of obese adults aged 54 to 73 were at least partially immobile. As individuals become less mobile, they are more likely to require either preventative mattresses to better disperse weight and reduce pressure areas or therapeutic mattresses to shift weight and pressure. Similar to how obesity increases the occurrence of immobility, so too does an aging society. As life expectancy expands in the US due to improved health care and nutrition, so too does the probability that an individual will be immobile for a portion of their lives. In addition, ~~with respect~~as individuals age skin becomes more susceptible to ~~certain~~breakdown increasing the likelihood of ~~these senior~~developing pressure ulcers.
Beyond favorable demographic trends, Anodyne’s management ~~loans, such subsidiary~~believes hospitals and other care providers are placing an increased emphasis on the prevention of ~~CGI~~pressure ulcers. Frost and ~~Advanced Circuits have partial recourse against~~Sullivan estimates that approximately 1 million pressure ulcers occur annually in the ~~personal assets~~United States generating an estimated $1.3 billion in annual costs to hospitals alone. According to Medicare reimbursement guidelines, pressure ulcers are eligible for reimbursement by third party payers only when they are diagnosed upon hospital admission. Additionally, third party payers only provide reimbursement for preventative mattresses under limited circumstances. The end result is that if an at-risk patient develops pressure ulcers while at the hospital, the hospital is required to bear the cost of the applicable senior manager. If specific financial growth goals are achieved by Advanced Circuits as of specific dates, these loans will be forgiven, in whole or in part, depending upon the level of financial growth achieved. Those loans that are secured only by a pledge of senior manager shares of common stock will be treated as compensatory stock options for income tax purposes. Upon repayment by a senior manager of such loan, whether in whole or in part and whether by payment in cash or by reason of forgiveness of the debt, for income tax purposes, the “option” will be treated as having been exercised.healing. As a result ~~such senior manager will be treated as having received compensatory taxable income in an amount equal to the difference between the fair market value~~ of ~~the stock at exercise~~increasing litigation and the ~~amount repaid~~high cost of healing pressures ulcers, hospitals and other care providers are now focusing on ~~account~~using pressure relief equipment to reduce the incidence of the loan, and Advanced Circuits will be entitled to a corresponding deduction from income. Advanced Circuits has granted the applicable senior managers the right to put to Advanced Circuits a sufficient number of shares of their Series A common stock, at the then fair market value of such shares, to cover the tax that results from any such deemed exercise of options. The loans by Advanced Circuits to the senior managers of Advanced Circuits will remain assets of Advanced Circuits in connection with our acquisition of control of Advanced Circuits. The loans by CGI’s subsidiary to the senior managers will remain assets of CGI’s subsidiary and will not be transferred to us upon or after the consummation of the closing of this offering.acquired pressure ulcers.

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~~Silvue~~Products and Services
Specialty beds, mattress replacements and overlays are the primary products currently available for pressure relief and pressure reduction to treat and prevent decubitus ulcers. The market for specialty beds and support surfaces include the acute care centers, long-term care centers, nursing home centers and home healthcare centers. Medical support surfaces are designed to have preventative and/or therapeutic uses. Four basic product categories are:
Alternating pressure mattress replacements:  Mattresses which can be used for therapy or prevention and are typically manufactured using air cylinders or a combination of air cylinders and foam. Systems are designed to inflate every other cylinder while contiguous cylinders deflate in an alternating pattern. The alternating inflation and deflation prevents sustained pressure on an area of skin by shifting pressure from one area to another. Typically a control unit is included in an alternating pressure system that provides automatic changes in the distribution of air pressure. While today this segment represents a small portion of the overall market for medical support surfaces, Anodyne’s management expects it to grow rapidly, due to the superior therapeutic and preventative benefits of alternating pressure and increased focus on the prevention and treatment of bed sores. Anodyne produces a range of alternating pressure mattress replacements and, as confirmed by customer interviews, is viewed as a leader in development of these systems.
Low air loss mattress replacements:  Mattresses that allow air to flow from the mattress and adjust support according to the patients’ weight and position. Low air loss systems may provide additional features such as controlled air leakage, which reduces skin moisture levels, and lateral rotation which can aid in patient turning and reduces risks associated with fluid building up in a patient’s lungs. Anodyne currently produces low air loss mattress systems which management believes is the only low air loss product on the market that gets air to the patient’s skin directly through a patented process.
Static mattress replacement systems:  Consists of mattresses which have no powered elements. Their support material can be composed of foam, air, water, gel or a combination of the two. In the case of water or gel materials, they are held in place with containment bladders. Static mattress replacement systems distribute a patient’s body weight to lessen forces on pressure points. These products currently comprise the majority of support surfaces. Currently Anodyne manufactures a range of foam based static mattress systems.
Mattress overlays and positioning devices:  These products are gel based, foam based or air filled surfaces which help to position patients and prevent the development of bed sores through reducing heat, sheer and moisture. Overlays reduce the incidence of bed sores by providing air to the patient’s skin and dispersion pressure through the use of foams and gels. Positioning devices are used to position patients for procedures as well as to minimize the likelihood of developing a pressure ulcer during those procedures. Anodyne offers a range of foam based mattress overlays and positioning devices.
Competition
The competition in the medical support surfaces market is based on product performance, price and durability. Other factors may include the technological ability of a manufacturer to customize their product offering to meet the needs of large distributors. Anodyne competes with over 70 manufacturers of varying sizes who then sell predominantly through distributors to the acute care, long term care and home health care markets. Specific competitors include Gaymar Industries, Inc., Span America and WCW, Inc. and other smaller competitors. Anodyne differentiates itself from these competitors based on the quality of the products it manufactures as well as its ability to produce a full line of foam and air mattresses and positioning devices. While many manufacturers specialize in the production of a single type of support surface, as skills required to develop and manufacture products vary by materials used, Anodyne is able to offer its customers a full spectrum of support surfaces. In addition, Anodyne’s management believes that its multiple locations provide it with a competitive advantage due to its ability to offer standard products nationwide.

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Business Strategies
Anodyne’s management is focused on strategies to grow revenues, improve operating efficiency and improve gross margins. Of particular note, Anodyne has completed three acquisitions since its inception and believes that numerous benefits to consolidation exist within the support surfaces industry. The following is a discussion of these strategies:
• ~~Overview~~Offer customers high quality, consistent product, on a national basis — Products produced by Anodyne and its competitors are typically bulky in nature and may not be conducive to shipping. Management believes that many of its competitors do not have the scale or resources required to produce support surfaces for national distributors and believes that customers value manufacturers with the scale and sophistication required to meet these needs.
• Leverage scale to provide industry leading research and development — Medical support surfaces are becoming increasingly advanced in nature. Anodyne’s management believes that many smaller competitors to do not have the resources required to effectively meet the changing needs of their customers and believes that increased scale acquired though acquisitions will allow it to better serve its customers through industry leading research and development.
• Pursue cost savings through scale purchasing and operational improvements — As many of the products used to manufacture medical support surfaces are standard in nature, management believes that increased scale achieved through acquisitions will allow it to benefit from lower costs of materials and therefore lower costs of sales. In addition, management believes that there are opportunities to improve the operations of smaller acquired entities and in turn benefit from production efficiencies.

Research and Development
Anodyne develops products both independently and in partnership with large distribution intermediaries. Initial steps of product development are typically made independently. Larger distribution market participants will typically require further product development to ensure mattress systems have the desired properties while smaller distributors will tend to buy more standardized products. Anodyne has seven dedicated professionals, including individuals focused on process engineering, design engineering, and electrical engineering, working on the development of the company’s next generation of support surfaces.
Customers
Support surfaces are primarily sold through distributors to acute care (hospitals) facilities, long term care facilities and home health care organizations. The acute care distribution market for support surfaces is dominated by large suppliers such as Stryker Corporation, Hillenbrand Industries Inc. and Kinetic Concepts, Inc. Beyond national distribution intermediaries there are numerous smaller local distributors who will purchase more standardized support surfaces from Anodyne as quantities ordered may not be adequate to justify further development and customization.
Suppliers
Anodyne’s two primary raw materials used are polyurethane foam and fabric (primarily nylon fabric). Among Anodyne’s largest suppliers are Foamex International, Inc. and Future Foam, Inc. Anodyne uses multiple suppliers for foam and fabric and believes that these raw materials are in adequate supply and are available from many suppliers at competitive prices.
Intellectual Property
Many of Anodyne’s products are patent protected in the United States. Anodyne has five patents issued, filed from 1996 to 2005, and has two filed and pending patents.

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Regulatory Environment
The FDCA, and regulations issued or proposed thereunder, provide for regulation by the FDA of the marketing, manufacture, labeling, packaging and distribution of medial devices, including Anodyne’s products. These regulations require, among other things, that medical device manufacturers register with the FDA, list devices manufactured by them, and file various inspections by regulatory authorities and must comply with good manufacturing practices as required by the FDA and state regulatory authorities. Anodyne’s management believes that the company is in substantial compliance with applicable regulations and does not anticipate having to make any material expenditures as a result of FDA or other regulatory requirements.
Legal Proceedings
Anodyne is, from time to time, involved in litigation and the subject of various claims and complaints arising in the ordinary course of business. In the opinion of Anodyne’s management, the ultimate disposition of these matters will not have a material adverse effect on Anodyne’s business.
Employees
As of December 31, 2006, Anodyne employed 128 persons in all its locations. In addition, there were 174 leased employees consisting primarily of production employees.
CBS Personnel
Overview
CBS Personnel, headquartered in Cincinnati, Ohio, is a provider of temporary staffing services in the United States. CBS Personnel also provides its clients with other complementary human resource service offerings such as employee leasing services, permanent staffing andtemporary-to-permanent placement services. Currently, CBS Personnel operates 144 branch locations in various cities in 18 states. CBS Personnel and its subsidiaries have been associated with quality service in their markets for more than 30 years.
CBS Personnel serves over 4,000 corporate and small business clients and in an average week places over 24,000 temporary employees in a broad range of industries, including manufacturing, transportation, retail, distribution, warehousing, automotive supply, construction, industrial, healthcare and finance. We believe the quality of CBS Personnel’s branch operations and its strong sales force provide CBS Personnel with a competitive advantage over other placement services. CBS Personnel’s senior management, collectively, has approximately 50 years of experience in the human resource outsourcing industry and other closely related industries.
Concurrent with the IPO, we made loans to and purchased a controlling interest in CBS Personnel totaling approximately $127.8 million. Our controlling interest represents approximately 97.6% of the outstanding capital stock on a primary basis and approximately 94.4% on a fully diluted basis. In November 2006, CBS Personnel acquired substantially all the assets of PMC Staffing Solutions, Inc., d/b/a Strategic Edge Solutions, which we refer to as SES, for approximately $5.1 million.
For the fiscal year ended December 31, 2006 and the fiscal year ended December 31, 2005, temporary staffing generated approximately 97.2% and 97.1% of CBS Personnel’s revenues, respectively, while the employee leasing andtemporary-to-permanent staffing and permanent placement accounted for the remaining revenues. For the years ended December 31, 2006 and December 31, 2005, CBS Personnel had revenues of approximately $551.1 million and $543.0 million, respectively.
Since May 16, 2006, the date of our acquisition, CBS Personnel has had revenues of $352.4 million and operating income of $17.1 million. CBS Personnel had total assets of $142.6 million at December 31, 2006. Revenues from CBS Personnel represented 85.8% of our total revenues for the 2006 fiscal year.

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History of CBS Personnel
In August 1999, CGI acquired Columbia Staffing through a newly formed holding company. Columbia Staffing is a provider of light industrial, clerical, medical, and technical personnel to clients throughout the southeast. In October 2000, CGI acquired through the same holding company CBS Personnel Services, Inc., a Cincinnati-based provider of human resources outsourcing. CBS Personnel Services, Inc. began operations in 1971 and is a provider of temporary staffing services in Ohio, Kentucky and Indiana, with a particularly strong presence in the metropolitan markets of Cincinnati, Dayton, Columbus, Lexington, Louisville, and Indianapolis. The name of the holding company that made these acquisitions was later changed to CBS Personnel Holdings, Inc.
In 2004, CBS Personnel expanded geographically through the acquisition of Venturi Staffing Partners, which we refer to as VSP, formerly a wholly owned subsidiary of Venturi Partners. VSP is a provider of temporary staffing,temp-to-hire and permanent placement services operating through branch offices located primarily in economically diverse metropolitan markets including Boston, New York, Atlanta, Charlotte, Houston and Dallas, as well as both southern and northern California.
Approximately 60% of VSP’s temporary staffing revenue related to the clerical staffing, 24% related to light industrial staffing and the remaining 16% related to niche/other. Based on its geographic presence, VSP was a add-on acquisition for CBS Personnel as their combined operations did not overlap and the merger created a more national presence for CBS Personnel. In addition, the acquisition helped diversify CBS Personnel’s revenue base to be more balanced between the clerical and light industrial staffing, representing approximately 40% and 46%, respectively, of the business post-acquisition.
In November 2006, CBS Personnel acquired substantially all of the assets of SES. This acquisition gave CBS Personnel a presence in the Baltimore, Maryland area while significantly increasing its presence in the Chicago, Illinois area. SES derives the majority of its revenues from the light industrial market.
Industry
According to Staffing Industry Analysts, Inc., the staffing industry generated approximately $120 billion in revenues in 2005. The staffing industry is comprised of four product lines: (i) temporary staffing; (ii) employee leasing; (iii) permanent placement; and (iv) outplacement, representing approximately 74%, 10%, 15% and 1% of the market, respectively, according to the American Staffing Association. According to the American Staffing Association, Annual Economic Analysis of the Staffing Industry, the temporary staffing business grew by 12.5% in 2005. Over 95% of CBS Personnel’s revenues are generated in temporary staffing.
CBS Personnel competes in both the light industrial and clerical categories of the temporary staffing product line. The light industrial category is comprised of providers of unskilled and semi-skilled workers to clients in manufacturing, distribution, logistics and other similar industries. The clerical category is comprised of providers of administrative personnel, data entry professionals, call center employees, receptionists, clerks and similar employees.
According to the U.S. Bureau of Labor Statistics, or BLS, more jobs were created in professional and business services (which includes staffing) than in any other industry between 1992 and 2002. Further, BLS has projected that the professional and business services sector is expected to be the second fastest growing sector of the economy between 2002 and 2012. Companies today are operating in a more global and competitive environment, which requires them to respond quickly to fluctuating demand for their products and services. As a result, companies seek greater workforce flexibility translating to an increasing demand for temporary staffing services. This growing demand for temporary staffing should remain consistent in the near future as temporary staffing becomes an integral component of corporate human capital strategy.
Services
CBS Personnel provides temporary staffing services tailored to meet each client’s unique staffing requirements. CBS Personnel maintains a strong reputation in its markets for providing complete staffing

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services that includes both high quality candidates and superior client service. CBS Personnel’s management believes it is one of only a few staffing services companies in each of its markets that is capable of fulfilling the staffing requirements of both small, local clients and larger, regional or national accounts. To position itself as a key provider of human resources to its clients, CBS Personnel has developed an approach to service that focuses on:
• providing excellent service to existing clients in a consistent and efficient manner;
• attempting to sell additional service offerings to existing clients to increase revenue per client;
• marketing services to prospective clients to expand the client base; and
• providing incentives to employees through well-balanced incentive and bonus plans to encourage increased sales per client and the establishment of new client relationships.
CBS Personnel offers its clients a broad range of staffing services including the following:
• temporary staffing services in categories such as light industrial, clerical, healthcare, construction, transportation, professional and technical staffing;
• employee leasing and related administrative services; and
• temporary-to-permanent and permanent placement services.
Temporary Staffing Services
CBS Personnel endeavors to understand and address the individual staffing needs of its clients and has the ability to serve a wide variety of clients, from small companies with specific personnel needs to large companies with extensive and varied requirements. CBS Personnel devotes significant resources to the development of customized programs designed to fulfill the client’s need for certain services with quality personnel in a prompt and efficient manner. CBS Personnel’s primary temporary staffing categories are described below.
• Light Industrial — A substantial portion of CBS Personnel’s temporary staffing revenues are derived from the placement of low-to mid-skilled temporary workers in the light industrial category, which comprises primarily the distribution(“pick-and-pack”) and light manufacturing (such as assembly-line work in factories) sectors of the economy. Approximately 50% of CBS Personnel’s temporary staffing revenues were derived from light industrial for the fiscal year ended December 31, 2006.
• Clerical — CBS Personnel provides clerical workers that have been screened, reference-checked and tested for computer ability, typing speed, word processing and data entry capabilities. Clerical workers are often employed at client call centers and corporate offices. Approximately 37% of CBS Personnel’s temporary staffing revenues were derived from clerical for the fiscal year ended December 31, 2006.
• Technical — CBS Personnel provides placement candidates in a variety of skilled technical capacities, including plant managers, engineering management, operations managers, designers, draftsmen, engineers, materials management, line supervisors, electronic assemblers, laboratory assistants and quality control personnel. Approximately 4% of CBS Personnel’s temporary staffing revenues were derived from technical for the fiscal year ended December 31, 2006.
• Healthcare — Through its expert placement agents in its Columbia Healthcare division, CBS Personnel provides trained candidates in the following healthcare categories: medical office personnel, medical technicians, rehabilitation professionals, management and administrative personnel and radiology technicians, among others. Approximately 2% of CBS Personnel’s temporary staffing revenues were derived from healthcare for the fiscal year ended December 31, 2006.
• Niche/Other — In addition to the light industrial, clerical, healthcare and technical categories, CBS Personnel also provides certain niche staffing services, placing candidates in the skilled industrial, construction and transportation sectors, among others. CBS Personnel’s wide array of niche service

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offerings allows it to meet a broad range of client needs. Moreover, these niche services typically generate higher margins for CBS Personnel. Approximately 7% of CBS Personnel’s temporary staffing revenues were derived from niche/other for the fiscal year ended December 31, 2006.
As part of its service offerings, CBS Personnel provides anon-site program to clients employing, generally, 50 or more of its temporary employees. Theon-site program manager works full-time at the client’s location to help manage the client’s temporary staffing and related human resources needs and provides detailed administrative support and reporting systems, which reduce the client’s workload and costs while allowing its management to focus on increasing productivity and revenues. CBS Personnel’s management believes thison-site program offering creates strong relationships with its clients by providing consistency and quality in the management of clients’ human resources and administrative functions. In addition, through itson-site program, CBS Personnel often gains insight into the demand for temporary staffing services in new markets, which has helped management identify possible areas for geographic expansion.
Employee Leasing Services
Through the employee leasing and administrative service offerings of its Employee Management Services, or EMS, division, CBS Personnel provides administrative services, handling the client’s payroll, risk management, unemployment services, human resources support and employee benefit programs. This results in reduced administrative requirements for employers and, most importantly, by having EMS take over the non-productive administrative burdens of an organization, affords clients the ability to focus on their core businesses.
Temporary-to-Permanent and Permanent Staffing Services
Complementary to its temporary staffing and employee leasing services, CBS Personnel offerstemporary-to-permanent and permanent placement services, often as a result of requests made through its temporary staffing activities. In addition, temporary workers will sometimes be hired on a permanent basis by the clients to whom they are assigned. CBS Personnel earns fees for permanent placements, in addition to the revenues generated from providing these workers on a temporary basis before they are hired as permanent employees.
Competitive Strengths
CBS Personnel has established itself as strong and dependable providers of staffing and other resource services by responding to its customers’ staffing needs in a timely and cost effective manner. A key to CBS Personnel’s success has been its long history as well as the number of offices it operates in each of its markets. This strategy has allowed CBS Personnel to build a premium reputation in each of its markets and has resulted in the following competitive strengths:
• Large Employee Database/Customer List — Over the course of its history, CBS Personnel’s management believes CBS Personnel has built a significant presence in most of its markets in terms of both clients and employees. CBS Personnel is successful in recruiting additional employees because of its reputation as having numerous job openings with a wide variety of clients. CBS Personnel attracts clients through its reputation as having a large database of reliable employees with a wide ranging skill set. CBS Personnel’s employee database and client list have been built over a number of years in each of its markets and serve as a major competitive strength in most of its markets.
• Higher Operating Margins — By establishing multiple offices in the majority of the markets in which it operates, CBS Personnel is able to better leverage its selling, general and administrative expenses at the regional and field level and create higher operating income margins than its less dense competitors.

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• Scalable Business Model — By having multiple office locations in each of its markets, CBS Personnel is able to quickly scale its business model in both good and bad economic environments. For example, in 2001 and 2002 during the economic downturn, CBS Personnel was able to close offices and reduce overhead expenses while shifting business to adjacent offices. For competitors with only one office per market, closing an office requires abandoning the clients and employees in that market. During 2001 and 2002, CBS Personnel was able to reduce its overhead costs by approximately 13% while maintaining its presence in each of its markets and retaining its clients and employees.
• Marketing Synergies — By having a number of offices in the majority of its markets, CBS Personnel allocates additional resources to marketing and selling and amortizes those costs over a larger office network. For example, while many of its competitors use selling branch managers who split time between operations and sales, CBS Personnel uses outside sales reps that are exclusively focused on bringing in new sales.
Business Strategies
CBS Personnel’s business strategy is to (i) leverage its position in its existing markets, (ii) build a presence in contiguous markets, and (iii) pursue and selectively acquire other staffing resource providers.
• Invest in its Existing Markets — In many of its existing markets, CBS Personnel has multiple branch locations. CBS Personnel plans on continuing to invest in these existing markets through the opening of additional branch locations and the hiring of additional sales and operations employees. In addition, CBS personnel is offering complimentary human resource services to its existing clients such as full time recruiting, consulting, and administrative outsourcing. CBS Personnel has implemented an incentive plan that highly rewards its employees for selling services beyond its traditional temporary staffing services.
• Build a Presence in Contiguous Markets — CBS Personnel plans on opening new branch locations in markets contiguous to those in which it operates. CBS Personnel believes that the cost and time required to establish profitable branch locations is minimized through expansion into contiguous markets as costs associated with advertising and administrative overhead are reduced due to proximity.
• Pursue Selective Acquisitions — CBS Personnel views acquisitions, such as the SES acquisition in November 2006, as an attractive means to enter into a new geographical market. In some cases CBS Personnel will consider making acquisitions within its existing markets to increase its market share.
Clients
CBS Personnel serves over 4,000 clients in a broad range of industries, including manufacturing, technical, transportation, retail, distribution, warehousing, automotive supply, construction, industrial, healthcare services and financial. These clients range in size from small, local firms to large, regional or national corporations. One of CBS Personnel’s largest clients is Chevron Corporation, which accounted for 6% of revenues for the year ended December 31, 2006. None of CBS Personnel’s other clients individually accounted for more than 5% of its revenues for the year ended December 31, 2006. CBS Personnel’s client assignments can vary from a period of a few days to long-term, annual or multi-year contracts. We believe CBS Personnel has a strong relationship with its clients.
Sales, Marketing and Recruiting Efforts
CBS Personnel’s marketing efforts are principally focused on branch-level development of local business relationships. Local salespeople are incentivized to recruit new clients and increase usage by existing clients through their compensation programs, as well as through numerous contests and competitions. Regional or company-based specialists are utilized to assist local salespeople in closing potentially large accounts, particularly where they may involve anon-site presence by CBS Personnel. On a regional

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and national level, efforts are made to expand and align its services to fulfill the needs of clients with multiple locations, which may also include usingon-site CBS Personnel professionals and the opening of additional offices to better serve a client’s broader geographic needs.
In terms of recruitment of qualified employees, CBS Personnel utilizes a variety of methods to recruit its work force including, among others, rewarding existing employees for qualifying referrals, newspaper and other media advertising, internet sourcing, marketing brochures distributed at colleges and vocational schools and community or education-based job fairs. CBS Personnel actively recruits in each community in which it operates, through educational institutions, evening and weekend interviewing and open houses. At the corporate level, CBS Personnel maintains an in-house web-based job posting and resume process which allows distribution of job descriptions to over 3,000 national and local online job boards. Individuals may also submit a resume through CBS Personnel’s website.
Following a prospective employee’s identification, CBS Personnel systematically evaluates each candidate prior to placement. The employee application process includes an interview, skills assessment test, education verification and reference verification, and may include drug screening and background checks depending upon customer requirements.
Competition
The temporary staffing industry is highly fragmented and, according to the U.S. Census Bureau in 2002, was comprised of approximately 11,500 service providers, the vast majority of which generate less than $10 million in annual revenues. Staffing services firms with more than 10 establishments account for only 1.6% of the total number of service providers, or 187 companies, but generate 49.3% of revenues in the temporary staffing industry. The largest publicly owned companies specializing in temporary staffing services are Adecco, SA, Vedior NV, Randstad Holdings NV, and Kelly Services Inc. The employee leasing industry consists of approximately 4,200 service providers. Our largest national competitors in employee leasing include Administaff, Inc., Gevity HR, and the employee leasing divisions of large business service companies such as Automatic Data Processing, Inc., and Paychex, Inc.
CBS Personnel competes with both large, national and small, local staffing companies in its markets for clients. Competition in the temporary staffing industry revolves around quality of service, reputation and price. Notwithstanding this level of competition, CBS Personnel’s management believes CBS Personnel benefits from a number of competitive advantages, including:
• multiple offices in its core markets;
• long-standing relationships with its clients;
• a large database of qualified temporary workers which enables CBS Personnel to fill orders rapidly;
• well-recognized brands and leadership positions in its core markets; and
• a reputation for treating employees well and offering competitive benefits.
Numerous competitors, both large and small, have exited or significantly reduced their presence in many of CBS Personnel’s markets. CBS Personnel’s management believes that this trend has resulted from the increasing importance of scale, client demands for broader services and reduced costs, and the difficulty that the strong positions of market leaders, such as CBS Personnel, present for competitors attempting to grow their client base.
CBS Personnel also competes for qualified employee candidates in each of the markets in which it operates. Management believes that CBS Personnel’s scale and concentration in each of its markets provides it with significant recruiting advantages. Key among the factors affecting a candidate’s choice of employers is the likelihood of reassignment following the completion of an initial engagement. CBS Personnel typically has numerous clients with significantly different hiring patterns in each of its markets, increasing the likelihood that it can reassign individual employees and limit the amount of time an

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employee is in transition. As employee referrals are also a key component of its recruiting efforts, management believes local market share is also key to its ability to identify qualified candidates.
Tradenames
CBS Personnel uses the following tradenames:CBS Personnel^TM,CBS Personnel Services^TM,Columbia Staffing^TM,Columbia Healthcare Services^TM andVenturi Staffing Partners^TM. We believe these trade names have strong brand equity in their markets and have significant value to CBS Personnel’s business.
Facilities
CBS Personnel, headquartered in Cincinnati, Ohio, currently provides staffing services through all 144 of its branch offices located in 18 states. The following table shows the number of branch offices located in each state in which CBS Personnel operates and the employee hours billed by those branch offices for the fiscal year ended December 31, 2006.

Number of
Employee Hours

State
Branch Offices Billed
(in thousands)

Ohio 26 10,053
California 20 3,917
Kentucky 14 4,352
Texas 14 5,207
Illinois 11 1,144
South Carolina 10 2,166
North Carolina 8 2,050
Indiana 7 1,781
Maryland 7 105
Pennsylvania 7 926
Massachusetts 5 328
Georgia 4 383
Virginia 3 1,307
Alabama 2 541
New Jersey 2 96
New York 2 589
Tennessee 1 18
Washington 1 72
All of the above branch offices, along with CBS Personnel’s principal executive offices in Cincinnati, Ohio, are leased. Lease terms are typically three to five years. CBS Personnel does not anticipate any difficulty in renewing these leases or in finding alternative sites in the ordinary course of business.
Regulatory Environment
In the United States, temporary employment services firms are considered the legal employers of their temporary workers. Therefore, state and federal laws regulating the employer/employee relationship, such as tax withholding and reporting, social security and retirement, equal employment opportunity and Title VII Civil Rights laws and workers’ compensation, including those governing self-insured employers under the workers’ compensation systems in various states, govern CBS Personnel’s operations. By entering into a co-employer relationship with employees who are assigned to work at client locations, CBS Personnel assumes certain obligations and responsibilities of an employer under these federal and state laws. Because many of these federal and state laws were enacted prior to the development of nontraditional employment relationships, such as professional employer, temporary employment, and outsourcing arrangements, many of these

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laws do not specifically address the obligations and responsibilities of nontraditional employers. In addition, the definition of “employer” under these laws is not uniform.
Although compliance with these requirements imposes some additional financial risk on CBS Personnel, particularly with respect to those clients who breach their payment obligation to CBS Personnel, such compliance has not had a material adverse impact on CBS Personnel’s business to date. CBS Personnel believes that its operations are in compliance in all material respects with applicable federal and state laws.
Workers’ Compensation Program
As the employer of record, CBS Personnel is responsible for complying with applicable statutory requirements for workers’ compensation coverage. State law (and for certain types of employees, federal law) generally mandates that an employer reimburse its employees for the costs of medical care and other specified benefits for injuries or illnesses, including catastrophic injuries and fatalities, incurred in the course and scope of employment. The benefits payable for various categories of claims are determined by state regulation and vary with the severity and nature of the injury or illness and other specified factors. In return for this guaranteed protection, workers’ compensation is considered the exclusive remedy and employees are generally precluded from seeking other damages from their employer for workplace injuries. Most states require employers to maintain workers’ compensation insurance or otherwise demonstrate financial responsibility to meet workers’ compensation obligations to employees.
In many states, employers who meet certain financial and other requirements may be permitted to self-insure. CBS Personnel self-insures its workers’ compensation exposure for a portion of its employees. Regulations governing self-insured employers in each jurisdiction typically require the employer to maintain surety deposits of government securities, letters of credit or other financial instruments to support workers’ compensation claims in the event the employer is unable to pay for such claims.
As a self-insured employer, CBS Personnel’s workers’ compensation expense is tied directly to the incidence and severity of workplace injuries to its employees. CBS Personnel seeks to contain its workers’ compensation costs through an aggressive approach to claims management, including assigning injured workers, whenever possible, to short-term assignments which accommodate the workers’ physical limitations, performing a thorough and prompton-site investigation of claims filed by employees, working with physicians to encourage efficient medical management of cases, denying questionable claims and attempting to negotiate early settlements to mitigate contingent and future costs and liabilities. Higher costs for each occurrence, either due to increased medical costs or duration of time, may result in higher workers’ compensation costs to CBS Personnel with a corresponding material adverse effect on its financial condition, business and results of operations.
Employees
As of December 31, 2006, CBS Personnel employed approximately 99 individuals in it its corporate staff and approximately 778 staff members in its branch locations. During the year ended December 31, 2006, CBS Personnel employed over 24,000 temporary personnel on engagements of varying durations at any point in time.
Temporary employees placed by CBS Personnel are generally CBS Personnel’s employees while they are working on assignments. As employer of its temporary employees, CBS Personnel maintains responsibility for applicable payroll taxes and the administration of the employee’s share of such taxes.
CBS Personnel’s staffing services employees are not under its direct control while working at a client’s business. CBS Personnel has not experienced any significant liability due to claims arising out of negligent acts or misconduct by its staffing services employees. The possibility exists, however, of claims being asserted against CBS Personnel, which may exceed its liability insurance coverage, with a resulting material adverse effect on its financial condition, business and results of operations.

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Halo
Overview
Halo, headquartered in Sterling, Illinois, is a distributor of customized promotional products throughout the United States. Halo’s account executives work with a diverse group of end customers to develop the most effective means of communicating a logo or marketing message to a target audience. Operating under the brand names, Halo and Lee Wayne, Halo serves as a one-stop shop for over 30,000 customers as it provides design, sourcing, management and fulfillment services across all categories of its end customers’ promotional product needs.
For the fiscal year ended December 31, 2006, 94% of Halo’s revenues were derived from drop ship distribution whereby Halo does not take inventory of the promotional item but instead, after receiving an order, works with its network of approximately 3,000 suppliers to deliver directly to the end customer. In addition, Halo offers fulfillment programs to customers in which it holds inventory of promotional items and ships to designated locations based on program requirements.
For the fiscal year ended December 31, 2006 and December 31, 2005, Halo had net sales of $115.6 million and $105.9 million, respectively, and net income of $3.1 million and $3.0 million, respectively. On February 28, 2007, we made loans to and purchased a controlling interest in Halo totaling $61.0 million. Our controlling interest represents approximately 73.6% of the outstanding equity of Halo on a primary and fully diluted basis. In the case of Halo, as with certain of our other subsidiary businesses, the equity component that we do not own is subject to certain material return requirements, meaning that our share of the total proceeds of any transaction involving the equity of Halo will be at least 74%, and potentially significantly more.
History of Halo
Halo was founded in 1952 under its predecessor Lee Wayne Corporation. Lee Wayne Corporation was acquired in 1993 by HA-LO Industries, Inc., a provider of advertising and marketing services. During the 1990s, Halo’s predecessor grew rapidly through numerous acquisitions. These acquisitions included both profitable and unprofitable companies including Starbelly.com, an unprofitable internetstart-up which was purchased for over $200 million. Both as a result of this acquisition strategy and due to an increased cost burden placed on the company due to the construction of a large headquarters complex, HA-LO Industries, Inc. was forced to file chapter 11 bankruptcy on July 30, 2001. During bankruptcy, HA-LO Industries, Inc. disposed of its non-core assets domestically and internationally, to allow it to focus on its core North American distribution business. On May 14, 2003, HA-LO Industries, Inc., the domestic promotional products business of its predecessor, exited out of bankruptcy in an asset sale through the sponsorship of H.I.G. Capital LLC, a private equity firm. In January 2004, the entity formed to acquire the domestic promotional product assets of HA-LO Industries, Inc. was renamed Halo Branded Solutions, Inc. Also in the same month, Halo acquired JII Promotions, Inc. a competitor based in Chicago, Illinois. Subsequent to this, Halo successfully completed the acquisition of several smaller distributors.
Industry
According to the Counselor Magazine, the promotional products industry generated approximately $17.8 billion in revenues in 2005. The market can broadly be segregated into two large service categories, drop ship and program or fulfillment. In addition, according to the Promotional Products Association International, which we refer to as PPAI, the industry has experienced an annual growth rate of just under 10% since 1991, experiencing year over year declines only in 2001 and 2002. In 2005, the top five industries that purchased promotional products in the order of the volume purchased were: (i) educational institutions, (ii) manufacturers, (iii) medical institutions, (iv) financial services, and (v) professional services.
Halo competes in both the drop ship and fulfillment service categories. A drop ship order will typically be one time in nature and may be related to an event or single marketing campaign. Drop ship distributors will not take inventory of the product; instead, an account executive will help a customer design a solution

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to achieve its marketing objectives, such as brand or company awareness, customer acquisition or customer retention. The distributors then source the product from a network of suppliers, arrange the necessary embroidering, decorating, or other customization, and coordinate delivery to the end customer. Alternatively providers of fulfillment services will develop larger programs that may revolve around corporate branding or incentive programs. Distributors will design these programs with the customer and will then take inventory of the product and ship them over time to customer locations as requested.
Growth in the industry is expected to remain healthy driven by the efficacy of promotional products in creating and enhancing brand awareness. In contrast to general advertising, promotional products enable targeted marketing to a single individual and yield long-term exposure from repeat product use. Secondly, given the inexpensive nature of promotional products, Halo’s management believes that companies are unlikely to significantly reduce their purchases during moderate downturns in their respective businesses.
The promotional products distribution market is fragmented in nature. The PPAI estimated that there are approximately 21,000 promotional products distributors, over 20,000 of which generate sales of under $2.5 million annually. Halo’s management believes that larger distributors, such as Halo, benefit from significant economies of scale which allow them to more effectively process customer orders, achieve greater gross margins and attract and retain talented account executives.
Services
Halo and its sales professionals assist customers in identifying and designing promotional products that increase the awareness and appeal of brands, products, companies and organizations. Often Halo’s end customers do not have extensive knowledge of promotional products and rely on Halo’s account executives to provide customized solutions to extend their brands. The following list includes examples of some of the more popular promotional products:
Examples of Common Promotional Products
Categories
Examples
Apparel Jackets, sweaters, hats, golf shirts
Business Accessories Calculators, briefcases, desk accessories
Calendars Wall and desk calendars, appointment planners
Writing Instruments Pens, pencils, markets, highlighters
Recognition Awards Trophies, plaques
Other Items Crystal ware, key chains, watches, mugs, golf accessories
An order is typically originated at the account executive level where Halo representatives work with customers directly to develop the most effective means of communicating a logo or marketing message to a target audience. After receiving an order, account executives enter their customers’ orders directly into the company-wide order tracking system. From this point, the sales support team follows up with vendors, and ensures that products are shipped directly to the customer or are routed correctly as applicable. In most cases, Halo arranges the drop shipment of promotional products directly to the end customer from one of its vendors. Halo’s customer service organization provides critical support functions for its sales force including order entry, product sourcing, order tracking, vendor payment, customer billing and collections. Through this highly effective order processing system, Halo has been able to approach on-time delivery on close to 100% of its orders.
Competitive Strengths
Halo has established itself as a leading distributor in the promotional products industry. Halo’s management believes the following factors differentiate it from many industry competitors.

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• Industry Leading, Scalable Back Office Infrastructure — Halo’s management team believes that the key factor in attracting and retaining high quality account executives is providing an efficient and effective order processing and administrative system. Halo’s customer service organization provides critical support functions for its sales force including order entry, product sourcing, order tracking, vendor payment, customer billing and collections. Halo’s scale in the industry has allowed it to make information technology and personnel investments to create a sophisticated infrastructure that management believes differentiates it from many smaller industry participants. Additionally, management believes that its infrastructure allows it to acquire and integrate smaller distributors more effectively than other larger competitors.
• Diverse Customer Base Characterized by Long-Standing Relationships — Halo’s revenue base possesses little customer, end market or geographic concentration. It currently does business with over 30,000 customers in various end markets. For the fiscal year ended December 31, 2006, no customer represented more than 8.2% of its revenues and the top ten customers represented less than 18.6% of its revenues. In addition, Halo’s team of account executives are often deeply involved in their local communities and possess deep and long standing relationships with customers of all sizes.
• Extensive Relationships with a Broad Base of Suppliers — Halo’s management believes its relationships with over 3,000 suppliers of promotional products allows Halo to offer its end customers the most complete line of items in the industry. In addition, management believes that Halo’s scale provides it with greater purchasing power than many of its competitors. In many situations, Halo’s scale allows it to receive significant rebates from its suppliers. These rebates, typically shared with account executives, leads to both greater margins and higher levels of sales force retention than many of its competitors.
Business Strategies
Halo’s business strategy is to (i) attract and retain account executives, (ii) continue to increase the productivity of account executives, and (iii) selectively acquire and integrate subscale competitors.
• Attract and Retain Account Executives — As Halo’s infrastructure is relatively fixed in nature, it can derive significant incremental contribution from the addition of account executives. Further, Halo’s management believes it has developed a combination of service and compensation that allows it to offer account executives a value proposition superior to those offered by its competitors. In addition to its executive team, Halo has a staff of four professionals focused both on ensuring that the company provides the highest possible level of service to its existing account executives and is able to attract additional promotional product sales professionals possessing existing customer relationships.
• Continue to Increase the Productivity of Account Executives — The management team of Halo continuously strives to increase the productivity of its account executives. Halo routinely provides its account executives with marketing support tools and training. In addition, for larger accounts, Halo works with account executives to develop proprietary solutions, such as web-based portals, that allow customers to better measure and track their programs, thereby increasing their loyalty.
• Selectively Acquire and Integrate Subscale Competitors — Halo’s management believes that Halo is well positioned to take advantage of the industry’s fragmentation and economies of scale. In the past, Halo has achieved significant synergies by acquiring and integrating subscale competitors. Following an acquisition, Halo’s advanced infrastructure allows the acquired entity both to process and administer orders more cost effectively and increase gross margin through volume discounts and rebates. Recognizing this opportunity, Halo’s management team is constantly evaluating potential acquisition opportunities.

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Customers
Halo’s focus on customer service and efficient order processing and delivery has resulted in a broad base of 30,000 customers. These customers range in size from large, blue-chip corporations to small “mom and pop” type companies. Its top ten customers are in the beverage, entertainment, finance, leisure, petroleum and retail industries. For the fiscal year ended December 31, 2006, none of Halo’s customers accounted for more than 8.2% of its revenues and the top ten customers represented less than 18.3% of its revenues.
Sales, Marketing and Recruiting Efforts
Halo’s account executives consist of both full time employees and independent contractors and work closely with end customers in choosing and designing appropriate products for their specific needs and determining the appropriate method for affixing the desired decoration to the product. Halo currently employs approximately 700 account executives, 149 of which are full-time employees of Halo. Account executives are typically paid 50% of gross margins on orders above a certain gross margin threshold. In addition, independent contractors are eligible for annual sales bonuses based upon gross margin levels.
Halo’s management believes its scale and investments in infrastructure have allowed it to create an industry leading support system for account executives. Account executives are allowed to focus solely on generating sales and do not need to spend time administering and processing orders. In addition, Halo’s account executive benefit significantly from Halo’s purchasing power which allows them to earn higher gross margins and commissions than is typical in the industry. Halo’s success in retaining key sales personnel is demonstrated by a turnover rate that management believes is among the lowest in the industry. Halo’s five person marketing team includes marketing consultants who serve as personal marketing advisors available for every account executive to create custom marketing material for acquiring and developing new and existing accounts. In addition to its marketing staff, Halo has full-time product researchers who continually ensure it is offering the mostup-to-date and comprehensive line of products available.
Competition
The promotional product industry is highly fragmented. Of the estimated 21,000 distributors in the market, over 20,000 of them are comprised of small firms with revenues of $2.5 million or less. Among drop ship providers, Halo’s largest competitors include Geiger, Inc., Jack Nadel, Inc., Summit Marketing Group, Inc. and The Vernon Company. In addition, there are a number of larger general fulfillment service providers that do not provide drop ship services. The largest of these providers are Corporate Express Promotional Marketing, Inc., WearGuard-Crest (a division of Aramark Corporation), Group II Communications Inc., and American Identity, Inc.
Competition in the promotional product industry revolves around product assortment, price, customer service and reliable order execution. In addition, given the intimate relationships account executives enjoy with their customers, industry participants also compete to retain and recruit top earners who posses a meaningful existing book of business. Halo’s management believes it possesses many competitive advantages including: (i) a comprehensive assortment of products; (ii) competitive pricing; (iii) responsive customer support; (iv) reliable order processing and delivery; and (v) a superior value proposition to attract and retain sales representatives.
Suppliers
Halo purchases products and services from more than 3,000 companies. Given the commodity nature of promotional products, Halo’s management ensures that each product offering has multiple supplier sources. For the fiscal year ending December 31, 2006, no supplier accounted for more than 9.6% of Halo’s purchases. Because of the fragmentation of the promotional products industry, management estimates that Halo is the largest customer for about 40 of the its top 100 suppliers, and is one of the three largest customers for at least 65 of its top 100 suppliers. Due to its scale, Halo receives highly competitive pricing from its suppliers.

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Facilities
Halo, headquartered in Sterling, Illinois currently operates offices in seven states. The following table shows the number of offices located in each state and the function of each office as of December 31, 2006.
State
Function
Number of Offices
California Sales 3
Illinois Administration 2
Information Technology 1
Warehousing 1
Louisiana Sales 1
New York Sales 1
Ohio Administration 1
Tennessee Sales 2
Texas Sales 1
All of the above offices are leased. Lease terms are mostly one to seven years with the exception of Halo’s principal headquarters and warehouse in Sterling, Illinois which have lease periods of 20 and 10 years, respectively.
Regulatory Environment
Halo’s management believes that its operations are in compliance in all material respects with applicable federal and state laws.
Legal Proceedings
Halo’s management is currently aware of no pending or threatened litigation at this time. Halo is, from time to time, involved in litigation and various claims and complaints arising in the ordinary course of business.
Employees
As of December 31, 2006, Halo employed approximately 331 full-time employees and had 552 independent account executives.
Silvue
Overview
Silvue, headquartered in Anaheim, California, is a ~~leading~~ developer and producer of proprietary, high performance liquid coating systems used in the high-end eyewear, aerospace, automotive and industrial markets. Silvue’s coating systems can be applied to a wide variety of materials, including plastics, such as polycarbonate and acrylic, glass, metals and other substrate surfaces. Silvue’s coating systems impart properties, such as abrasion resistance, improved durability, chemical resistance, ultraviolet, or UV protection, anti-fog and impact resistance, to the materials to which they are applied. Due to the fragile and sensitive nature of many of today’s manufacturing materials, particularly polycarbonate, acrylic and PET-plastics, these properties are essential for manufacturers seeking to significantly enhance product performance, durability or particular features.

Silvue owns 11eight patents relating to its coating systems and maintains a primary or exclusive supply relationship with many of the ~~leading~~significant eyewear manufacturers in the world, as well as numerous manufacturers in other consumer industries. Silvue has sales and distribution operations in the United States, Europe and Asia and has manufacturing operations in the United States and Asia. Silvue’s coating systems are marketed under the nameSDC Technologies^tmTM and the brand namesSilvue^®,CrystalCoat^®,Statux^tmTM andResinrelease^tmTM. Silvue has also trademarked its marketing phrase“high performance ~~chemistry~~

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chemistry”^tmTM”. Silvue’s senior management, collectively, has approximately 80 years of experience in the global hardcoatings and closely related industries.

Concurrent with the IPO, we made loans to and purchased a controlling interest in Silvue totaling $37.5 million. Our controlling interest represents approximately 73.0% of the outstanding capital stock of Silvue on a primary and fully diluted basis.
For the ~~nine months~~fiscal years ended ~~September 30,~~December 31, 2006 and December 31, 2005, ~~and September 30, 2004,~~ Silvue had net sales of approximately ~~$15.8~~$24.1 million and ~~$11.9~~$21.5 million, ~~respectively,~~respectively. Since May 16, 2006, the date of our acquisition, Silvue had revenues of $15.7 and ~~net~~operating income of ~~approximately $1.5~~$4.7 million. Silvue had total assets of $29.2 million ~~and $1.5 million, respectively. For the fiscal year ended~~at December 31, ~~2004,~~2006. Revenues from Silvue ~~had net sales~~represented 3.8% of ~~approximately $16.5 million and net income~~our total revenues for the 2006 fiscal year.
History of ~~approximately $2.2 million.~~Silvue
~~History of Silvue~~
Silvue was founded in 1986 as a joint venture between Swedlow, Inc. (acquired by Pilkington, plc in 1986), a manufacturer of commercial and military aircraft transparencies and aerospace components, and Dow Corning Corporation to commercialize existing hardcoating technologies that were not core technologies to the business of either company. In December 1988, Silvue entered into a 50%-owned joint venture with Nippon Sheet Glass Co., LTD., located in Chiba, Japan, to create Nippon ARC to develop and provide coatings systems for the ophthalmic, sunglass, safety eyewear and transportation industries in Asia.

In 1996, Silvue completed development work on its Ultra-Coat platform, which was a new type of hardcoating that, while leveraging core technologies developed in 1986, offered considerable performance advancements over systems that were then available in the marketplace. The first patent establishing the Ultra-Coat platform was filed in April 1997, and additional patents were filed building upon the Ultra-Coat platform in 1998, 1999, 2000, 2001 and 2003.

A subsidiary of CGI acquired a majority interest in Silvue in September 2004 through an investment of preferred and common stock. ~~CGI’s subsidiary and other members of our manager currently own approximately 61% and 1% of Silvue’s common stock on a fully diluted basis, respectively.~~ On April 1, 2005, Silvue acquired the remaining 50% interest in Nippon ARC for approximately $3.6 million. The acquisition of Nippon ARC provides Silvue with a presence in Asia and the opportunity to further penetrate growing Asian markets, particularly in China.
~~Industry~~
Industry

Silvue operates in the global hardcoatings industry in which manufacturers produce high performance liquid coatings to impart certain properties to the products of other manufacturers. Silvue’s management estimates that the global market for ~~premium and mid-range polycarbonate hardcoating~~addressable vision eyewear coating market generates approximately ~~$150~~$61 million in annual revenues and is highly fragmented among various manufacturers.
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Silvue’s management believes that the hardcoatings industry will continue to experience significant growth as the use of existing materials requiring hardcoatings to enhance durability and performance continues to grow, new materials requiring hardcoatings are developed and new uses of hardcoatings are discovered. Silvue’s management also expects additional growth in the industry as manufacturers continue to outsource the development and application of hardcoatings used on their products. The end-product markets served by hardcoatings primarily include the vision, fashion, safety and sports eyewear, medical products, automotive and transportation window glazing, plastic films, electronic devices, fiberboard manufacturing and metal markets.

While possessing key properties that make them useful in a range of applications, the surfaces of many substrates, including, in particular, uncoated polycarbonate plastic, are relatively susceptible to certain types of damage, such as scratches and abrasions. In addition, these materials cannot be manufactured in the first instance to satisfy specified performance requirements, such as tintability and refractive index matching properties. As a result, polysiloxan-based hardcoating systems, including Silvue’s, were developed specifically to overcome these problems. Once applied, the hardcoat gives the underlying substrate a tough, damage-resistant surface and other durable properties, such as improved resistance to the effects of scratches, chemicals, such as solvents, gasoline and oils, and indoor and outdoor elements, such as UV

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radiation and humidity. Other hardcoats can provide certain performance enhancing characteristics, such as anti-fogging, anti-static and “non-stick” (or surface release) properties.

Today, coating systems are used principally in applications relating to soft, easily damaged polycarbonate plastics. Polycarbonate plastic is a lightweight, high-performance plastic found in commonly used items such as eyeglasses and sunglasses, automobiles, interior and exterior lighting, cell phones, computers and other business equipment, sporting goods, consumer electronics, household appliances, CDs, DVDs, food storage containers and bottles. This tough, durable, shatter- and heat-resistant material is commonly used for a myriad of applications and is found in thousands of every day products, as well as specialized and custom-made products. More than 2.5 million tons of polycarbonate was produced for the global market in 2004 and demand is expected to increase by approximately 10% per year through 2009 as new products requiring versatile polycarbonate plastics are developed.

Beyond polycarbonate plastic applications, hardcoatings can be used with respect to numerous other materials. For example, recent growth has been seen in sales to manufacturers of aluminum wheels, as these coatings have been shown to reduce the effects of normal wear and tear and significantly improve durability and overall appearance. In addition, manufacturers have begun to increase the use of hardcoatings in their manufacturing processes where “non-stick” surfaces are crucial to production efficiencies and improved product quality.
~~Products~~
Products

A “hardcoating” is a liquid coating that ~~contains a resin matrix, carrier solvents and suspended particles of nano materials that,~~ upon settling ~~onto the particular substrate~~ during application and curing, imparts the desired ~~properties.~~performance properties on certain materials. The exact composition of the hardcoating is dependent on the material to which it will be applied and the properties that are sought. Silvue’s coating systems typically require either a thermal or an ultraviolet cure process, depending on the substrate being coated. Generally, both curing processes impart the desired performance properties. However, thermal cure systems typically result in better scratch and abrasion resistance and long-term environmental durability.

Silvue ~~is a leader in the development~~produces and ~~provision of proprietary,~~develops high-performance coating ~~systems. These coatings are~~systems designed to enhance a product’s damage-resistance or performance ~~properties by imparting the following qualities to the product:~~
• ~~Abrasion resistance;~~
• ~~Chemical resistance;~~
• ~~Impact resistance;~~
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• ~~Weatherability;~~
• ~~Optical clarity;~~
• ~~UV protection;~~
• ~~Anti-fog properties;~~
• ~~Anti-static properties; and~~
• ~~“Non-stick” (or surface release)~~ properties.
      ~~With respect to these properties,~~ Silvue has developed the following standard product systems that are available to its customers:
• SilvueandCrystalCoat — these products are either non-tintable or tintable and impart index matching and anti-fogging properties;

• Statux — this product imparts anti-static properties; and

• Resinrelease — this product imparts “non-stick” or surface release properties.

In addition, Silvue also develops custom formulations of the products described above for customer specific applications. Specific formulations of Silvue’s product systems are often required where customers seek to have specific damage-resistance or performance properties for their products, where particular substrates, such as aluminum, require a custom formation to achieve the desired result or where the particular application process or environment requires a custom formulation.

Silvue’s coating systems can be applied to various materials including polycarbonate, acrylic, glass, metals and other surfaces. Currently, Silvue’s coating systems are used in the manufacture of the following industry products:
• Automotive — CrystalCoat coatings are used on a variety of automotive and transit applications, including instrument panel windows, bus shelters, rail car windows, and bus windows. These coatings are used primarily to impart long-term durability, chemical resistance and scratch and abrasion resistance properties.

• Electronics — CrystalCoat coatings are used for electronic application surfaces, from liquid crystal displays to cell phone windows. These coatings are used primarily to impart scratch and abrasion resistance properties.

• Optical — CrystalCoat coatings are used for vision corrective lenses and other optical applications. These coatings are used primarily to impart high scratch and abrasion resistance properties and UV

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protection ~~and refractive index matching.~~while matching the optical properties of the underlying material to reduce interference. Silvue produces both tintable and non-tintable coatings.
• Safety — CrystalCoat coatings are used for safety applications. These coatings are used primarily to impart anti-fog characteristics. Silvue offers a high performance “water sheeting” anti-fog coating that is specifically designed to meet a customer’s specific standards and testing requirements.

• Sunglasses and Sports Eyewear — CrystalCoat coatings are used for sunglasses and sports eyewear. These coatings are used primarily to impart scratch and abrasion resistance properties, UV protection and anti-fog characteristics. CrystalCoat coatings can be used on tinted or clear materials.
~~Research and Development and Technical Services~~
Research and Development and Technical Services

Silvue’son-site laboratories provide special testing, research and development and other technical services to meet the technology requirements of its customers. There are currently approximately 2017 employees devoted to research, development and technical service activities. Silvue had research and
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development costs of approximately ~~$627,000~~$1.1 million for the fiscal year ended December 31, ~~2004.~~2006. Silvue’s research and development is primarily targeted towards three objectives:
• improving existing products and processes to lower costs, ~~improving~~improve product quality, and ~~reducing~~reduce potential environmental impact;

• developing new product platforms and processes; and

• developing new product lines and markets through applications research.

In 2002, Silvue created a new group, known as the “Discovery and Innovation Group,” with primary focus on the discovery of new technologies and sciences, and the innovation of those findings into useful applications and beneficial results.

In addition, Silvue provides the following technical services to its customers:
• application engineering and process support;

• equipment and process design;

• product and formulation development and customization;

• test protocols and coating qualifications;

• rapid response for customer technical support;

• analytical testing and competitive product assessment;

• quality assurance testing and reporting; and

• manufacturing support.

These services are primarily provided as a means of customer support; however, in certain circumstances Silvue may receive compensation for these technical services.
~~Competitive Strengths~~
Competitive Strengths

Silvue has established itself as one of the ~~leading~~principal providers of high performance coating systems by focusing on satisfying its customers’ requirements, regardless of complexity or difficulty. Silvue’s management believes it benefits from the following competitive strengths:
• Extensive ~~patent portfolio~~Patent Portfolio — Silvue owns 11nine patents relating to its coating systems, including six patents relating to its core Ultra-Coat platform systems. Beyond its existing patents, Silvue has three patents pending and two provisional patents. Products related to ~~these~~ patents represent approximately 66% of Silvue’s net sales and are relied upon by ~~leading~~ eyewear manufacturers worldwide. Silvue aggressively

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defends these patents and management believes they represent a significant barrier to entry for new products and that they reduce the threat of similar coating products gaining significant market share.
• Superior Technical Skills and Expertise — Silvue has invested in a team of experts who are ready to support its customers’ specific application needs from new product uses to the optimization of part design for coating application.

• Reputation for Quality and Service — Silvue’s on-going commitment to producing quality coatings and its ability to meet the rigorous requirements of its most valued customers has earned it a reputation as ~~a leading provider~~one of the principal providers of coatings for premium eyewear.

• Global Presence — Silvue works with its customers from three offices in North America, Asia and Europe. Many of Silvue’s customers have numerous manufacturing operations globally and management believes its ability to offer its coating systems and related customer service on a global basis is a competitive advantage.
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• ISO 9002 Certified — Silvue’s Anaheim, California, and Chiba, Japan manufacturing facilities are ISO 9002 certified, which is a universally accepted quality assurance designation indicating the highest quality manufacturing standards.

• Experienced Management Team — Silvue’s senior management has extensive experience in all aspects of the coating industry. The senior management team, collectively, ~~have~~has approximately 80 years of experience in the global hardcoatings and closely related industries.
~~Business Strategies~~
Business Strategies

Silvue’s management is focused on strategies to expand opportunities for product application and diversify its business and ~~operations and improve operating efficiency to improve gross margins.~~operations. The following is a discussion of these strategies:
• Develop New Products and Expand into New Markets — Silvue’s management believes that Silvue is ~~a leading developer~~one of the principal developers of proprietary high performance coating systems for polycarbonate plastic, glass, acrylic, metals and other materials, and is focused on growth through continued product innovation to provide greater functionality or better value to its customers. Driven by input from customers and the demands of the marketplace, Silvue’s technology development programs are designed to provide an expanding choice of coating systems to protect and enhance existing materials and materials developed in the future. As an example of Silvue’s commitment to product innovation, in 2002, Silvue created a new group with primary focus on the discovery of new technologies and sciences, and the innovation of those findings into useful applications and beneficial results. This group, which is known as the “Discovery and Innovation Group,” is charged with exploring new coatings and coating applications while advancing thestate-of-the-art in functional surface coating technologies, nanotechnologies and materials science.

• Pursue Opportunities for Business Development and Global Diversification — Silvue recently had in place and continues to pursue opportunities for joint ventures, equity investments and other alliances. These strategic initiatives are expected to diversify and strengthen Silvue’s business by providing access to new markets and high-growth areas as well as providing an efficient means of ensuring that Silvue is involved in technological innovation in or related to the coating systems industry. Silvue is committed to pursuing these initiatives in order to capitalize on new business development and global diversification opportunities.
• ~~Improve Gross Margins~~ — Silvue continues to work to maximize the value of its business by improving gross margins by (i) enhancing pricing processes and pricing strategies, and implementing pricing systems to improve responsiveness to increases in operating costs and other factors impacting gross margins; (ii) focusing on more profitable products and business lines to maximize earnings potential of product mix; and (iii) completing cost reduction programs while improving customer satisfaction, and improving efficiency through reduction of variations and defects.
~~Customers~~

Customers
As a result of the variety of end uses for its products, Silvue’s client base is broad and diverse. Silvue has more than ~~125~~180 customers around the world and ~~70%~~approximately 73% of its net sales in ~~2004 was~~2006 were attributable to approximately 2015 customers. Though Silvue does not typically operate under long-term contracts, it focuses on establishing long-term, customer service oriented relationships with its strategic customers in order to become their preferred supplier. As its customers continue to focus on quality and

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service, Silvue’s past performance and long-term improvement programs should further strengthen customer relationships.

Customer relationships are typically long-term as substantial resources are required to integrate a coating system and technology into a manufacturing process and the costs associated with switching coating systems and technology are generally high. Following the merger of two large customers, which are both manufacturers of optical lenses, Silvue’s single largest customer represents ~~11.4%~~approximately 14.5% of ~~2004~~its 2006 net ~~sales,~~
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~~on a pro forma basis.~~sales. This customer has had a close relationship with Silvue for many years in both North America and Europe.

The following table sets forth Silvue’s approximate customer breakdown by industry for the fiscal year ended December 31, ~~2004:~~2006:

~~2004~~2006 Customer
Industry
Distribution

Performance eyewear and sunglasses ~~70%~~88 %
Automotive ~~10%~~11 %
~~Plastic Sheet~~Other ~~10%~~1 %
~~Specialty Applications~~ 5%
~~Metal Applications~~ 5%

Total
~~100%~~100 %

~~Sales and Marketing~~
Sales and Marketing
Silvue targets the highly desirable, but technically demanding, premium sector of the coating market. The desirability of this sector is based on three factors. First, customers in this sector desire proprietary formulations that impart a specific list of properties to an end product and supplier confidentiality. Silvue’s highly skilled technical sales force, and research and development group work together to use Silvue’s proprietary high performance coating systems to develop these unique formulations. Although in most cases Silvue will sell each such formulation only to the customer for which it was originally designed, Silvue retains all ownership rights to the product.

Second, each coating system has its own processing peculiarities. As a result, creating the coating itself only represents a portion of the product development process. Once the coating is ready for use, it then has to be made compatible with each customer’s coating equipment and application process. In this respect, once a coating system has been implemented, switching coating systems may require significant costs.

Third, Silvue’s products are both one of the key quality drivers and one of the smallest cost components of any end product. These three factors work together to provide substantial protection for Silvue’s prices, margins and customer relationships. Once integrated into a customer’s production process, Silvue becomes an embedded partner and an integral part of such customer’s business and operations.

To service the needs of its customers, Silvue maintains a technical sales force, a technical support group and a research and development staff. Through the efforts of, and collaboration between, these individuals, Silvue becomes a partner to its existing customers, devises customized application solutions for new customer prospects and develops new products and product applications.
~~Competition~~
Competition

The global hardcoatings industry is highly fragmented. In addition, the markets for the products currently manufactured and sold by Silvue are characterized by extensive competition. Many existing and potential competitors have greater financial, marketing and research resources than Silvue.

Specific competitors of Silvue’s in the North American ophthalmic market include Lens Technology Inc., Ultra Optics, Inc., Essilor International S.A., Hoya Corporation ~~Groupe Couget Optical~~ and ~~Chemat Technology, Inc.~~other small coating manufacturers. Silvue differentiates itself from these primary competitors by its focus on coatings. Management believes that Silvue’s premium ophthalmic coating net sales are greater than those of any one competitor. Essilor and Hoya, two large competitors, are lens manufacturers who have added hardcoating capabilities in

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an effort to sell both coated and uncoated lenses. Others provide coatings as an extension of coating equipment sales.
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Customers choose a hardcoating supplier based on a number of factors, including performance of the hardcoating relative to the particular substrate being used or the use of the substrate once coated. Performance may be determined by scratch resistance, chemical resistance, impact resistance, weatherability or numerous other factors. Other factors affecting customer choice include the compatibility of the hardcoating to their process (including ease of application, throughput and method of application) and the level and quality of customer service. While price is a factor in all purchasing decisions, hardcoating costs generally represent a small portion of a total product cost such that Silvue’s management believes price is often not the determining factor in a purchase decision.
~~Suppliers~~
Suppliers

Raw material costs constituted approximately ~~14%~~16% of net sales for the fiscal year ended December 31, ~~2004.~~2006. The principal raw materials purchased are alcohol based solvent systems, silica derived materials and proprietary additives. Although Silvue makes substantial purchases of raw materials from certain suppliers, the raw materials purchased are basic chemical inputs and are relatively easy to obtain from numerous alternative sources on a global basis. As a result, Silvue is not dependent on any one of its suppliers for its operations.
The terms of the supply contracts vary. In general, these contracts contain provisions that set forth the quantities of product to be supplied and purchased and formula-based pricing. Some of the supply contracts contain “take or pay” provisions under which Silvue is required to pay for a minimum amount of material whether or not it is actually purchased.
Intellectual Property
~~Intellectual Property~~

Currently, most of Silvue’s coatings are patent-protected in the ~~U.S.~~United States and internationally. Silvue owns ~~11 patents; an additional~~nine patents in the United States related to coating systems and has three patents ~~are pending~~pending. Additionally, Silvue has multiple foreign filings for the majority of its U.S. patents issued and ~~two patents are provisional.~~pending. The cornerstone of Silvue’s intellectual property portfolio isare the initial ~~patent~~patents that established the Ultra-Coat platform, which ~~was~~were filed in ~~April~~ 1997 and ~~was issued in December 1999.~~1998. Patents in the United States have a lifetime of 20up to 21 years ~~from~~depending on the date filed. Approximately 66% of Silvue’s net sales are driven by products that are under patent protection and 25% by products under expired patents; the remaining 9% of net sales are driven by products covered by trade secrets. To protect its products, Silvue patents not only the chemical formula but also the associated application process. There can be no assurance that current or future patent protection will prevent competitors from offering competing products, that any issued patents will be upheld, or that patent protection will be granted in any or all of the countries in which applications may be made.

Although Silvue’s management believes that patents are useful in maintaining competitive position, management considers other factors, such as its brand names, ability to design innovative products and technical expertise to be Silvue’s primary competitive advantages.

Silvue’s coating systems are marketed under the nameSDC Technologies^tmTM and the brand namesSilvue^®,CrystalCoat^®,Statux^tmTM andResinrelease^tmTM. Silvue has also trademarked its marketing phrase“high performance ~~chemistry~~chemistry”^tmTM”. These trade names have strong brand equity and have significant value and are materially important to Silvue.
~~Facilities~~
Regulatory Environment
Silvue leases its three facilities, which include a 13,000 square foot facility in Anaheim, California, an 8,000 square foot facility in Cardiff, Wales and a 12,000 square foot facility in Chiba, Japan. The Anaheim, California facility includes Silvue’s executive offices, manufacturing operations, research and development laboratories and raw material and finished product storage. The Cardiff, Wales, United Kingdom facility, which consists solely of office and warehouse space, is used to repackage Silvue’s products for distribution in Europe. The Chiba, Japan facility includes administrative offices, manufacturing operations, research and development labs, raw materials and finished goods product storage.
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~~Regulatory Environment~~
Silvue’s facilities and operations are subject to extensive and constantly evolving federal, state and local environmental and occupational health and safety laws and regulations, including laws and regulations governing air emissions, wastewater discharges and the storage and handling of chemicals and hazardous substances. Although Silvue’s management believes that Silvue is in compliance, in all material respects, with applicable environmental and occupational health and safety laws and regulations, there can be no assurance that new requirements, more stringent application of existing requirements or discovery of previously unknown environmental conditions will not result in material environmental expenditures in the future.

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~~Legal Proceedings~~
      Silvue is, from time to time, involved in legal proceedings, the majority of which involve defending its patents or prosecuting infringement of its patents. In the opinion of Silvue’s management, the ultimate disposition of these matters will not have a material adverse effect on Silvue’s financial condition, business and results of operations.
      Earlier this year, Asahi Lite Optical issued a notification to all lens manufacturers that the use of a certain type of coating on certain types of lenses would infringe on a U.S. patent recently issued to Asahi Lite Optical. Silvue’s legal counsel has reviewed Asahi Lite Optical’s patent and has determined that neither Silvue nor Silvue’s customers that are using Silvue’s products are infringing on any of the valid claims of the Asahi Lite Optical patent. Silvue does not expect to suffer any damages to its existing or future business as a result of the Asahi Lite Optical patent.
~~Capital Structure~~
      As of November 25, 2005, Silvue’s authorized capital stock consisted of (i) 250,000 shares of Series A common stock, par value $0.01 per share, of which 14,036.72 shares were issued and outstanding, (ii) 50,000 shares of Series B common stock, par value $0.01 per share, of which 5,000 shares were issued and outstanding, (iii) 200,000 shares of Series A convertible preferred stock, par value $0.01 per share, of which 22,432.23 were issued and outstanding, and (iv) 1,000,000 shares of Series B redeemable preferred stock, par value $1.00 per share, of which 4,500 were issued and outstanding.
      The rights of all holders of common stock are substantially identical except that each holder of Series A common stock is entitled to only one vote per share, whereas each holder of Series B common stock is entitled to ten votes per share. Among other rights, each share of Series A convertible preferred stock is convertible into both (i) one share of Series A common stock and (ii) that number of shares of Series B redeemable preferred stock which equals the~~productof (x) the~~~~product~~~~of (A) 15.714~~~~multiplied by~~ ~~(B) the number of shares of Series A convertible preferred stock,~~~~multiplied by~~ (y) 1.13, reflecting a 13% return compounded annually, from the date of issuance of such share to the date of conversion. In each following year, the number of shares of Series B redeemable preferred stock would equal the~~product~~ ~~of (x) prior years calculated number of Series B redeemable preferred stock,~~~~multiplied~~ by (y) 1.13. Among other rights, each share of Series B redeemable preferred stock is entitled to a redemption preference equal to the face amount of the shares plus a 13% return, compounded annually, from the date of issuance of such share to the date of redemption.
      We have entered into a stock purchase agreement pursuant to which we will acquire 3,181.72 shares of Silvue’s issued and outstanding Series A common stock (1,716 of which will be acquired from CGI’s subsidiary, as a result of its purchase of such shares from a retiring Silvue manager and the balance from certain other investors), 22,074.26 shares of Silvue’s issued and outstanding Series A convertible preferred stock (21,521.85 of which will be acquired from CGI’s subsidiary and the balance from certain other investors) and all 5,000 shares of its issued and outstanding Series B common stock (4,901.4 of which will be acquired from CGI’s subsidiary and the balance from certain other investors). See the section entitled “The Acquisitions of and Loans to Our Initial Businesses — Silvue” for a discussion about the material terms of the stock purchase agreement.
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      Options to purchase 1,581 shares of Series A common stock are currently outstanding. All of these options are currently unvested. There are no other options or securities convertible or exchangeable into shares of capital stock of Silvue that are currently issued and outstanding.
Employees
~~Employees~~
As of ~~September 30, 2005,~~December 31, 2006, Silvue employed approximately 5251 persons. Of these employees, approximately 6 were in production or shipping and 20approximately 17 were in research and development and technical support with the remainder serving in executive, administrative office and sales capacities. None of Silvue’s employees are subject to collective bargaining agreements. ~~Silvue’s management~~Management believes that Silvue’s relationship with its employees is good.

OUR MANAGER
Overview of Our Manager
Our manager is controlled by its managing member, our chief executive officer, Mr. Massoud. CGI, through a subsidiary, and an entity owned by our management team, are non-managing members of our manager.
Key Personnel of Our Manager
Our chief executive officer’s and chief financial officer’s business experiences are described in the section entitled “Management.” In ~~connection~~addition, the following personnel are key employees of our manager. Each of these individuals are compensated entirely by our manager. We reimburse our manager for the salary of our chief financial officer and the costs associated with the ~~acquisition~~employment of ~~Silvue by CGI’s subsidiary, such subsidiary extended loans~~our chief financial officer’s finance staff, the members of which devote a substantial majority of their time to ~~certain officers of Silvue to facilitate their co-investment in Silvue. Each such loan is secured by a pledge of all~~the affairs of the ~~shares of common stock of Silvue acquired by such officer. In addition, with respect to these officer loans, CGI has partial recourse against the personal assets~~company. No portion of the ~~applicable officer. If specific financial growth goals are achieved by Silvue as~~compensation of specific dates, these loans will be forgiven, in whole or in part, depending upon the level of financial growth achieved. The loans by CGI’s subsidiary to the senior managers will remain assets of CGI’s subsidiary and will not be transferred to us upon or after the consummationany other employee of the ~~closing of this offering.~~manager described below is reimbursed by the company. The titles reflected for each individual reflect that individual’s position with our manager and is not related to any role or responsibility that individual may have with the company.
~~Discontinued Operations~~
Chief Financial Officer’s Staff
~~In November 2005, Silvue’s management made the strategic decision to halt operations at its application facility~~
Kenneth J. Terry, Vice President.  Mr. Terry joined our manager in Henderson, Nevada. The operations included substantially all of Silvue’s application services business, which has historically applied Silvue’s coating systems and other coating systems to customer’s products and materials. Services provided included dip coating services, which were used primarily to coat small components such as gauges and lenses, flow coating services, which were used primarily to coat large polycarbonate or acrylic sheets and larger shapes, and spin coating services, which were used primarily to apply coating to a single side of a product. Management made this decisions because the applications business historically contributed little operating income and,2006 as a ~~result, adversely affected Silvue’s overall profits margins. Management does not believe that~~Vice President. Prior to joining our manager, Mr. Terry served as the ~~closure will have~~acting Corporate Controller of Star Gas Partners, L.P. Previously Mr. Terry was the Chief Financial Officer of RHI Entertainment, Inc. and Senior Vice President and Controller of Vestron, Inc. Mr. Terry was also with KPMG. Mr. Terry received a ~~material impact on Silvue’s profitability. Silvue’s 40,000 square foot facility~~B.B.A. cum laude, from Western Connecticut State University.
Gary M. Bilello, Vice President.  Mr. Bilello joined our manager in ~~Henderson, Nevada operates under~~2006 as a ~~lease that expires~~Vice President, with responsibility for the internal audit function for Compass Group Diversified Holdings LLC and Compass Diversified Trust. Prior to joining our manager, Mr. Bilello served consecutively as the Corporate Controller and Director of Internal Audit at Perma-FixEnvironmental Services, Inc. Previously, Mr. Bilello held various financial roles at both public and private companies, as well as being with the public accounting firms Deloitte & Touche, LLP and BDO Seidman, LLP. Mr. Bilello is a Certified Public Accountant and a magna cum laude graduate of Saint Bonaventure University.
James D. Ferrara, Vice President.  Mr. Ferrara joined our manager in ~~June 2006; Silvue does not plan~~2006 as a Vice President. Prior to ~~renew~~joining the ~~lease.~~manager, Mr. Ferarra was Director of Taxes for Star Gas Partners, LP. Previously, Mr. Ferrara was with Dorr-Oliver Inc. Mr. Ferrara received a B.S. in Accounting from Quinnipiac College and a M.S. in Taxation from the University of New Haven.
David M. Abate, Assistant Controller.  Mr. Abate joined our manager in 2006 as Assistant Controller. Prior to joining our manager, Mr. Abate was a consultant at various companies overseeing accounting related software implementations. Previously, Mr. Abate was a Finance Manager at Flywheel Media ( a subsidiary of Thomson Corporation). Mr. Abate started his professional career at Arthur Andersen & Co., Inc. Mr. Abate received a B.S. in Accounting from Lehigh University.
Other Key Personnel
Alan B. Offenberg, Partner.  Mr. Offenberg joined Compass Group International LLC, which we refer to as The Compass Group, in 1998 as a Principal, and has been an employee of our manager since our IPO.

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~~MANAGEMENT~~
~~Board of Directors~~Prior to joining The Compass Group, Mr. Offenberg worked in mergers and ~~Executive Officers~~
      ~~The directors~~acquisitions for Trigen Energy Corporation. Previously, Mr. Offenberg was with Creditanstalt Bankverein and ~~officers of the company,~~with GE Capital. Collectively, Mr. Offenberg’s background in finance includes deal origination, underwriting, portfolio management, restructuring and ~~their ages~~due diligence. Mr. Offenberg began his professional career as a research analyst with Alan Haft and ~~positions as of November 28, 2005, are set forth below:~~
~~Directors and Named Executive Officers~~ ~~Age~~ ~~Position~~
~~C. Sean Day~~⁽³⁾
56 ~~Chairman of the Board~~
~~I. Joseph Massoud~~⁽⁴⁾
37 ~~Chief Executive Officer and Director~~
~~James J. Bottiglieri~~⁽²⁾
49 ~~Chief Financial Officer and Director~~
~~Harold S. Edwards~~^(1)(5)(6)(9)
40 ~~Director~~
~~D. Eugene Ewing~~^{(3)(5)(6)(8)(9)}
57 ~~Director~~
~~Mark H. Lazarus~~^(1)(6)(7)(9)
42 ~~Director~~
~~Ted Waitman~~^(2)(5)(7)(9)
56 ~~Director~~
⁽¹⁾ ~~Class I director.~~
⁽²⁾ ~~Class II director.~~
⁽³⁾ ~~Class III director.~~
⁽⁴⁾ ~~Manager’s appointed director.~~
⁽⁵⁾ ~~Member of the company’s audit committee.~~
⁽⁶⁾ ~~Member of the company’s compensation committee.~~
⁽⁷⁾ ~~Member of the company’s nominating and corporate governance committee.~~
⁽⁸⁾ ~~Audit committee financial expert.~~
⁽⁹⁾ ~~Independent director.~~
     ~~The following biographies describe the business experience of the company’s current directors~~Associates. Mr. Offenberg received his B.S. in Management from Tulane University and ~~executive officers.~~
~~C. Sean Day.~~ ~~Since 1999,~~his MBA from Northeastern University, where he graduated Beta Gamma Sigma. Mr. ~~Day has been the president of Seagin International and~~Offenberg is currently ~~chairman~~a director of the board of directors of The Compass Group. From 1989 to 1999, he was president and chief executive officer of Navios Corporation, a large bulk shipping company based in Stamford, Connecticut. Prior to this, Mr. Day held a number of ~~senior~~private companies, including WorldBusiness Capital.
Elias J. Sabo, Partner.  Mr. Sabo joined The Compass Group in 1998 as a Principal, and has been an employee of our manager since the IPO. Previously, Mr. Sabo was an investment banker at CIBC Oppenheimer, where he was responsible for the successful execution of numerous private and public financings, as well as the provision of merger and acquisition advisory services. Prior to joining CIBC Oppenheimer, Mr. Sabo was President and Chief Investment Officer of Boundary Partners, LLC, a hedge fund management ~~positions~~company. Prior to that, Mr. Sabo worked at Colony Capital, Inc. Mr. Sabo graduated from Rennselaer Polytechnic Institute with a B.S. in management. Mr. Sabo is currently a director of a number of companies, including CBS Personnel, Advanced Circuits, Silvue and Comsys IT Partners, a NASDAQ listed company.
David P. Swanson, Partner.  Mr. Swanson joined The Compass Group in 2001 as a Vice President, and has been an employee of our manager since the IPO. Previously, Mr. Swanson was with Goldman Sachs in the ~~shipping~~Financial Institutions and ~~finance industries.~~Distressed Debt practices. Mr. ~~Day~~Swanson has also worked with Credit Suisse First Boston’s private equity investment group. Mr. Swanson is a graduate of the Harvard Business School MBA program and also holds a B.A. in Economics from the University of Capetown and Oxford University. Mr. Day is currently the chairman of the boards of directors of Teekay Shipping Company and Teekay LNG Partners LP, both NYSE listed companies, and a member of the board of directors of Kirby Corporation, a NYSE company; CBS Personnel; Crosman; Advanced Circuits; and Silvue.Chicago, where he was elected Phi Beta Kappa.

I. Joseph ~~Massoud.~~P. Milana, Executive Vice President.  Mr. ~~Massoud has been the Chief Executive Officer of the company since its inception on November 18, 2005. Since 1998, Mr. Massoud also has been the managing partner of~~Milana joined The Compass Group ~~the entity which, prior to our initial public offering, employed all the employees~~as Controller in 1998, and has been an employee of our ~~manager. Before founding~~manager since the IPO. Prior to that, Mr. Milana managed his own consulting practice providing accounting and tax services to small businesses andhigh-net worth individuals. From 1984 through 1995, Mr. Milana was with KPMG LLP as a senior manager servicing mid-size, domestic and international clients. Mr. Milana received both a B.B.A. in Accounting and an M.S. in Taxation from Pace University in New York. Mr. Milana is a director of Families Network of Western Connecticut.
Patrick A. Maciariello, Principal.  Mr. Maciariello joined The Compass Group in 2005 as a Vice President, and has been an employee of our manager since the IPO. Previously, Mr. Massoud was responsible for the finance and acquisition functions of Petroleum Heat and Power, Inc. (“Petro”), the nation’s leading distributor of heating oil. Prior to joining Petro, Mr. Massoud was with Colony Capital, Inc., a private equity firm focusing on real estate-related and distressed assets. Mr. Massoud has alsoMaciariello worked as a management consultant ~~with McKinsey~~at Bain & ~~Co.~~Company, in their London and Los Angeles offices, providing consulting services to both corporate and ~~Mexico City offices.~~private equity clients. Mr. ~~Massoud is~~Maciariello also worked in the business services investment banking group of Deutsche Banc Alex. Brown. Mr. Maciariello received a ~~graduate~~B.B.A., cum laude, from the University of ~~Claremont McKenna College~~Notre Dame and Harvard Business School. Mr. Massoud is currently the chairman of the boards of directors of CBS Personnel, Crosman, Advanced Circuits, Silvue and Patriot Capital Funding, Inc., a Nasdaq listed company. Mr. Massoud also currently serves on the board of directors of Teekay LNG Partners LP, a NYSE listed company.an MBA from Columbia University where he graduated Beta Gamma Sigma.

~~James J. Bottiglieri.~~Rudolph W.J. Krediet, Vice President.  Mr. Bottiglieri has been the Chief Financial Officer of the company since its inception on November 18, 2005. Mr. Bottiglieri also has been an executive vice president of The Compass Group since October 2005. From 2004 to 2005, Mr. Bottiglieri was the senior vice president/controller of WebMD Corporation,Krediet joined our manager in 2006 as a leading provider of business, technology and information solutions to the health care industry. From 1985 to 2004, Mr. Bottiglieri was vice president/controller of Star Gas Corporation, a diversified home energy distributor and service provider. From 1978 to 1984,
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~~Mr. Bottiglieri was employed by a predecessor firm of KPMG, a public accounting firm. Mr. Bottiglieri became a certified public accountant in 1980. Mr. Bottiglieri is a graduate of Pace University.~~
~~Harold S. Edwards.~~ ~~Mr. Edwards has been the president and chief executive officer of Limoneira Company, an agricultural, real estate and community development company, since November 2004.~~Vice President. Prior to joining ~~Limoneira Company,~~our manager, Mr. ~~Edwards~~Krediet was with CPM Roskamp Champion and, previously, a Business Analyst with The Compass Group. Mr. Krediet received his MBA from the president of Puritan Medical Products, a division of Airgas Inc. from January 2003 to November 2004; vice president and general manager of Latin America and Global Expert of Fischer Scientific International, Inc. from September 2001 to December 2002; general manager of Cargill Animal Nutrition Philippines operations, a division of Cargill, Inc., from May 2001 to September 2001; and managing director of Agribrands Philippines, Inc., a division of Agribrands International (Purina) from 1999 to May 2001. Mr. Edwards is a graduate of AmericanDarden Graduate School of ~~International Management~~Business (University of Virginia) and ~~Lewis and Clark College.~~
~~D. Eugene Ewing.~~ Mr. Ewing is the managing member of Deeper Water Consulting, LLC (“Deeper Water”) which provides long term strategic financial and business operating advice to its clients. His areas of specialty include business management, financial structuring, and strategic tax planning and corporate transactions. Deeper Water’s clients include companies in a variety of industries including real estate, manufacturing and professional services. He was formerly a partner Arthur Andersen LLP for 18 years and a vice president of the Fifth Third Bank. Mr. Ewing is on the advisory boards for the business schools at Northern Kentucky University andhis undergraduate degree from the University of ~~Kentucky. Mr. Ewing is a graduate~~Edinburgh.
Carrie W. Ryan, Counsel and Vice President.  Ms. Ryan joined our manager in 2006 as Counsel and Vice President, Investor Relations. Prior to joining our manager, Ms. Ryan was in the private practice of law, focusing on mergers, acquisitions, dispositions and strategic corporate transactions for both public and private companies. Previously, Ms. Ryan was with Squire, Sanders & Dempsey L.L.P. and Dinsmore & Shohl LLP. Ms. Ryan received her J.D. from Loyola University of Chicago School of Law and her B.A. from the University of Kentucky.

~~Mark H. Lazarus.~~Derek Kong, Associate.  Mr. Lazarus has been the president of Turner Entertainment Group since 2003. In this capacity, he oversees TBS, Turner Network Television, Turner Classic Movies and Turner South, the Turner animation unit, which includes Cartoon Network, Boomerang and cartoonnetwork.com, Turner Sports, and Turner Entertainment Sales and Marketing. Prior to being named Turner Entertainment Group’s president, Mr. Lazarus served as president of Turner Entertainment Sales and Marketing and president of Turner Sports from 1998 to 2003.Kong joined our manager in 2006. Prior to joining ~~Turner Broadcasting~~the manager, Mr. Kong was an investment banker with CIBC World Markets. Previously, Mr. Kong was an audit associate with McGladrey and Pullen LLP., an international accounting firm. Mr. Kong received a B.A., magna cum laude, from Claremont McKenna College, where he graduated Phi Beta Kappa.

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Mark B. Langer, Associate.  Mr. Langer joined our manager in ~~1990,~~2006. Prior to joining our manager, Mr. ~~Lazarus~~Langer worked for Green Manning & Bunch, a middle market investment bank specializing in mergers and acquisitions, private placements of equity and debt, and strategic financial advisory services. Mr. Langer has transaction experience across a broad range of industries including healthcare, business services, and consumer products/retail. Prior to joining Green Manning & Bunch, he was employed by a ~~network buyer~~regional accounting and ~~planner for Backer, Spielvogel, Bates, Inc., and an account executive for NBC Cable.~~business consulting firm in Washington, D.C. Mr. ~~Lazarus is~~Langer earned his BSBA in Management with a ~~graduate of Vanderbilt~~concentration in Finance from Bucknell University.

~~Ted Waitman.~~Our Relationship with Our Manager ~~Mr. Waitman~~
Our relationship with our manager is ~~presently~~based on our manager having two distinct roles: first, as a service provider to us and, second, as an equity holder of the ~~president and chief executive officer of CPM-Roskamp Champion (“CPM”),~~allocation interests.
As a ~~leading designer and manufacturer of process equipment for the oilseed and animal feed industries based in Waterloo, Iowa. Mr. Waitman has served in~~service provider, our manager performs a variety of ~~roles with CPM since 1978, including manufacturing manager of worldwide operations and general manager~~services for ~~the Roskamp Champion division. Mr. Waitman is~~us, which entitle it to receive a ~~graduate of the University of Evansville.~~
~~Board of Directors Structure~~
      ~~Pursuant to the LLC agreement, as~~management fee. As holder of the ~~management interest,~~company’s allocation interests, our manager has the right to ~~appoint one director~~a preferred distribution in the form of a profit allocation upon the occurrence of certain trigger events. Our manager has the right to cause the ~~company’s board of directors in connection with each annual meeting~~company to purchase the allocation interests then owned by our manager upon termination of the ~~company. Our manager’s appointee on the company’s board of directors will not be required to stand for election~~management services agreement.
These relationships with our manager are governed principally by the shareholders. Mr. Massoud will initially serve as the manager’s appointed director. See the section entitled “Description of Shares — Voting and Consent Rights — Board of Directors Appointee” for more information about the manager’s rights to appoint a director.following agreements:
The LLC agreement provides that the company’s board of directors must consist at all times of at least a majority of independent directors, and permits the board of directors to increase the size of the board of directors to up to thirteen directors. Further, the board of directors will be divided into three classes serving staggered three-year terms. The terms of office of Classes I, II and III expire at different times in annual succession, with one class being elected at each year’s annual meeting of shareholders. Messrs. Edwards and Lazarus will be a members of Class I and will serve until the 2006 annual meeting, Messrs. Bottiglieri and Waitman will be a members of Class II and will serve until the 2007 annual meeting and Messrs. Day and Ewing will be members of Class III and will serve until the 2008 annual meeting. Messrs. Edwards, Ewing, Lazarus and Waitman will be the company’s independent directors.
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      The LLC agreement requires the company’s board of directors to take action by an affirmative vote of a majority of directors. No independent director may be removed from office by our shareholders without the affirmative vote of the holders of 85% of the outstanding shares. The manager’s appointed director may be removed only by the manager. All directors will hold office until the earlier of the election and qualification of their successors or until their death, resignation or removal.
~~Committees of the Board of Directors~~
      The company’s board of directors will, upon the consummation of this offering, designate the following standing committees: an audit committee, a compensation committee and a nominating and corporate governance committee. In addition, the board of directors may, from time to time, designate one or more additional committees, which shall have the duties and powers granted to it by the board of directors.
~~Audit Committee~~
      The audit committee will be comprised entirely of independent directors who will meet all applicable independence requirements of the Nasdaq National Market and will include at least one “audit committee financial expert,” as required by applicable SEC regulations.
      ~~The audit committee will be responsible for, among other things:~~
• ~~retaining~~the management services agreements relating to the services our manager performs for us and ~~overseeing our independent accountants;~~the businesses we own;

• ~~assisting~~ the company’s board of directors in its oversight of the integrity of our financial statements, the qualifications, independence and performance of our independent auditors and our compliance with legal and regulatory requirements;
• ~~reviewing and approving the plan and scope of the internal and external audit of our financial statements;~~
• ~~pre-approving any audit and non-audit services provided by our independent auditors;~~
• ~~approving the fees to be paid to our independent auditors;~~
• ~~reviewing with our Chief Executive Officer and Chief Financial Officer and independent auditors the adequacy and effectiveness of our internal controls;~~
• ~~preparing the audit committee report included in our proxy statement that is to be filed with the SEC; and~~
• ~~reviewing and assessing annually the audit committee’s performance and the adequacy of its charter.~~
      ~~Messrs. Edwards, Ewing and Waitman will serve on the company’s audit committee. Mr. Ewing will serve as the audit committee financial expert.~~
~~Compensation Committee~~
      The compensation committee will be comprised entirely of independent directors who meet all applicable independence requirements of the Nasdaq National Market. In accordance with the compensation committee charter, the members will be outside directors as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, and non-employee directors within the meaning of Section 16 of the Exchange Act and the rules and regulations thereunder. The responsibilities of the compensation committee will include responsibility for reviewing the remuneration of our manager, determining the compensation of the company’s independent directors, granting rights to indemnification and reimbursement of expenses to our manager and any seconded individuals and making recommendations to the company’s board of directors regarding equity-based and incentive compensation plans, policies and programs. Messrs. Edwards, Ewing and Lazarus will serve on the company’s compensation committee.
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~~Nominating and Corporate Governance Committee~~
      The nominating and corporate governance committee will be comprised entirely of independent directors who will meet all applicable independence requirements of the Nasdaq National Market. The nominating and corporate governance committee will be responsible for, among other things:
• ~~recommending the number of directors to comprise the company’s board of directors;~~
• ~~identifying and evaluating individuals qualified to become members of the company’s board of directors, other than our manager’s appointed director;~~
• ~~reviewing director nominees that are nominated by shareholders;~~
• ~~reviewing conflicts of interest that may arise between the company and our manager;~~
• ~~recommending to the company’s board the director nominees for each annual shareholders’ meeting, other than our manager’s appointed director;~~
• ~~recommending to the company’s board of directors the candidates for filling vacancies that may occur between annual shareholders’ meetings, other than our manager’s appointed director;~~
• ~~reviewing director compensation and processes, self-evaluations and policies;~~
• ~~overseeing compliance with our code of ethics and conduct by our officers and directors and our manager;~~
• ~~monitoring developments in the law and practice of corporate governance; and~~
• ~~approving any related party transactions.~~
      ~~Messrs. Lazarus and Waitman will serve on the company’s nominating and corporate governance committee.~~
~~Compensation of Directors~~
      Currently, except as described below, our directors are not entitled to compensation. Directors (including the director appointed by our manager) will be reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the board of directors or committees and for any expenses reasonably incurred in their capacity as directors.
      Following the completion of this offering, each director that does not serve in an executive officer capacity for the company, who we refer to as a non-management director, will receive an annual cash retainer of $40,000. Non-management directors may, in lieu of receiving cash, elect on January 1st of each year to receive a portion of their annual cash retainer, which we refer to as the elected cash option, in the form of shares. If such an election is made, the non-management director will receive that number of restricted shares equal to the result of (i) the elected cash option divided by (ii) the closing bid price of the shares on the Nasdaq National Market on the date of grant. If a closing bid price is not available on the date of grant, the closing bid price for the first preceding trading date will be used. We will not issue fractional interests in shares. Amounts attributed to fractional interests on grant date, will be paid in cash.
      ~~The company will also reimburse directors for all reasonable and authorized business expenses in accordance with the policies of the company as in effect from time to time.~~
      Following the completion of this offering, each member of the company’s various standing committees will receive $2,000 for attending a committee meeting in person (if any) and $1,000 for attending a telephonic committee meeting (if any). The chairperson of the audit committee, nominating and corporate governance committee and compensation committee will also each receive an annual cash retainer payable in equal quarterly installments (prorated for the initial term) of $10,000, $5,000 and $5,000 per year, respectively.
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~~Executive Officers of the Company~~
      Neither the trust nor the company will have any employees. In accordance with the terms of the management services agreement, our manager will second to us, our Chief Executive Officer and Chief Financial Officer. The company’s board of directors will elect the seconded Chief Executive Officer and Chief Financial Officer as officers of the company in accordance with the terms of the LLC agreement. Although the Chief Executive Officer and Chief Financial Officer will remain employees of our manager or an affiliate of our manager, they will report directly, and be subject, to the company’s board of directors. Our manager and the company’s board of directors may agree from time to time that our manager will second to the company one or more additional individuals to serve as officers or otherwise of the company, upon such terms as our manager and the company’s board of directors may mutually agree.
      The services performed for the company will be provided at our manager’s cost, including the compensation of our Chief Executive Officer and other personnel providing services pursuant to the management services agreement. We will reimburse the manager for the compensation and related costs and expenses of our Chief Financial Officer and his staff.
      See the section entitled “Management Services Agreement — Secondment of Our Chief Executive Officer and Chief Financial Officer” for more information about the executive officers of the company.
~~Compensation Committee Interlocks and Insider Participation~~
      Since November 18, 2005, no executive officer of the company has served as (i) a member of the compensation committee (or other board committees performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers serves on the board of directors of the company, or (ii) a director of another entity, one of whose executive officers serves on the board of directors of the company.
~~Compensation of Named Executive Officers~~
      Our Chief Executive Officer and Chief Financial Officer are employed by our manager and are seconded to the company. We do not pay any compensation to our executive officers seconded to us by our manager. Our manager is responsible for the compensation of executive officers seconded to us. We do not reimburse our manager for the compensation paid to our Chief Executive Officer. We pay our manager a quarterly management fee, and the manager uses the proceeds from the management fee, in part, to pay compensation to Mr. Massoud. Pursuant to the management services agreement, we reimburse our manager for the compensation of our Chief Financial Officer, Mr. James J. Bottiglieri. Accordingly, only compensation information for Mr. Bottiglieri is provided.
      ~~The following table sets forth the compensation paid or accrued by our manager to our Chief Financial Officer from November 18, 2005 through November 30, 2005 (unless otherwise noted).~~
~~SUMMARY COMPENSATION TABLE~~
~~Long-Term~~
~~Compensation~~
~~Annual Compensation~~ ~~Number of~~
~~Securities~~
~~Other Annual~~ ~~Underlying~~ ~~All Other~~
~~Name and Principal Position~~ ~~Year~~ ~~Salary~~ ~~Bonus~~ ~~Compensation~~ ~~Options~~ ~~Compensation~~
~~I. Joseph Massoud~~ ~~11/30/2005~~ —⁽¹ ⁾ —⁽¹ ⁾ —⁽¹ ⁾ —⁽¹ ⁾ —⁽¹ ⁾
~~Chief Executive Officer~~
~~James J. Bottiglieri~~ ~~11/30/2005~~ $ ~~11,595~~⁽² ⁾ —⁽² ⁾ —⁽² ⁾ —⁽² ⁾ —⁽² ⁾
~~Chief Financial Officer~~
⁽¹⁾ Mr. I. Joseph Massoud, our Chief Executive Officer, is seconded to us by our manager and does not receive compensation directly from us. We pay our manager a quarterly management fee, and the manager uses the proceeds from the management fee,
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~~in part, to pay compensation to Mr. Massoud. Therefore, no compensation information for Mr. Massoud is provided in the above compensation table.~~
⁽²⁾ Projected amount reflecting compensation for our Chief Financial Officer from the period from November 18, 2005 through November 30, 2005. See section entitled “— Employment Agreement” below.
~~Employment Agreement~~
      In September 2005, The Compass Group entered into an employment agreement with Mr. Bottiglieri, our Chief Financial Officer, that provides for a two-year term. Our manager intends to enter into a substantially similar agreement with Mr. Bottiglieri in conjunction with this offering. A summary of the terms of Mr. Bottiglieri’s current employment agreement is set forth below.
      Pursuant to the employment agreement, Mr. Bottiglieri’s initial base salary is $325,000. The Compass Group has the right to increase, but not decrease, the base salary during the term of the employment agreement.
      The employment agreement provides that Mr. Bottiglieri is entitled to receive an annual bonus, which bonus must not be less than $100,000, as determined in the sole judgment of our board of directors. In addition, Mr. Bottiglieri received a $100,000 bonus upon his entry into the employment agreement and he will receive a $200,000 bonus upon the consummation of this offering.
      Pursuant to the employment agreement, if Mr. Bottiglieri’s employment is terminated by him without good reason (as defined in the employment agreement) before the completion of two years of employment with The Compass Group or for cause (as defined in the employment agreement) by The Compass Group, he will be entitled to receive his accrued but unpaid base salary. In addition, if his employment is terminated due a disability, he will be entitled to receive an amount equal to six months of his base salary and one-half times his average bonus for any fiscal year during his employment with The Compass Group.
      If Mr. Bottiglieri terminates his employment for good reason or without good reason after the completion of two years of employment with The Compass Group but prior to the completion of four years of employment with The Compass Group, or if The Compass Group terminates his employment other than for cause, he will be entitled to receive his accrued but unpaid base salary plus $300,000.
      The employment agreement prohibits Mr. Bottiglieri from soliciting any of The Compass Group’s employees for a period of two years after the termination of his employment with The Compass Group. The employment agreement also requires that he protect our confidential information.
~~Our Management~~
      The management teams of each of our businesses will report to the company’s board of directors through our Chief Executive Officer and Chief Financial Officer and operate each business and be responsible for its profitability and internal growth. The company’s board of directors and our Chief Executive Officer and Chief Financial Officer will have responsibility for overall corporate strategy, acquisitions, financing and investor relations. Our Chief Executive Officer and Chief Financial Officer will call upon the resources of our manager to operate the company. See the section entitled “Management Services Agreement — Secondment of Our Chief Executive Officer and Chief Financial Officer” for further information about our executive officers.
~~Option Plan~~
~~Purpose.~~ Prior to the completion of this offering, our board of directors and shareholders will have adopted an Option Plan which provides for the granting of options that do not constitute incentive stock options within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”)(“nonqualified stock options”). The purpose of the Option Plan is to reward individuals within each of our businesses, who are responsible for or contribute to the management, growth and profitability of each business and its subsidiaries.
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~~Eligibility.~~ Only executive officers, senior officers and other key executive and management employees of our businesses will be eligible to receive stock options awarded under the Option Plan. No determination has been made as to which of those eligible individuals (currently, approximately 30) will receive grants under the Option Plan, and, therefore, the benefits to be allocated to any individual are not presently determinable.
~~Authorization.~~ The Option Plan covers an aggregate of 400,000 shares subject to certain adjustments in the event of distributions, splits and certain other events. If shares subject to an option are not issued or cease to be issuable because an option is terminated, forfeited, or cancelled, those shares will become available for additional awards. No more than 400,000 shares may be issued pursuant to grants made under the Option Plan to any one individual in any one year.
~~Administration.~~ The Option Plan will be administered by the compensation committee, which consists of members of the company’s board of directors who are outside directors for purposes of the Code and non-employee directors within the meaning of Section 16 of the Exchange Act and rules and regulations thereunder. The compensation committee may delegate its authority under the Option Plan to officers of the company, subject to guidelines prescribed by this committee, but only with respect to individuals who are not subject to Section 16 of the Exchange Act.
~~Terms of Options.~~ The compensation committee will designate the individuals to receive the options, the number of shares subject to the options, and the terms and conditions of each option granted under the Option Plan, including any vesting schedule. The term of any option granted under the Option Plan shall be determined by the compensation committee.
~~Exercise of Options.~~ The exercise price per share of options granted under the Option Plan is determined by the compensation committee; provided, however, that such exercise price cannot be less than the fair market value of a share on the date the option is granted (subject to adjustments).
~~Change in Control.~~ The Option Plan provides that the compensation committee has the authority to provide in any option agreement for the vesting and/or cash-out of options upon or following a “Change in Control” transaction, as such term is defined in the Option Plan.
~~Amendment and Termination.~~ The Option Plan will expire on the tenth anniversary of the date on which the Option Plan is approved by the trust’s shareholders. The compensation committee may amend or terminate the Option Plan at any time, subject to shareholder approval in certain circumstances. However, the compensation committee may not amend the Option Plan without the consent of eligible individuals under the Option Plan if it would adversely affect the eligible individuals’ rights to previously granted awards.
~~Federal Tax Consequences.~~ The following is a summary of certain federal income tax consequences of transactions under the Option Plan based on current federal income tax laws. This summary is not intended to be exhaustive and does not describe state, local, or other tax consequences. It is intended for the information of shareholders considering how to vote with respect to this proposal and not as tax advice to participants in the Option Plan.
      The grant of a non-qualified stock option under the Option Plan will not result in the recognition of taxable income to the participant or in a deduction to the company. In general, upon exercise, a participant will recognize ordinary income in an amount equal to the excess of the fair market value of our shares purchased over the exercise price. The company is required to withhold tax on the amount of income so recognized, and is entitled to a tax deduction equal to the amount of such income. Gain or loss upon a subsequent sale of any shares of common stock received upon the exercise of a non-qualified stock option is taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold) to the participant.
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~~OUR RELATIONSHIP WITH OUR MANAGER~~
      Our manager is a newly created entity that is owned and controlled by its sole and managing member, our Chief Executive Officer. Following this offering, CGI, through a subsidiary, and Sostratus LLC, an entity owned by our management team, will become non-managing members of our manager. The members of our management team are currently employees of The Compass Group, a subsidiary of CGI and, in conjunction with this offering, will resign from The Compass Group and be employed by our manager. Our manager will perform a variety of services for us, which will entitle it to receive a management fee, and our manager will also own the company’s management interests, which will carry the right to receive a profit allocation. Our relationship with our manager will be governed principally by the following two agreements:
• ~~The management services agreement relating to the services our manager will perform for us and the businesses we own, which we refer to as our businesses in this section; and~~
• ~~The~~ company’s LLC agreement relating to our manager’s rights with respect to the ~~management~~allocation interests it owns; and
• the supplemental put agreement relating to our manager’s right to cause the company to purchase the allocation interests it owns.
We
Our manager also ~~expect that our manager will enter~~has entered into ~~other agreements with our businesses pursuant to which our manager may perform management services, which we refer to as~~ offsetting management services agreements and ~~transaction-related services, which we refer to as~~ transaction services agreements ~~for such~~with our businesses ~~directly rather than pursuant to the management services agreement.~~directly. These agreements, and some of the material terms relating thereto, are discussed in more detail inbelow. The management fee, profit allocation and put price under the ~~sections entitled “Management Services Agreement”~~supplemental put agreement are payment obligations of the company and, ~~“Description of Shares”.~~
      ~~With regard~~as a result, will be paid, along with other company obligations, prior to the ~~management services agreement,~~payment of distributions to shareholders.
Our Manager as a Service Provider
The company’s board of directors has engaged our manager to manage theday-to-day operations and affairs of the company, will pay our manager a management fee of 2% per annum (payable quarterly in arrears), which will be calculated on the basis of our adjusted net assets. “Adjusted net assets” will be defined generally as total assets~~plusthe aggregate amount of accumulated amortization~~~~minus~~the aggregate amount of adjusted total liabilities. “Adjusted total liabilities” will be defined generally as total liabilities excluding the effect of any third party debt. Additionally, any management fee due from the company to the manager will be reduced by any management fees received by the manager from any of our businesses. See the section entitled “Management Services Agreement — Management Fee” for more information about the calculation and payment ofoversee the management ~~fee~~ and ~~the specific definitions of terms used in such calculation.~~
      With regard to our LLC agreement, the company will pay a profit allocation to our manager in respect of the management interests upon the occurrence of certain events if the company’s profits exceed certain hurdles. In calculating the company’s profits for determination of our manager’s profit allocation, we will take into consideration both:
• ~~A business’ contribution-based profit, which will be equal to a business’ aggregate contribution to the company’s cash flow during the period a business is owned by the company; and~~
• ~~The company’s cumulative gains and losses to date.~~
      ~~Specifically, profit allocation will be calculated and paid subject to the following hurdles:~~
• ~~No profit allocation will be paid in the event that the company’s profits do not exceed an annualized hurdle rate of 7% with respect to our equity in a business; and~~
• Profit allocation will be paid in the event that the company’s profits do exceed an annualized hurdle rate of 7% in the following manner: (i) 100% of the company’s profits for that amount in excess of the hurdle rate of 7% but that is less than or equal to the hurdle rate of 8.75%, which amount is intended to provide the manager with an overall profit allocation of 20% once the hurdle rate of 7% has been surpassed; and (ii) 20% of the company’s profits in excess of the hurdle rate of 8.75%.
      ~~Additionally, our manager has agreed not to take a profit allocation until the sale of one~~operations of our businesses or, at the manager’s option, the fifth anniversary of our ownership of one of our businesses. We believe this allocation timing more accurately reflects the long-term performance of each of our businesses than a method which providesand perform certain other services for annual allocations, and is consistent with our intent to manage and grow our businesses. See the section entitled “Description of Shares — Distributions — Manager’s Profit Allocation” for more information about calculation and payment of profit allocation.
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~~MANAGEMENT SERVICES AGREEMENT~~
      ~~In this section, we refer to our businesses as the managed subsidiaries.~~us. The company ~~and our managed subsidiaries intend to enter~~has entered into a management services agreement ~~with our manager. The material terms of the management services agreement are summarized below.~~
~~Management Services~~
      ~~The management services agreement~~which sets forth the services to be performed by our ~~manager. Our manager will perform its services subject to the oversight and supervision of the company’s board of directors.~~
      In general, our manager will perform those services for us and the managed subsidiaries that would be typically performed by the executive officers of a company. Specifically, our manager will perform the following services, which we refer to as the management services, pursuant to the management services agreement:
• ~~Manage our day-to-day business and operations, including our liquidity and capital resources and compliance with applicable law;~~
• ~~Identify, perform due diligence on, negotiate and oversee acquisitions of target businesses and any other investments;~~
• ~~Oversee the performance of any managed subsidiaries, including monitoring the business and operations of such managed subsidiaries, and any other investments that we make;~~
• ~~Provide, on our behalf, managerial assistance to our managed subsidiaries;~~
• ~~Evaluate, negotiate and oversee dispositions of all or any part of any managed subsidiaries or any other investments that we may have;~~
• ~~Provide, as necessary, individuals to serve as members of the company’s board of directors; and~~
• ~~Perform any other services that would be customarily performed by executive officers and employees of the company.~~
      The company, the managed subsidiaries and our manager have the right at any time during the term of the management services agreement to change the services provided by our manager. In performing management services, our manager will have all necessary power and authority to perform, or cause to be performed, such services on behalf of the company. In certain circumstances, our manager will be required to obtain authorization and approval of the company’s board of directors.
      While our manager will provide management services to the company, our manager will also be permitted to provide services, including services similar to management services, to other entities. In this respect, the management services agreement and the obligation to provide management services will not create an exclusive relationship between our manager and the company or the managed subsidiaries. Moreover, our officers and the officers and employees of our manager and its affiliates who provide services to us, including members of our management team, anticipate devoting time to the affairs of our manager and its affiliates and performing services for other entities.
~~Offsetting Management Services Agreements~~
      Pursuant to the management services agreement, we have agreed that our manager may, at any time, enter into offsetting management services agreements with the managed subsidiaries pursuant to which our manager may perform services that may or may not be similar to management services. Any fees to be paid by a managed subsidiary pursuant to such agreements are referred to as offsetting management fees and will offset, on a dollar-for-dollar basis, the management fee otherwise due and payable by the company under the management services agreement with respect to a fiscal quarter. See the section entitled “— Management Fee” for more information about offsetting management fees.
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      In connection with the historical acquisition by CGI and its subsidiaries of each of the managed subsidiaries, such managed subsidiaries entered into management services agreements with an affiliate of The Compass Group. Pursuant to each such agreement, the applicable affiliate of The Compass Group continues to provide services to such managed subsidiary, and the applicable managed subsidiary is obligated to pay to such affiliate an annual management fee. In conjunction with the closing of this offering, The Compass Group will cause each such agreement to be assigned to our manager. Each such agreement shall be deemed an offsetting management services agreement and all payments thereunder shall be deemed to be offsetting management fees.
~~Transaction Services Agreements~~
      Pursuant to the management services agreement, we have agreed that our manager may, at any time, enter into transaction services agreements with the managed subsidiaries relating to the performance by our manager of certain transaction-related services, such as those customarily performed by a third-party consultant or financial advisor. Our manager will contract for the performance of transaction services on an arm’s-length basis and on market terms upon approval of the company’s independent directors (or a committee of the board of directors that is comprised of at least three independent directors). Any fees received by our manager pursuant to such a transaction services agreement will be in addition to the management fee payable by the company pursuant to the management services agreement and~~will notoffset the payment of such management fee.~~
~~Secondment of Our Chief Executive Officer and Chief Financial Officer~~
      Neither the trust nor the company will have any employees. In accordance with the terms of the management services agreement, our manager will second to us our Chief Executive Officer and Chief Financial Officer. The company’s board of directors will elect the seconded Chief Executive Officer and Chief Financial Officer as officers of the company in accordance with the terms of the LLC agreement and the business operations, policies and restrictions of the company in existence from time to time. Although the Chief Executive Officer and Chief Financial Officer will remain employees of our manager or an affiliate of our manager, they will report directly, and be subject, to the company’s board of directors. Our manager and the company’s board of directors may agree from time to time that our manager will second to the company one or more additional individuals to serve as officers or otherwise of the company, upon such terms as our manager and the company’s board of directors may mutually agree.
      ~~The company will indemnify any individuals seconded to the company and will maintain directors and officers insurance in support of such indemnities.~~
      Mr. Massoud, our Chief Executive Officer, intends to enter into an employment agreement and non-disclosure and non-solicitation agreement with our manager pursuant to which he is employed by our manager.
~~Acquisition and Disposition Opportunities~~
      Our manager has exclusive responsibility for reviewing and making recommendations to the company’s board of directors with respect to acquisition opportunities and dispositions. In the event that an opportunity is not originated by our manager, the company’s board of directors will seek a recommendation from our manager prior to making a decision concerning any acquisition or disposition. In the case of any acquisition or disposition that involves an affiliate of our manager or us, our nominating and corporate governance committee will be required to approve such transaction.
      Our manager and its affiliates, pursuant to the management services agreement, will first refer to the company’s board of directors any acquisition opportunities that are made available by any source to our manager ~~or any of its affiliates unless the Chief Executive Officer notifies our manager that~~for providing such acquisition opportunity does not meet the company’s acquisition criteria, as determined by the company’s board of directors. In the event that an acquisition opportunity is offered to the company by our manager and the company determines not to pursue the acquisition opportunity in full, any portion of the
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~~opportunity which the company does not pursue may be offered to any person, including affiliates of our manager, in the sole discretion of our manager and its affiliates.~~
~~Indemnification by the Company~~
services. The company has agreed to ~~indemnify and hold harmless~~pay our manager a quarterly management fee equal to 0.5% (2.0% annualized) of our adjusted net assets as of the last day of each fiscal quarter, as discussed in more detail below. See the section entitled “Certain Relationships and its employees from and against all losses, claims and liabilities incurred by our manager in connection with, relating to or arising out the performance of any management services. However, that the company will not be obligated to indemnify or hold harmless our managerRelated Party Transactions” for ~~any losses, claims and liabilities incurred by our manager in connection with, relating to or arising out of (i) a breach by our manager of~~additional information regarding the management services agreement, (ii) the gross negligence, willful misconduct, bad faith or reckless disregard of our manager in the performance of any management services or (iii) fraudulent or dishonest acts of our manager.
~~Termination of Management Services Agreement~~agreement.
The company’s board of directors may terminate the management services agreement and our manager’s appointment upon a finding by any court of competent jurisdiction in a final, non-appealable order that:
• Our manager materially breached the terms of the management services agreement and such breach continued unremedied for 60 days after our manager receives written notice from the company setting forth the terms of such breach; or
• Our manager acted with gross negligence, willful misconduct, bad faith or reckless disregard of its duties in carrying out its obligations under the management services agreement or engaged in fraudulent or dishonest acts with respect to the company.
      We refer to these events as termination events. Our manager may resign and terminate the management services agreement at any time with 90 days’ written notice to the company, and this right is not contingent upon the finding of a replacement manager. However, if our manager resigns, until the date on which the resignation becomes effective, it will, upon request of the company’s board of directors, use reasonable efforts to assist the company’s board of directors to find a replacement manager at no cost and expense.Management Fee
Upon the termination of the management services agreement, seconded officers, employees, representatives and delegates of our manager and its affiliates who are performing the services that are the subject of the management services agreement, will resign their respective position with the company and cease to work at the date of our manager’s termination or at any other time as determined by our manager. The manager’s appointed director may continue serving on the company’s board of directors subject to the manager’s continued ownership of the management interests.
      If the management services agreement is terminated pursuant to a termination event, then the trust, the company and the managed subsidiaries each agree to cease using the term “Compass” entirely in its business or operations within 30 days of such termination, including by changing its name to remove any reference to the term “Compass”.
~~Reimbursement of Expenses~~
      The company and the managed subsidiaries will be responsible for paying costs and expenses relating to their business and operations. The company and the managed subsidiaries, respectively, have each agreed to reimburse our manager during the term of the management services agreement for:
• All costs and expenses of the company or the managed subsidiaries that are incurred by our manager on behalf of the company or the managed subsidiaries, as the case may be, including any out-of-pocket costs and expenses, and all costs and expenses the reimbursement of which are specifically approved by the company’s or a managed subsidiary’s board of directors; and
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• ~~The compensation and other related costs and expenses of the Chief Financial Officer and his staff.~~
Notwithstanding anything else to the contrary, neither the company nor any managed subsidiary will be obligated or responsible for reimbursing or otherwise paying for any costs or expenses relating to our manager’s overhead or any other costs and expenses relating to our manager’s conduct of its business and operations. The company will not reimburse the manager for the compensation of our Chief Executive Officer and any other personnel providing services pursuant to the management services agreement, including personnel seconded to the company.
~~Reimbursement of Offering Expenses~~
      Pursuant to the management services agreement, we have agreed to reimburse our manager and its affiliates, within five business days after the closing of this offering, for certain costs and expenses incurred or to be incurred prior to and in connection with the closing of this offering in the aggregate amount of approximately $4.5 million.
~~Management Fee~~
Subject to any adjustments discussed below, for performing management services under the management services agreement during any fiscal quarter, the company will pay our manager a management fee with respect to such fiscal quarter. The management fee to be paid with respect to any fiscal quarter ~~will be~~is calculated ~~by our manager~~ as of the last day of such fiscal quarter, which we refer to as the calculation date. The management fee is calculated by an administrator, which will be our manager so long as the management services agreement is in effect. The amount of any management fee payable by the company as of any calculation date with respect to any fiscal quarter will be (i) reducedby the aggregate amount of any offsetting management fees, if any, received by our manager from any of our ~~managed subsidiaries during~~businesses with respect to such fiscal quarter, (ii) reduced (or increased)by the amount of any over-paid (or under-paid)

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management fees received by (or owed to) our manager ~~with respect to the immediately preceding fiscal quarter,~~as of such calculation date, and (iii) increasedby the amount of any outstanding accrued and unpaid management fees.
~~Management services performed for~~
As an obligation of the company, ~~will be provided at our manager’s cost. In addition,~~ the management fee will ~~cover~~be paid prior to the ~~compensation~~payment of distributions to our ~~Chief Executive Officer and any other personnel providing services pursuant~~shareholders. If we do not have sufficient liquid assets to pay the management fee when due, we may be required to liquidate assets or incur debt in order to pay the management fee.
Example of Calculation of Management Fee
Based on consolidated balance sheet at December 31, 2006 set forth in this prospectus, the management fee for the quarter ended December 31, 2006 that was paid under the management services agreement ~~including personnel seconded to the company. However, the company will reimburse our manager for the compensation and related costs and expenses of our Chief Financial Officer and his staff,~~was calculated as ~~discussed in more detail below.~~follows:

(In thousands)

Total management fee:

1.  Total assets $ 525,597
2.  Accumulated amortization of intangibles 7,032
3.  Adjusted total liabilities 132,473

4.  Adjusted net assets (1 + 2 −3) 400,156
5.  Quarterly management fee (0.5% * 4) 2,001
Offsetting management fees:

6.  CBS Personnel 278
7.  Crosman 145
8.  Advanced Circuits 125
9.  Silvue 88
10. Anodyne 88

11. Total offsetting management fees (6 + 7 + 8 + 9 +10) 724

12. Quarterly management fee paid by the company (5 −11) $ 1,277

For purposes of this provision:
• ~~The “management~~“Adjusted net assets”equals, with respect to the company as of any calculation date, thesumof (i) consolidated total assets (as determined in accordance with GAAP) of the company as of such calculation date,plus(ii) the absolute amount of consolidated accumulated amortization of intangibles (as determined in accordance with GAAP) for the company as of such calculation date,minus(iii) the absolute amount of adjusted total liabilities of the company as of such calculation date, plus (iv) to the extent included in adjusted total liabilities of the company as of such calculation date, the absolute amount of the company’s liabilities (as determined in accordance with GAAP) in respect of its obligations under the supplemental put agreement.
• “Adjusted total liabilities”equals, with respect to the company as of any calculation date, the company’s consolidated total liabilities (as determined in accordance with GAAP) as of such calculation date after excluding the effect of any outstanding third party indebtedness of the company.
• “Management fee” ~~will be equal to,~~equals, as of any calculation date, theproductof (i) 0.5% ~~(2% annualized)~~,multiplied by(ii) the company’s adjusted net assets as of such calculation date;provided, however,that, with respect to ~~the~~any fiscal quarter in which the ~~closing of this offering occurs,~~management services agreement is terminated, the company will pay our manager a management fee with respect to such fiscal quarter equal to theproductof (i)(x) 0.5% ~~(2% annualized)~~,multiplied by(y) the company’s adjusted net assets as of such calculation date,multiplied by(ii) a fraction, the numerator of which is the number of days from and including the ~~date of closing to and including the last~~first day of such fiscal quarter to but excluding the date upon which the management services agreement is terminated and the denominator of which is the number of days in such fiscal quarter.

• “~~Adjusted net assets” will be equal to, with respect to~~Third party indebtedness”means any ~~entity as of any calculation date, the~~~~sum~~~~of (i) total assets of such entity as of such calculation date,~~~~plus~~~~(ii) the absolute amount of accumulated amortization for such entity as of such calculation date,~~~~minus~~~~(iii) the absolute amount of adjusted total liabilities of such entity as of such calculation date.~~
• ~~“Adjusted total liabilities” will be equal to, with respect to any entity as of any calculation date, such entity’s total liabilities after excluding the effect of any outstanding~~ indebtedness of ~~such entity~~the company owed to third party lenders that are ~~unaffiliated~~not affiliated with ~~such entity.~~the company.

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~~175~~
~~PRINCIPAL SHAREHOLDERS/ SECURITY OWNERSHIP OF DIRECTORS~~
~~AND EXECUTIVE OFFICERS~~Reimbursement of Expenses

The ~~following table sets forth certain information, both before~~company will be responsible for paying costs and expenses relating to its business and operations. The company will agree to reimburse our manager during the ~~closing of this offering and after giving pro forma effect to the closing of this offering and the related private placement transactions, regarding the beneficial ownership of shares~~term of the trust sold in this offering. The number of shares beneficially owned by each entity, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power and also any shares which the individual or entity has the right to acquire within sixty days of November 28, 2005 through the exercise of an option, conversion feature or similar right. The address for all individuals and entities listed in the beneficial ownership tables provided in this section is Sixty One Wilton Road, Second Floor, Westport, CT 06880. See the section entitled “Description of Shares” for more information about the shares of the trust.
~~Compass Diversified Trust~~⁽¹⁾
~~Before the Offering~~⁽²⁾ ~~After the Offering~~
~~Number of~~ ~~Percent of~~ ~~Number of~~ ~~Percent of~~
~~Shares~~ ~~Class~~ ~~Shares~~ ~~Class~~
~~Directors and Executive Officers~~
~~C. Sean Day~~ — — %
~~I. Joseph Massoud~~⁽³⁾
— — %
~~James J. Bottiglieri~~ — — %
~~Harold S. Edwards~~ — — %
~~D. Eugene Ewing~~ — — %
~~Mark H. Lazarus~~ — — %
~~Ted Waitman~~ — — %
~~All directors and executive officers, as a group~~ — — %
~~Shareholders~~
~~Compass Group Investments, Inc.~~⁽⁴⁾
— — %
~~Pharos I LLC~~⁽⁵⁾
— — %
⁽¹⁾ The trust will issue shares of trust stock. Each share of the trust represents one undivided beneficial interest in the trust. Each beneficial interest in the trust corresponds to one non-management interest of the company. No other equity interest in the trust will be outstanding after the closing of this offering.
⁽²⁾ Before the closing of this offering, the trust will not have any equity interests authorized or issued and outstanding; the trust will be authorized to issue the shares pursuant to the amended and restated trust agreement to be entered into in conjunction with the closing of this offering. See the section entitled “Description of Shares” for more information. As a result, the company, as sponsor of the trust, will beneficially own the trust before the closing of this offering. In turn, our manager, as sole holder of the management interests of the company, and our Chief Executive Officer, Mr. Massoud, as sole and managing member of the manager, will each beneficially own the company before the closing of this offering.
⁽³⁾ ~~Amounts with respect to Mr. Massoud also reflect his beneficial ownership of shares through his interest in and control of Pharos I LLC, as discussed in more detail in footnote 5 below.~~
⁽⁴⁾ Compass Group Investments, Inc., an affiliate of our manager, has agreed to purchase the number of shares in the trust having an aggregate purchase price of $96 million, at a per share price equal to the initial public offering price, in a separate private placement transaction that will close in conjunction with the closing of this offering.
⁽⁵⁾ Pharos I LLC has agreed to purchase the number of shares in the trust having an aggregate purchase price of $4 million, at a per share price equal to the initial public offering price, in a separate private placement transaction that will close in conjunction with the closing of this offering. Our Chief Executive Officer, Mr. Massoud, as managing member of Pharos I LLC exercising sole voting and investment power with respect to Pharos I LLC, will beneficially own Pharos I LLC before and after the closing of this offering.
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     The following table sets forth certain information, both before and after giving effect to the closing of this offering and the related private placement transactions, regarding the beneficial ownership of the company’s two classes of equity interests. See the section entitled “Description of Shares” for more information about the equity interests of the company.

Compass Group Diversified Holdings LLC⁽¹⁾

Before the Offering After the Offering

Number of Percent of Number of Percent of
Interests Class Interests Class

Compass Group Management LLC⁽²⁾

Management interests 100 100 % 100 100 %
Non-management interests — — — —
Compass Diversified Trust⁽³⁾

Management interests — — — —
Non-management interests — — 100 %
⁽¹⁾ ~~Compass Group Diversified Holdings LLC has two classes of interests: management interests and a non-management interests.~~
⁽²⁾ Compass Group Management LLC, our manager, as sole holder of the management interests of the company and as our manager under the management services agreement, will beneficially own the company before this offering. Our Chief Executive Officer, Mr. Massoud, as sole and managing member of the manager, will beneficially own the company before the closing of this offering. Our manager is also an affiliate of CGI and Pharos.
⁽³⁾ Each beneficial interest in the trust corresponds to one underlying non-management interest of the company. Unless the trust is dissolved, it must remain the sole holder of 100% of the non-management interests and at all times the company will have outstanding the identical number of non-management interests as the number of outstanding shares of the trust. As a result of corresponding interest between shares and non-management interests, each holder of shares identified in the table above relating to the trust may be deemed to beneficially own a correspondingly proportionate interest in the company.
     The following table sets forth certain information, both before and after giving effect to the closing of this offering, regarding the beneficial ownership by certain executive officers and directors of the company of equity interests in certain of our initial businesses. See the section entitled “Certain Relationships and Related Party Transactions” for more information about ownership interests in our initial businesses.

Before the Offering After the Offering

Number of Percent of Number of Percent of
Shares Class Shares Class

C. Sean Day
Crosman, Common Stock 5,193 0.9 % 5,193 0.9 %
Advanced Circuits, Series B Common Stock 10,000 0.8 % 10,000 0.8 %
I. Joseph Massoud
Crosman, Common Stock 2,077 0.3 % — —
Silvue Coinvestment Partners, LLC⁽¹⁾

Silvue, Series B Common Stock 98.6 0.2 % — —
Silvue, Series A Preferred Stock 433.1 1.0 % — —
ACI Coinvestment Partners, LLC⁽²⁾

Advanced Circuits, Series B Common Stock 11,880 1.0 % — —
⁽¹⁾ Mr. Massoud is the managing member of and owns a 26.1% interest in Silvue Coinvestment Partners, LLC and, in such capacity, exercises sole voting and investment power with respect to Silvue Coinvestment Partners, LLC. As a result, Mr. Massoud beneficially owns Silvue Coinvestment Partners, LLC. Mr. Day beneficially owns a 36.2% interest in Silvue Coinvestment Partners, LLC.
⁽²⁾ Mr. Massoud is the managing member of and owns a 42.1% interest in ACI Coinvestment Partners, LLC and, in such capacity, exercises sole voting and investment power with respect to ACI Coinvestment Partners, LLC. As a result, Mr. Massoud beneficially owns ACI Coinvestment Partners, LLC.
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~~CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS~~
~~General~~management services agreement for:
Prior to this offering, CGI indirectly owned a controlling interest through its subsidiaries in each of our initial businesses, and CGI and its subsidiaries are the entities from which the company will acquire its controlling interest in each of our initial businesses. CGI was also sole owner of The Compass Group, which is the entity that managed our initial businesses prior to this offering and for whom our management team worked prior to this offering. CGI is wholly owned by the Kattegat Trust, whose sole beneficiary is a philanthropic foundation, the TK Foundation, named for its benefactor, the late J. Torben Karlshoej who was the founder of Teekay Shipping.
      ~~Prior to this offering, the company and the trust were controlled by our manager, which is owned and controlled by our Chief Executive Officer.~~
~~CGI~~
      We will use a portion of the proceeds of this offering and the related private placement transactions to acquire controlling interests in our initial businesses from the sellers, including CGI and its subsidiaries. CGI and its subsidiaries acquired or otherwise obtained the controlling interest in each initial business that we intend to acquire in connection with this offering pursuant to equity investments totaling approximately $71.9 million, which controlling interests we will acquire from CGI and its subsidiaries for an aggregate purchase price of approximately $133.6 million in cash. See the section entitled “The Acquisition of and Loans to Our Initial Businesses” for more information about our acquisition of our initial businesses.
      ~~CGI will become a non-managing member of our manager following this offering, and thus will be entitled to receive 10% of any profit allocation paid by the company to our manager.~~
      CGI has agreed to purchase, in conjunction with the closing of this offering in a separate private placement transaction, that number of shares, at a per share price equal to the initial public offering price, having an aggregate purchase price of $96 million. As indicated above, this amount will be used in part to pay the purchase price to CGI and its subsidiaries for the acquisition of our initial businesses by the company. See the section entitled “The Acquisition of and Loans to Our Initial Businesses” for more information on our acquisition of our initial businesses. CGI will have certain registration rights in connection with the shares it acquires in the separate private placement transaction. See the section entitled “Shares Eligible for Future Sale — Registration Rights” for more information about CGI’s registration rights.
~~Our Manager~~
      Our manager is a newly created entity that is owned and controlled by its sole and managing member, our Chief Executive Officer. Following this offering, CGI, through a subsidiary, and Sostratus LLC, an entity owned by our management team, will become non-managing members of our manager. Our relationship with our manager will be governed principally by the following two agreements:
• ~~The~~all costs and expenses of the company that are incurred by our manager or its affiliates on behalf of the company, including anyout-of-pocket costs and expenses incurred in connection with the performance of services under the management services agreement, ~~relating to~~and all costs and expenses the ~~management services our manager will perform for us and~~reimbursement of which are specifically approved by the ~~businesses we own and the management fee to be paid to our manager in respect thereof;~~company’s board of directors; and

• ~~The~~the compensation and other costs and expenses of the chief financial officer and his staff as approved by the company’s ~~LLC agreement setting forth our manager’s rights with respect to the management interests it owns, including the right to receive profit allocations from the company.~~compensation committee.

The company will not be obligated or responsible for reimbursing or otherwise paying for any costs or expenses relating to our manager’s overhead or any other costs and expenses relating to our manager’s conduct of its business and operations. Also, the company will not be obligated or responsible for reimbursing our manager for costs and expenses incurred by our manager in the identification, evaluation, management, performance of due diligence on, negotiation and oversight of potential acquisitions of new businesses for which the company (or our manager on behalf of the company) fails to submit an indication of interest or letter of intent to pursue such acquisition, including costs and expenses relating to travel, marketing and attendance of industry events and retention of outside service providers relating thereto. In addition, ~~we intend to enter~~the company will not be obligated or responsible for reimbursing our manager for costs and expenses incurred by our manager in connection with the identification, evaluation, management, performance of due diligence on, negotiating and oversight of an acquisition by the company if such acquisition is actually consummated and the business so acquired entered into a ~~supplemental put~~transaction services agreement with our manager providing for the reimbursement of such costs and expenses by such business. In this respect, the costs and expenses associated with the pursuit of add-on acquisitions for the company may be reimbursed by any business so acquired pursuant to ~~which~~a transaction services agreement. Further, the company will not reimburse our manager ~~shall have~~for the ~~right~~compensation of our chief executive officer and any other personnel providing services pursuant to ~~cause the company to purchase~~ the management ~~interests then owned~~services agreement, including personnel seconded to the company.
All reimbursements will be reviewed and, in certain circumstances, approved by the compensation committee of the company’s board of directors on an annual basis in connection with the preparation of year end financial statements.
Termination Fee
We will pay our manager a termination fee upon termination of the management services ~~agreement. The relationships created by these agreements are discussed in more detail below.~~
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      ~~We also expect that our manager will enter into offsetting management services agreements, transaction services agreements and other agreements, in each case, with some or all~~agreement if such termination is based solely on a vote of the ~~businesses that we own. In this respect, we expect that The Compass Group~~company’s board of directors and our shareholders; no other termination fee will ~~assign any outstanding agreements with our initial businesses~~be payable to our manager in connection with the ~~closing~~termination of ~~this offering. See~~ the ~~sections entitled “Management Services Agreement”~~management services agreement for any other reason. The termination fee that is payable to our manager will be equal to theproductof (i) two (2) multiplied by(ii) thesumof the amount of the four management fees calculated with respect to the four fiscal quarters immediately preceding the termination date of the management services agreement. The termination fee will be payable in eight equal quarterly installments, with the first such installment being paid on or within five business days of the last day of the fiscal quarter in which the management services agreement was terminated and ~~“Description~~each subsequent installment being paid on or within five business days of ~~Shares” for information about these and other agreements we and our businesses intend~~the last day of each subsequent fiscal quarter, until such time as the termination fee is paid in full to ~~enter into with~~ our manager.
In conjunction with the closing of this offering, all the employees of The Compass Group will become employees of our manager. We expect our manager and members of our management team to remain affiliated with CGI after closing of this offering, and further expect that our manager, our management team and CGI may pursue joint business endeavors.
Offsetting Management Services Agreements
The company and the businesses it owns intend to enter into a management services agreement with our manager pursuant to which our manager will provide management services to us and the businesses we own.
Pursuant to the management services agreement, we will pay our manager a quarterly management fee for the performance of management services. See the section entitled “Management Services Agreement — Management Fee” for more information about the management fee to be paid to our manager.
      We have agreed that our manager may, at any time, enter into offsetting management services agreements with ~~the~~our businesses ~~that we own relating~~pursuant to ~~the performance by~~which our manager ~~of offsetting~~may perform services that may or may not be similar to management ~~services for such businesses.~~services. Any fees to be paid by ~~a business that we own to~~one of our ~~manager~~businesses pursuant to such ~~an offsetting management services agreement~~agreements are referred to as offsetting management ~~fees. Any offsetting management~~ fees ~~received by our manager pursuant to an offsetting management services agreement during any fiscal quarter~~and will ~~reduce,~~offset, on adollar-for-dollar basis, the management fee otherwise due and payable by the company under the

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management services agreement with respect to a fiscal quarter. The management services agreement provides that the aggregate amount of offsetting management fees to be paid to our manager with respect to any fiscal quarter shall not exceed the greater of (i) 9.9% of our gross income for federal tax purposes, and (ii) the management fee to be paid to our manager with respect to such fiscal quarter. In conjunction with the closing of this offering, The Compass Group will assign, or cause to be assigned, to our manager any then existing agreements pursuant to which it or any of its affiliates provides management services to the businesses that we own. Each such agreement shall be deemed an offsetting management services agreement. See the section entitled ~~“Management Services Agreement — Offsetting~~“— Management ~~Services Agreements”~~Fee” for more information about ~~offsetting management services agreements and~~the treatment of offsetting management fees.
We
Transaction Services Agreements
Pursuant to the management services agreement, we have agreed that our manager may, at any time, enter into transaction services agreements with ~~the~~any of our businesses ~~that we own~~ relating to the performance by our manager of certain transaction-related services ~~such as those customarily performed~~in connection with the acquisitions of target businesses by ~~a third-party consultant~~the company or ~~financial advisor.~~its businesses or dispositions of the company’s or its subsidiaries’ property or assets. Our manager will contract for the performance of transaction services on ~~an arm’s-length basis and on~~ market terms ~~upon approval of the company’s independent directors (or a committee of the board of directors that is comprised of at least three independent directors).~~and conditions. Any fees received by our manager pursuant to such a transaction services agreement will be in addition to the management fee payable by the company pursuant to the management services agreement andwill not~~reduce~~offset the payment of such management fee. ~~See~~A transaction services agreement with any of our businesses may provide for the ~~section entitled “Management Services Agreement — Transaction Services Agreements” for more information about~~reimbursement of costs and expenses incurred by our manager in connection with the acquisition of such businesses. Entry into a transaction ~~fees.~~
      ~~Our manager~~services agreement will ~~own 100%~~be subject to the authorization and approval of the ~~management interests of~~company’s nominating and corporate governance committee. Since the company. Pursuant to the LLC agreement, our manager will receive a profit allocation with respect to the management interests. See the section entitled “Description of Shares — Distributions — Manager’s Profit Allocation” for more information about the profit allocation to be paid to our manager. In accordance with the constituent documentsIPO either we or one of our ~~manager, CGI will be entitled to receive 10%~~subsidiaries have entered into transaction services agreements with Anodyne, Aeroglide and Halo providing for the payment of ~~any profit allocation paid by~~$1.5 million in the ~~company~~aggregate to our manager.
~~The~~
Our Manager as an Equity Holder
Our manager owns 100% of the allocation interests of the company, ~~has agreed to reimburse~~which generally entitles our manager ~~and its affiliates, within five~~to receive a 20% profit allocation as a form of preferred distribution, subject to the company’s profit with respect to a business ~~days after the closing~~exceeding on an annualized hurdle rate of ~~this offering, for certain costs and expenses incurred or~~7%, which hurdle is tied to ~~be incurred prior~~such business’ growth relative to and in connection with the closing of this offering in the aggregate amount of approximately $4.5 million. See the section entitled “Management Services Agreement — Reimbursement of Offering Expenses” for more information about the reimbursement of our ~~manager’s fees and expenses.~~
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      We have agreed that, if the management services agreement is terminated on any date that is three years after the closing of this offering, our manager shall have the right, but not the obligation, to elect to cause the company to purchase the management interests then owned by our manager for the management interests purchase price, calculated asconsolidated net equity. The calculation of the ~~date upon which our manager exercises its right;~~~~provided,~~ ~~that our manager exercises its right within one year of such termination. See~~profit allocation and the ~~section entitled “Description of Shares — Supplemental Put Agreement” for more information about our manager’s put right and our obligations relating thereto.~~
~~Pharos~~
      Pharos has agreed to purchase, in conjunction with the closing of this offering in a separate private placement transaction, that number of shares, at a per share price equal to the initial public offering price, having an aggregate purchase price of $4 million. As indicated above, this amount will be used in part to pay the purchase price to CGI and its subsidiaries for the acquisition of our initial businesses by the company. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for more information on our acquisition of our initial business. Pharos will have certain registration rights in connection with the shares it acquires in the separate private placement transaction. In addition, Pharos is owned and controlled by certain employees of our manager. See the section entitled “Shares Eligible for Future Sale — Registration Rights” for more information about Pharos’ registration rights.
~~Agreements Among CGI Affiliated Entities~~
      The terms and conditions, including those relating to pricing, of the agreements to which the company, on the one hand, and CGI, our manager and certain other related parties, on the other hand, are a party were negotiated among CGI and its affiliates in the overall context of this offering and not on an arm’s-length basis. These agreements include:
• ~~The stock purchase agreement pursuant to which we will acquire a controlling interest in each of our initial businesses the sellers;~~
• ~~The loan agreements pursuant to which the company will provide debt financing to each of our initial businesses;~~
• ~~The management services agreement pursuant to which our manager will perform the management services and be paid the management fee;~~
• ~~The LLC agreement under which our manager will hold the company’s management interests and pursuant to which our manager will be paid the profit allocation;~~
• ~~The supplemental put agreement pursuant to which our manager has the right to cause the company to purchase the management interests upon termination of the management services agreement;~~
• Those offsetting management services agreement entered into between our initial businesses and an affiliate of The Compass Group in connection with the acquisition of those businesses by such affiliate of The Compass Group and assigned to our manager in conjunction with the closing of this offering;
• ~~The private placement agreements pursuant to which CGI and Pharos will purchase shares in a separate private placement transactions in conjunction with the closing of this offering; and~~
• The registration rights agreements pursuant to which Pharos and CGI will have certain rights as to the registration of the shares they acquired in the private placement transactions closing in conjunction with this offering.
Each of these agreements is discussed in more detail in this section and elsewhere in this prospectus. Although we received a fairness opinion regarding the fairness, from a financial point of view, to the company of such terms and conditions and notwithstanding that the acquisitions of the initial businesses, and all of the agreements identified above were approved by our independent directors, they were not negotiated on an arm’s-length basis with unaffiliated third parties. As a result, the terms and conditions of
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~~these agreements may be less favorable to us than they might have been had they been negotiated on an arm’s-length basis.~~
~~Directed Share Program~~
      Members of our management team have indicated their intention to purchase shares, at a per share price equal to the initial public offering price, pursuant to our directed share program. See the section entitled “Underwriting — Directed Share Program” for more information about our directed share program.
~~Ownership Interest In the Initial Businesses~~
      ~~Prior to this offering, certain employees~~ of our manager, held equity interests in certain of our initial businesses. In connection with this offering, all employees of our manager who own shares in any of our initial businesses have agreed to sell such shares toas the ~~company at the same price per share as CGI will receive pursuant to the stock purchase agreement. Such employees intend to reinvest approximately 100%~~holder of the after-tax proceeds of such sales in the purchase of shares, either by means of the private placement transaction with Pharos, or pursuant to the directed share program. In addition, following this offering, Mr. Day, Chairman of the company’s board of directors, will continue to holdallocation interests, ~~in certain of our initial businesses. As reflected below, the current holdings of these individuals did not and will not exceed 5% of any of such initial businesses’ outstanding shares.~~
     ~~Crosman~~
      Mr. Massoud, our Chief Executive Officer, holds 2,077 shares of Crosman, representing approximately 0.4% of Crosman’s outstanding shares. In addition, certain employees of the manager, a former director of Crosman and a former employee of CGI hold 4,748 shares of Crosman in the aggregate representing 0.8% of Crosman’s outstanding shares. In connection with our acquisition of the Crosman shares from CGI’s subsidiary, we will acquire from Mr. Massoud and such employees and former director all of their shares in Crosman at the same price per share as CGI will receive pursuant to the stock purchase agreement . Mr. Massoud and all employees of the manager and the former director of Crosman who hold Crosman shares intend to reinvest approximately 100% of the after-tax proceeds of such sales in the purchase of shares either by means of the private placement transaction with Pharos, discussed above, or pursuant to the directed share program.
      Prior to this offering, Mr. Day, our Chairman of the board of directors, held 5,193 shares of Crosman, representing approximately 0.9% of Crosman’s outstanding shares. Mr. Day will continue to hold these shares following this offering and our acquisition of Crosman.
     ~~Advanced Circuits~~
      ACI Coinvestment Partners, LLC, of which Mr. Massoud holds a 42.1% interest, holds 11,880 shares of Advanced Circuits, representing approximately 0.9% of Advanced Circuits’ outstanding shares. Certain employees of the manager hold the remaining 57.9% interest in ACI Coinvestment Partners, LLC. In connection with our acquisition of the Advanced Circuits’ shares from CGI’s subsidiary, we will acquire from ACI Coinvestment Partners, LLC all of its shares in Advanced Circuits at the same price per share as CGI will receive pursuant to the stock purchase agreement. Mr. Massoud and all employees of the manager who hold interests in ACI Coinvestment Partners, LLC intend to reinvest approximately 100% of the after-tax proceeds of such sales in the purchase of shares either by means of the private placement transactions to Pharos, discussed above, or pursuant to the directed share program.
      Prior to this offering, Mr. Day, our Chairman of the board of directors, held 10,000 shares of Advanced Circuits, representing approximately 0.8% of Advanced Circuits’ outstanding shares. Mr. Day will continue to hold these shares following this offering and our acquisition of Advanced Circuits.
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     ~~Silvue~~
      Silvue Coinvestment Partners, LLC of which Mr. Massoud and Mr. Day hold 26.1% and 36.2% interests, respectively, currently holds 532 shares of Silvue, representing approximately 1.3% of Silvue’s outstanding shares. Certain employees of the manager and a former employee of CGI hold the remaining 37.7% interest in Silvue Coinvestment Partners, LLC. In connection with our acquisition of the Silvue shares from CGI’s subsidiary, we will acquire from Silvue Coinvestment Partners, LLC, all of its shares in Silvue at the same price per share as CGI will receive pursuant to the stock purchase agreement. Mr. Massoud, Mr. Day and all employees of the manager who hold interests in Silvue Coinvestment Partners, LLC intend to reinvest approximately 100% of the after-tax proceeds of such sales in the purchase of shares either by means of the private placement to Pharos, or pursuant to the directed share program.
~~Contractual Arrangements with Related Parties~~
      The following discussion sets forth the agreements that we intend to enter into with related parties in connection with this offering. The statements relating to each agreement set forth in this section and elsewhere in this prospectus are subject to and are qualified in their entirety by reference to all of the provisions of such agreements, forms of which have been filed as exhibits to the registration statement of which this prospectus is a part.
~~Stock Purchase Agreement with Sellers, including CGI and its Subsidiaries~~
      CGI and its subsidiaries, together with the other sellers, intend to enter into a stock purchase agreement with the company pursuant to which the company will acquire controlling interests in our initial businesses. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for more information about the stock purchase agreement.
~~Loan Agreements with each Initial Business~~
      The company intends to enter into loan agreements with each of our initial businesses pursuant to which the company will provide debt financing to each initial business. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for more information about the loan agreements.
~~Management Services Agreement with Our Manager~~
      The company and the businesses it owns intend to enter into a management services agreement pursuant to which our manager will provide management services. See the section entitled “Management Services Agreement” for more information about the management services agreement.
~~Offsetting Management Services Agreements~~
      Our manager may, at any time, enter into offsetting management services agreements directly with the businesses that we own relating to the performance by our manager of offsetting management services for such businesses. All fees, if any, paidgoverned by the businesses that we own to our manager pursuant to an offsetting management services during any fiscal quarter will offset, on a dollar-for-dollar basis, the management fee otherwise due and payable by the company to our manager under the management services agreement for such fiscal quarter. In addition, in conjunction with the closing of this offering, The Compass Group will cause to be assigned to our manager each then existing agreement pursuant to which its affiliates provide management services to our initial businesses. Each such agreement shall be deemed an offsetting management servicesLLC agreement. See the section entitled “Management Services Agreement — Offsetting Management Services Agreements” for more information about offsetting management services agreements and offsetting management fees.
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~~LLC Agreement with Our Manager~~
      ~~The trust and our manager will each be parties to the LLC agreement relating to their respective interests in the company.~~ See the section entitled “Description of Shares” for more information about the LLC agreement.
~~Supplemental Put Agreement with Our Manager~~
      In consideration of our manager’s acquisition of the management interests, we intend to enter into a supplemental put agreement with our manager pursuant to which our manager shall have the right to cause the company to purchase the management interests then owned by our manager upon termination of the management services agreement. See the section entitled “Description of Shares — Supplemental Put Agreement” for more information about the supplemental put agreement.
~~Private Placement Agreements~~Manager’s Profit Allocation
      CGI and Pharos have each agreed to purchase, in conjunction with the closing of this offering in separate private placement transactions, that number of shares, at a per share price equal to the initial public offering price, having an aggregate purchase price of $96 and $4 million, respectively.
~~Registration Rights Agreements~~
      In connection with CGI’s and Pharos’ purchase of shares pursuant to the private placement transactions described above, we intend to enter into registration rights agreements with CGI and Pharos for the registration of such shares under the Securities Act. See the section entitled “Shares Eligible for Future Sale — Registration Rights” for more information about the registration rights agreement.
~~Our Related Party Transaction Policy~~
Prior to the completion of this offering, the company’s board of directors will adopt a code of ethics and conduct establishing the standards of ethical conduct applicable to all directors, officers and employees, as applicable, of the company and the businesses it owns, our manager, members of our management team and other employees of our manager and any other person who is performing services for or on behalf of the company.
The code of ethics and conduct will address, among other things, conflicts of interest and related party transactions generally and will require the approval of all related party transactions by the company’s nominating and corporate governance committee. The code of ethics and conduct specifically will require nominating and corporate governance committee approval for transactions between us and any affiliate of CGI or our manager relating to the provision of any services to us or the businesses that we own. We will disclose promptly any waivers of the code of ethics and conduct by our nominating and corporate governance committee.
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~~DESCRIPTION OF SHARES~~
~~General~~
      ~~The following is a summary of the material terms of:~~
• ~~the shares representing beneficial interests in the trust;~~
• ~~the non-management interests of the company to be issued to the trust; and~~
• ~~the management interests of the company to be issued to our manager.~~
      We refer to both the non-management interests and management interests, collectively, as the interests. We will enter into the amended and restated trust agreement, which we refer to as the trust agreement, and the amended and restated LLC agreement, which we refer to as the LLC agreement, upon the consummation of this offering. The trust agreement provides for the issuance of the shares, and the LLC agreement provides for the issuance of the non-management interests and management interests, as well as the distributions on and voting rights of each of the non-management interests and the management interests.
      The following description is subject to the provisions of the Delaware Statutory Trust Act and the Delaware Limited Liability Company Act. Certain provisions of the trust agreement and the LLC agreement are intended to be consistent with the DGCL, and the powers of the company, the governance processes and the rights of the trust as the holder of the non-management interests and the shareholders of the trust are generally intended to be similar in many respects to those of a typical Delaware corporation under the DGCL, with certain exceptions. In some instances, this summary refers to specific differences between the rights of holders of shares or non-management interests, on the one hand, and the rights of shareholders of a Delaware corporation, on the other hand. Similarly, in some instances this summary refers to specific differences between the attributes of shares or non-management interests, on the one hand, and shares of a Delaware corporation, on the other hand.
      The statements that follow are subject to and are qualified in their entirety by reference to all of the provisions of each of the trust agreement and the LLC agreement, which will govern your rights as a holder of the shares and the trust’s rights as a holder of non-management interests, forms of each of which have been filed with the SEC as exhibits to the registration statement of which this prospectus forms a part.
~~Shares in the Trust~~
      Each share of the trust represents one undivided beneficial interest in the trust and each share of the trust corresponds to one underlying non-management interest of the company held by the trust. Unless the trust is dissolved, it must remain the holder of 100% of the non-management interests and at all times the company will have outstanding the identical number of non-management interests as the number of outstanding shares of trust. Pursuant to the amended and restated trust agreement to be entered into in conjunction with the closing of this offering, the trust will be authorized to issue                 shares and the company will be authorized to issue a corresponding number of non-management interests. Immediately following the completion of this offering, the trust will have                 shares outstanding, or                 shares outstanding if the underwriters exercise their overallotment option in full, and the company will have an equal number of corresponding non-management interests outstanding. All shares and non-management interests will be fully paid and nonassessable upon payment thereof.
~~Equity Interests in the Company~~
      The company is authorized, pursuant to action by the company’s board of directors, to issue, in the future, other non-management interests in one or more series as it determines such issuance to be in the best interests of the company. In addition to the non-management interests, the company is authorized to issue up to 100 management interests. In connection with the formation of the company, our manager
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acquired 100% of the management interests so authorized and issued for a capital investment of $100,000 in our manager. All management interests are fully paid and nonassessable. Other than the management interests held by our manager, the company will not be authorized to issue any other management interests.
~~Distributions~~
~~General~~
      The company, acting through its board of directors, may declare and pay quarterly distributions on the interests of the company. Any distributions so declared will be paid on interests in proportion to the capital contributions made to the company by the trust and the manager with respect to such interests. The company’s board of directors may, in its sole discretion and at any time, declare and pay distributions of the company and make and pay distributions from the net distributable cash flow to the holders of its interests.
      ~~For purposes of this provision, “net distributable cash flow” will be equal to, for any period, the~~~~sum~~~~of (i) gross cash proceeds of the company for such period (which includes the proceeds of any borrowings by the company),~~~~minus~~(ii) the portion thereof used to pay or establish reserves for company expenses, debt payments, capital improvements, replacements and contingencies, in each case, as determined by the board of directors of the company. Net distributable cash flow will not be reduced by depreciation, amortization, cost recovery deductions or similar allowances, but will be increased by any reductions of reserves discussed in clause (ii) of the prior sentence.
      Upon receipt of any distributions declared and paid by the company, the trust will, pursuant to the terms of the trust agreement, distribute the whole amount of those distributions in cash to its shareholders, in proportion to their percentage ownership of the trust, as they appear on the share register on the related record date. The record date for distributions by the company will be the same as the record date for corresponding distributions by the trust.
      ~~In addition, under the terms of the LLC agreement, the company will pay a~~ profit allocation to ~~the manager, as holder of the management interests. See the section entitled “— Manager’s Profit Allocation” for more information about the profit allocation~~be paid to ~~the manager.~~
~~Manager’s Profit Allocation~~
      ~~In general,~~ our manager ~~as holder of 100% of the management interests in the company, will receive a profit allocation reflecting~~is intended to reflect our ability to generate ongoing cash flows and capital gains in excess of a hurdle rate. In general, such profit allocation is designed to pay our manager 20% of the company’s profits upon clearance of the 7% annualized hurdle rate. The company’s audit committee, which is comprised solely of independent directors, reviews and approves the calculation of manager’s profit allocation when it becomes due and payable. Our manager ~~will~~does not receive a profit allocation on an annual basis. Instead, our manager ~~will be~~is paid a profit allocation only upon the occurrence of ~~either:~~one of the following events, which we refer to collectively as the trigger events:
• ~~The~~the sale of a material amount, as determined by our manager and reasonably consented to by a majority of the company’s board of directors, of the capital stock or assets of one of our businesses or a subsidiary of one of our businesses, which event we refer to as a sale event; or

• Atat the option of our manager, atduring the ~~expiration~~30-day period following the fifth anniversary of the ~~five year period during~~date upon which we ~~owned~~acquired a controlling interest in a business, which event we refer to as a holding event. If our manager elects to forego declaring a holding event with respect to such business during such period, then our manager may only declare a holding event with respect to such business onduring the 30–day period following each anniversary of ~~the~~such fifth anniversary date with respect to such business. Once declared, our manager may only declare another holding event with respect to ~~such subsidiary.~~a business following the fifth anniversary of the calculation date with respect to a previously declared holding event.

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~~We refer to the sale event and holding event, collectively, as trigger events.~~
We believe this allocation timing, rather than a method that provides for annual allocations, more accurately reflects the long-term performance of each of our businesses ~~rather than a method that provides for annual allocations,~~ and is consistent with our intent to hold, manage and grow our businesses over the long term. We refer generally to the obligation to make this payment to our manager as the ~~manager’s~~“profit allocation” and, specifically, to the amount of any particular profit ~~allocation; definitions~~allocation as the “manager’s profit allocation.” Definitions used in, and an example of the calculation of profit allocation, are set forth in more detail below.
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The amount of ~~profit allocation that will be paid to our manager, which we refer to as~~ our manager’s profit allocation ~~will be~~is based on the extent to which the total profit allocation amount with respect to any business, as of the last day of any fiscal quarter in which a trigger event occurs, which date we refer to as the calculation date, exceeds the relevant hurdle amounts ~~discussed below.~~with respect to such business, as of such calculation date. The manager’s profit allocation is calculated by an administrator, which will be our manager so long as the management services agreement is in effect, and such calculation will be subject to a review and approval process by the company’s audit committee. For this purpose, “total profit allocation amount” ~~will be~~is equal to, with respect to any business as of any calculation date, thesumof:
• ~~The~~the contribution-based profit of such business as of such calculation date, which ~~will be~~is calculated upon the occurrence of any trigger event with respect to ~~a particular~~such business;plus

• ~~The~~the cumulative gains and losses of the company as of such calculation date, which ~~will~~is only be calculated upon the occurrence of a sale event with respect to such business. We generally expect this component to be the ~~company as a whole.~~most significant component in calculating total profit allocation amount.

Specifically, manager’s profit allocation ~~will be~~is calculated ~~by our manager as of the last day of the fiscal quarter in which a trigger event occurs, which we refer to as the calculation date,~~and paid as follows:
• ~~Manager’s~~manager’s profit allocation~~will~~is notbe paid with respect to a trigger event relating to any business if the total profit allocation amount, as of any calculation date, with respect to such business doesnotexceed such business’ level 1 hurdle amount (7% annualized), as of such calculation date; and

• ~~Manager’s~~manager’s profit allocation~~will~~isbe paid with respect to a trigger event relating to any business if the total profit allocation amount, as of any calculation date, with respect to such businessexceedssuch business’ level 1 hurdle amount (7% annualized), as of such calculation date. ~~Our manager’s~~Manager’s profit allocation to be paid with respect to such calculation date ~~will be~~is equal to thesumof the following:
• 100% of such business’ total profit allocation amount, as of such calculation date, with respect to that portion of the total profit allocation amount that exceeds such business’ level 1 hurdle amount (7% annualized) but is less than or equal to such business’ level 2 hurdle amount (8.75% annualized), in each case, as of such calculation date. We refer to this portion of the total profit allocation amount as the ~~“catch-up.~~“catch-up.” The ~~“catch-up”~~“catch-up” is intended to provide our manager with an overall profit allocation of 20% once the level 1 hurdle ~~rate of 7%~~amount has been surpassed;plus

• 20% of the total profit allocation amount, as of such calculation date, that exceeds such business’ level 2 hurdle amount (8.75% annualized) as of such calculation date;minus

• ~~Our manager’s~~the high water mark allocation, if any, as of such calculation date. The effect of deducting the high water mark allocation is to take into account allocations our manager has already received in respect of past gains and losses.

The administrator calculates our manager’s profit allocation on or promptly following the relevant calculation date, subject to a“true-up” calculation upon availability of audited or unaudited consolidated financial statements, as the case may be, of the company to the extent not available on such calculation date. Any adjustment necessitated by thetrue-up calculation will be made in connection with the next calculation of our manager’s profit allocation. Because of the length of time that may pass between trigger events, there may be a significant delay in the company’s ability to realize the benefit, if any, of atrue-up of our manager’s profit allocation.
Once calculated, the administrator submits the calculation of our manager’s profit allocation, as adjusted pursuant to anytrue-up, to the company’s audit committee, which is comprised solely of independent directors, for its review and approval. The audit committee has ten business days to review and

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approve the calculation, which approval shall be automatic absent disapproval by the audit committee. Manager’s profit allocation is paid ten business days after such approval.
If the audit committee disapproves of the administrator’s calculation of our manager’s profit allocation, the calculation and payment of our manager’s profit allocation is subject to a dispute resolution process, which may result in our manager’s profit allocation being determined, at the company’s cost and expense, by two independent accounting firms. Any determination by such independent accounting firms will be conclusive and binding on the company and our manager.
We will also ~~calculate and~~ pay a tax distribution to our manager if our manager is allocated taxable income by the company but does not realize distributions from the company at least equal to the taxes payable by our manager resulting from allocations of taxable income.
~~Contribution-based profit~~
      ~~Generally, contribution-based profit is based on each of our businesses’ cumulative contribution to the company’s cash flow over a specified period of time. Contribution-based profit~~ Any such tax distributions will be ~~calculated upon the occurrence of either~~paid in a ~~sale event or, at the option of our manager, a holding event. Specifically, a business’ contribution-based~~similar manner as profit ~~as of any calculation date, will be equal to such business’ aggregate contribution to the company’s cash flow during the measurement period with respect to such calculation date.~~allocations are paid.
~~Cumulative gains and losses and high water mark~~
      Generally, cumulative gains and losses is based upon the company’s cumulative aggregate realized gains net of the company’s cumulative aggregate realized losses. Cumulative gains and losses will be calculated upon the occurrence of a sale event. Specifically, the company’s cumulative gains and losses, as of any calculation date, will be equal to the~~sumof (i) aggregate amount of the company’s cumulative aggregate realized gains as of such calculation date,~~~~minus~~~~(ii) the absolute amount of the company’s cumulative aggregate realized losses as of such calculation date.~~
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For any fiscal quarter in which a trigger event occurs with respect to more than one business, ~~is sold,~~ the calculation of ~~cumulative gains and losses~~our manager’s profit allocation, including the components thereof, will be made ~~as if the businesses were sold at the same time~~with respect to each business in the order in which controlling interests in ~~the~~such businesses were acquired or obtained by the ~~company.~~company and the resulting amounts shall be aggregated to determine the total amount of manager’s profit allocation. If controlling interests in two or more businesses were acquired at the same time and such businesses give rise to a calculation of manager’s profit allocation during the same fiscal quarter, then our manager’s profit allocation will be further calculated separately for each such business in the order in which such businesses were sold.
~~Definitions~~
As obligations of the company, profit allocations and tax distributions will be paid prior to the payment of distributions to our shareholders. If we do not have sufficient liquid assets to pay the profit allocations or tax distributions when due, we may be required to liquidate assets or incur debt in order to pay such profit allocation. Our manager will have the right to elect to defer the payment of our manager’s profit allocation due on any payment date. Once deferred, our manager may demand payment thereof upon 20 business days prior written notice.

Termination of the management services agreement, by any means, will not affect our manager’s rights with respect to the allocation interests that it owns, including its right to receive profit allocations.
Example of Calculation of Manager’s Profit Allocation
Our manager will receive a profit allocation at the end of the fiscal quarter in which a trigger event occurs, as follows (all dollar amounts are in millions):
Assumptions
Year 1:
Acquisition of Company A (“Company A”)
Acquisition of Company B (“Company B”)
Year 3
Acquisition of Company C (“Company C”)
Year 4
Company A (or assets thereof) sold for $20 capital gain over book value of assets at time of sale, which is a qualifying trigger event
Company A’s average allocated share of our consolidated net equity over its ownership is $40
Company A’s holding period in quarters is 12
Company A’s contribution-based profit since acquisition is $8.5

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Year 6:
Company B’s contribution-based profit since acquisition is $4.5
Company B’s average allocated share of our consolidated net equity over its ownership is $30
Company B’s holding period in quarters is 20
Manager elects to have holding period measured for purposes of profit allocation for Company B
Year 7:
Company B (or assets thereof) is sold for $5 capital loss under book value of assets at time of sale
Company B’s average allocated share of our consolidated net equity over its ownership is $30
Company B’s holding period in quarters is 24
Company B’s contribution-based profit since acquisition is $8.5
Company C (or assets thereof) is sold for $12 capital gain over book value of assets at time of sale
Company C’s average allocated share of our consolidated net equity over its ownership is $35
Company C’s holding period in quarters is 16
Company C’s contribution-based profit since acquisition is $8

Year 6
B, Due

Year 4 to
Year 7 Year 7
A, Due
5
B, Due
C, Due

to
Year
to
to

With Respect to Relevant Business
Sale Hold Sale Sale

Contribution-based profit since acquisition for respective subsidiary $ 8.5 $ 4.5 $ 1 $ 8
Gain/Loss on sale of company 20 0 (5 ) 12
Cumulative gains and losses 20 20 15 27
High water mark prior to transaction 0 20 20 20
Total Profit Allocation Amount (1 + 3) 28.5 24.5 16 35
Business’ holding period in quarters since ownership or last measurement due to holding event 12 20 4 16
Business’ average allocated share of consolidated net equity 40 30 30 35
Business’ level 1 hurdle amount (1.75% * 6 * 7) 8.4 10.5 2.1 9.8
Business’ excess over level 1 hurdle amount (5 −8) 20.1 14 13.9 25.2
Business’ level 2 hurdle amount (125% * 8) 10.5 13.125 2.625 12.25
Allocated to manager as“catch-up” (10 −8)
2.1 2.625 0.525 2.45
Excess over level 2 hurdle amount (9 −11) 18 11.375 13.375 22.75
Allocated to manager from excess over level 2 hurdle amount (20% * 12) 3.6 2.275 2.675 4.55
Cumulative allocation to manager (11 +13) 5.7 4.9 3.2 7
High water mark allocation (20% * 4) 0 4 4 4

manager’s Profit Allocation for Current Period (14 −15, >0) $ 5.7 $ 0.9 $ 0 $ 3

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Calculation of Manager’s Profit Allocation in Connection with Sale of Crosman
The following summarizes how our manager’s profit allocation was determined in connection with the sale of Crosman on January 5, 2007 :

1 Contribution-based profit since acquisition (see below) $ 3,474
2 Gain on sale of company 35,925
3 Cumulative gains and losses 35,925
4 High water mark prior to transaction —
5 Total Profit Allocation Amount (1 + 3) 39,399
6 Business’ holding period in quarters 2.5
7 Business’ average allocated share of consolidated net equity 62,520
8 Business’ level 1 hurdle amount (1.75% * 6 * 7) 2,735
9 Business’ excess over level 1 hurdle amount (5 −8) 36,664
10 Business’ level 2 hurdle amount (125% * 8) 3,419
11 Allocated to manager as“catch-up” (10 −8) 684
12 Excess over level 2 hurdle amount (9 −11) 35,980
13 Allocated to manager from excess over level 2 hurdle amount (20% * 12) 7,196
14 Cumulative allocation to manager (11 + 13) 7,880
15 High water mark allocation (20% * 4) —
16 Manager’s Profit Allocation (14 −15, >0) $ 7,880

Calculation of Contribution-Based Profits
Net income $ 6,924
Plus interest expense 3,168
Minus minority interest (1,705 )
Minus allocated company overhead (4,913 )

  Contribution-based profit $ 3,474

Definitions
For purposes of calculating profit allocation:
• An entity’s“adjusted net assets”is equal to, as of any date, thesumof (i) such entity’s consolidated total assets (as determined in accordance with GAAP) as of such date,plus(ii) the absolute amount of such entity’s consolidated accumulated amortization of intangibles (as determined in accordance with GAAP) as of such date,minus(iii) the absolute amount of such entity’s adjusted total liabilities as of such date.
• An entity’s“adjusted total liabilities”is equal to, as of any date, such entity’s consolidated total liabilities (as determined in accordance with GAAP) as of such date after excluding the effect of any outstanding indebtedness of such entity.
• A business’ ~~“level~~“allocated share of the company’s overhead”is equal to, with respect to any measurement period as of any calculation date, the aggregate amount of such business’ quarterly share of the company’s overhead for each fiscal quarter ending during such measurement period.
• A business’“average allocated share of our consolidated equity”is equal to, with respect to any measurement period as of any calculation date, the average (i.e.,arithmetic mean) of a business’ quarterly allocated share of our consolidated equity for each fiscal quarter ending during such measurement period.

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• “Capital gains”(i) means, with respect to any entity, capital gains (as determined in accordance with GAAP) that are calculated with respect to the sale of capital stock or assets of such entity and which sale gave rise to a sale event and the calculation of profit allocation and (ii) is equal to the amount, adjusted for minority interests, by which (x) the net sales price of such capital stock or assets, as the case may be,exceeded(y) the net book value (as determined in accordance with GAAP) of such capital stock or assets, as the case may be, at the time of such sale, as reflected on the company’s consolidated balance sheet prepared in accordance with GAAP;provided, that such amount shall not be less than zero.
• “Capital losses”(i) means, with respect to any entity, capital losses (as determined in accordance with GAAP) that are calculated with respect to the sale of capital stock or assets of such entity and which sale gave rise to a sale event and the calculation of profit allocation and (ii) is equal to the amount, adjusted for minority interests, by which (x) the net book value (as determined in accordance with GAAP) of such capital stock or assets, as the case may be, at the time of such sale, as reflected on the company’s consolidated balance sheet prepared in accordance with GAAP,exceeded(y) the net sales price of such capital stock or assets, as the case may be;provided, that such absolute amount thereof shall not be less than zero.
• The company’s“consolidated net equity”is equal to, as of any date, thesumof (i) the company’s consolidated total assets (as determined in accordance with GAAP) as of such date,plus(ii) the aggregate amount of asset impairments (as determined in accordance with GAAP) that were taken relating to any businesses owned by the company as of such date,plus(iii) the company’s consolidated accumulated amortization of intangibles (as determined in accordance with GAAP), as of such dateminus(iv) the company’s consolidated total liabilities (as determined in accordance with GAAP) as of such dateplus(v) to the extent included in the company’s consolidated total liabilities (as determined in accordance with GAAP) as of such date, the absolute amount of the company’s liabilities (as determined in accordance with GAAP) in respect of its obligations under the supplemental put agreement.
• A business’“contribution-based profits”is equal to, for any measurement period as of any calculation date, thesumof (i) the aggregate amount of such business’ net income (loss) (as determined in accordance with GAAP and as adjusted for minority interests) with respect to such measurement period (without giving effect to (x) any capital gains or capital losses realized by such business that arise with respect to the sale of capital stock or assets held by such business and which sale gave rise to a sale event and the calculation of profit allocation or (y) any expense attributable to the accrual or payment of any amount of profit allocation or any amount arising under the supplemental put agreement, in each case, to the extent included in the calculation of such business’ net income (loss)),plus(ii) the absolute aggregate amount of such business’ loan expense with respect to such measurement period,minus(iii) the absolute aggregate amount of such business’ allocated share of the company’s overhead with respect to such measurement period.
• The company’s“cumulative capital gains”is equal to, as of any calculation date, the aggregate amount of capital gains realized by the company as of such calculation date, after giving effect to any capital gains realized by the company on such calculation date, since its inception.
• The company’s“cumulative capital losses”is equal to, as of any calculation date, the aggregate amount of capital losses realized by the company as of such calculation date, after giving effect to any capital losses realized by the company on such calculation date, since its inception.
• The company’s“cumulative gains and losses”is equal to, as of any calculation date, thesumof (i) the amount of cumulative capital gains as of such calculation date,minus(ii) the absolute amount of cumulative capital losses as of such calculation date.
• The“high water mark”is equal to, as of any calculation date, the highest positive amount of the company’s cumulative capital gains and losses as of such calculation date that were calculated in connection with a qualifying trigger event that occurred prior to such calculation date.

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• The“high water mark allocation”is equal to, as of any calculation date, theproductof (i) the amount of the high water mark as of such calculation date,multiplied by(ii) 20%.
• A business’“level 1 hurdle amount” ~~will be~~is equal to, as of any calculation date, theproductof (i) (x) the quarterly hurdle rate of 1.75% (7% annualized),multiplied by(y) the number of fiscal quarters ending during such business’ measurement period as of such calculation date,multiplied by(ii) a business’ average allocated share of our consolidated equity ~~as of~~for each fiscal quarter ending during such ~~calculation date.~~measurement period.

• A business’ ~~“level~~“level 2 hurdle amount” ~~will be~~is equal to, as of any calculation date, theproductof (i) (x) the quarterly hurdle rate of 2.1875% (8.75% annualized, which is 125% of the 7% annualized hurdle rate),multiplied by(y) the number of fiscal quarters ending during such business’ measurement period as of such calculation date,multiplied by(ii) a business’ average allocated share of our consolidated equity for each fiscal quarter ending during such measurement period.
• A business’“loan expense”is equal to, with respect to any measurement period as of any calculation date, the aggregate amount of all interest or other expenses paid by such business with respect to indebtedness of such business to either the company or other company businesses with respect to such measurement period.
• The“measurement period”means, with respect to any business as of any calculation date, the period from and including the later of (i) the date upon which the company acquired a controlling interest in such business and (ii) the immediately preceding calculation date as of which contribution-based profits were calculated with respect to such business and with respect to which profit allocation were paid (or, at the election of the allocation member, deferred) by the company up to and including such calculation date.
• The company’s“overhead”is equal to, with respect to any fiscal quarter, thesumof (i) that portion of the company’s operating expenses (as determined in accordance with GAAP) (without giving effect to any expense attributable to the accrual or payment of any amount of profit allocation or any amount arising under the supplemental put agreement to the extent included in the calculation of the company’s operating expenses), including any management fees actually paid by the company to our manager, with respect to such fiscal quarter that are not attributable to any of the businesses owned by the company (i.e., operating expenses that do not correspond to operating expenses of such businesses with respect to such fiscal quarter),plus(ii) the company’s accrued interest expense (as determined in accordance with GAAP) on any outstanding third party indebtedness of the company with respect to such fiscal quarter,minus(iii) revenue, interest income and other income reflected in the company’s unconsolidated financial statements as prepared in accordance with GAAP.
• A“qualifying trigger event”means, with respect to any business, a trigger event that gave rise to a calculation of total profit allocation with respect to such business as of any calculation date and (ii) where the amount of total profit allocation so calculated as of such calculation date exceeded such business’ level 2 hurdle amount as of such calculation date.

• A business’ ~~“average~~“quarterly allocated share of our consolidated equity” will be equal to, as of any calculation date, the mathematical average of a business’ quarterly allocated share of our consolidated equity determined by reference to each fiscal quarter ending during a business’ measurement period as of such calculation date.
• ~~A business’ “quarterly allocated share of our consolidated equity” will be~~is equal to, with respect to any fiscal quarter, theproductof (i) the company’s consolidated net equity as of the last day of such fiscal quarter,multiplied by(ii) a fraction, the numerator of which is such business’ adjusted net assets as of the last day of such fiscal quarter and the denominator of which is the ~~company’s~~sumof the adjusted net assets of all of the subsidiaries owned by us as of the last day of such fiscal quarter.

• ~~The company’s “consolidated net equity” will be equal to, as of any date, the company’s total assets, as of such date, less the company’s total liabilities, as of such date.~~
• ~~Our manager’s “high water mark allocation” will be equal to, as of any calculation date, the~~~~product~~~~of (i) the amount of the high water mark as of such calculation date,~~~~multiplied by~~~~(ii) 20%.~~
• The “high water mark” will be equal to, as of any calculation date, the highest positive amount of the company’s cumulative aggregate realized gains (as defined below) as of such calculation date that were calculated in connection with a qualifying trigger event that occurred prior to such calculation date.
• A “qualifying trigger event” will mean a trigger event giving rise to a calculation of profit allocation with respect to a business as of the relevant calculation date and where the total profit allocation amount, as of such calculation date, exceeded such business’ level 2 hurdle amount, as of such calculation date.
• The “measurement period” will mean, with respect to any business as of any calculation date, the period from and including the later of (i) the date upon which the company acquired such business and (ii) the immediately preceding calculation date upon which contribution-based profit was calculated with respect to such business to and including such calculation date.
• A business’ ~~“contribution to the company’s cash flow” will be equal to, as of any calculation date, the~~~~sum~~of (i) the aggregate amount of such business’ net income (loss) for the measurement period as of such calculation date, without giving effect to any realized gains or realized losses with respect to such business as of such calculation date that arise as a result of a sale event causing the calculation of contributions to the company’s cash flow as of such calculation date,~~plus~~~~(ii) the absolute aggregate amount of such business’ loan expense for the measurement period as of such~~
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~~calculation date,~~~~minus~~~~(iii) the absolute aggregate amount of such business’ allocated share of the company’s overhead for the measurement period as of such calculation date.~~
• A business’ “loan expense” will be equal to, with respect to any measurement period as of any calculation date, the aggregate amount of all interest or other expenses paid by such business with respect to indebtedness of such business to either the company or other company businesses during such measurement period.
• ~~A business’ “allocated share of the company’s overhead” will be equal to, with respect to any measurement period as of any calculation date, the aggregate amount of such business’~~ “quarterly share of the company’s ~~overhead for each fiscal quarter ending during such measurement period.~~
• ~~A business’ “quarterly share of the company’s~~ overhead” ~~will be~~is equal to, with respect to any fiscal quarter, theproductof (i) the absolute amount of the company’s overhead ~~for~~with respect to such fiscal quarter,multiplied by(ii) a fraction, the numerator of which is such business’ adjusted net assets as of the last day of such fiscal quarter and the denominator of which is the ~~company’s~~sum of the adjusted net assets of all of the subsidiaries owned by us as of the last day of such fiscal quarter.

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• ~~The “company’s overhead” will be equal to, with respect to~~An entity’s“third party indebtedness”means any ~~fiscal quarter, the~~~~sum~~~~of (i) the management fees received by our manager from the company (as reduced by any off-setting management fees received from any business) during such fiscal quarter,~~~~plus~~~~(ii) direct company expenses paid by the company during such fiscal quarter,~~~~plus~~~~(iii) the company’s interest expense on any outstanding~~ indebtedness of ~~the company paid~~such entity owed to any third party lenders that are ~~unaffiliated~~not affiliated with such entity.
Supplemental Put Agreement
In addition to the provisions discussed above, in consideration of our manager’s acquisition of the allocation interests, we have entered into a supplemental put agreement with our manager pursuant to which our manager has the right to cause the company to purchase the allocation interests then owned by our manager upon termination of the management services agreement. Termination of the management services agreement, by any means, will not affect our manager’s rights with respect to the allocation interests that it owns. In this regard, our manager will retain its put right and its allocation interests after ceasing to serve as our manager.
If (i) the management services agreement is terminated at any time other than as a result of our manager’s resignation or (ii) our manager resigns on any date that is at least three years after the closing of this offering, then our manager will have the right, but not the obligation, for one year from the date of such termination or resignation, as the case may be, to elect to cause the company to purchase all of allocation interests then owned by our manager for the put price as of the put exercise date.
For purposes of this provision, the “put price” shall be equal to, as of any exercise date, (i) if we terminate the management services agreement, thesumof two separate, independently made calculations of the aggregate amount of manager’s profit allocation as of such exercise date or (ii) if our manager resigns, theaverageof two separate, independently made calculations of the aggregate amount of manager’s profit allocation as of such exercise date, in each case, calculated assuming that (x) all of the businesses are sold in an orderly fashion for fair market value as of such exercise date in the order in which the controlling interest in each business was acquired or otherwise obtained by the company, and (y) the last day of the fiscal quarter ending immediately prior to such exercise date is the relevant calculation date for purposes of calculating manager’s profit allocation as of such exercise date. Each of the two separate, independently made calculations of our manager’s profit allocation for purposes of calculating the put price shall be performed by a different investment bank that is engaged by the company at its cost and expense. The put price will be adjusted to account for a final“true-up” of our manager’s profit allocation.
Our manager and the company can mutually agree to permit the company to issue a note in lieu of payment of the put price when due. If our manager resigns and terminates the management services agreement, then the company will have the right, in its sole discretion, to issue a note in lieu of payment of the put price when due. In either case the note would have an aggregate principal amount equal to the put price, would bear interest at a rate of 8% per annum, would mature on the first anniversary of the date upon which the put price was initially due and would be secured by a lien on our equity interests in each of our businesses.
The company’s obligations under the supplemental put agreement are absolute and unconditional. In addition, the company will be subject to certain obligations and restrictions upon exercise of our manager’s put right until such time as the company’s obligations under the supplemental put agreement, including any related note, have been satisfied in full, including:
• subject to the company’s right to issue a note in the circumstances described above, the company ~~during such fiscal quarter.~~must use commercially reasonable efforts to raise sufficient debt or equity financing to permit the company to pay the put price or note when due and obtain approvals, waivers and consents or otherwise remove any restrictions imposed under contractual obligations or applicable law or regulations that have the effect of limiting or prohibiting the company from satisfying its obligations under the supplemental put agreement or note;

• ~~“Direct company expenses”~~our manager will ~~mean, with respect~~have the right to ~~any fiscal quarter, that portion~~have a representative observe meetings of the company’s ~~operating expenses for such fiscal quarter that are not attributable~~board of directors and have the right to ~~an expense for~~receive copies of all documents and other information furnished to the board of directors;

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• the company and its businesses will be restricted in their ability to sell or otherwise dispose of their property or assets or any businesses they own and in their ability to incur indebtedness (other than in the ordinary course of business) without granting a lien on the ~~businesses for such fiscal quarter.~~proceeds therefrom to our manager, which lien will secure the company’s obligations under the supplemental put agreement or note;

• ~~The company’s “cumulative aggregate realized gains”~~the company will be ~~equal~~restricted in its ability to as(i) engage in certain mergers or consolidations, (ii) sell, transfer or otherwise dispose of ~~any calculation date, the aggregate amount~~all or a substantial part of ~~realized gains from~~its business, property or assets or all or a substantial portion of the ~~sales of~~ stock or beneficial ownership of its businesses or a portion thereof, (iii) liquidate,wind-up or dissolve, (iv) acquire or purchase the property, assets, stock or beneficial ownership or another person, or (v) declare and pay distributions.
The company also has agreed to indemnify our manager for any losses or liabilities it incurs or suffers in connection with, arising out of or relating to its exercise of its put right or any enforcement of terms and conditions of the supplemental put agreement.
As an obligation of the company, the put price will be paid prior to the payment of distributions to our shareholders. If we do not have sufficient liquid assets to pay the put price when due, we may be required to liquidate assets or incur debt in order to pay the put price.

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MANAGEMENT
Board of Directors and Executive Officers
The LLC agreement provides that the company’s board of directors must consist at all times of between five and 13 directors, at least a majority of which must be independent directors, and permits the board of directors to decrease or increase the size of the board of directors. Further, the board of directors is divided into three classes serving staggered three-year terms. The terms of office of Classes I, II and III expire at different times in annual succession, with one class being elected at each year’s annual meeting of shareholders. Messrs. Edwards and Lazarus are members of Class I and will serve until the 2007 annual meeting, Messrs. Bottiglieri and Waitman are members of Class II and will serve until the 2008 annual meeting and Messrs. Day and Ewing are members of Class III and will serve until the 2009 annual meeting. Messrs. Edwards, Ewing, Lazarus and Waitman are the company’s independent directors.
Pursuant to the LLC agreement, as holder of the allocation interests, our manager has the right to appoint one director to the company’s board of directors, subject to adjustment. Any appointed director will not be required to stand for election by the shareholders. Mr. Massoud currently serves as our manager’s appointed director.
The directors and officers of the company, and their ages and positions as of February 28, 2007, are set forth below:

Serving as Officer

Director

Age

or Director Since

Position

C. Sean Day 57 2006 Chairman/Director
Harold S. Edwards 41 2006 Director
D. Eugene Ewing 58 2006 Director
Mark H. Lazarus 43 2006 Director
Ted Waitman 57 2006 Director
I. Joseph Massoud 38 2005 Director, Chief Executive Officer
James J. Bottiglieri 51 2005 Director, Chief Financial Officer
The following biographies describe the business experience of the company’s current directors and executive officers:
Harold S. Edwardshas served as a director of the company since April 2006. Mr. Edwards has been the president and chief executive officer of Limoneira Company, an agricultural, real estate and community development company, since November 2004. Previously, Mr. Edwards was the president of Puritan Medical Products, a division of Airgas Inc. Prior to that, Mr. Edwards also worked with Fisher Scientific International, Inc., Cargill, Inc. and Agribrands International (Purina). Mr. Edwards is a graduate of American Graduate School of International Management and Lewis and Clark College.
Mark H. Lazarushas served as a director of the company since April 2006. Mr. Lazarus has been the president of Turner Entertainment Group since 2003. Previously, Mr. Lazarus served in a variety of other roles for Turner Broadcasting and also worked for Backer, Spielvogel, Bates, Inc., and NBC Cable. Mr. Lazarus is a graduate of Vanderbilt University.
C. Sean Dayhas served as our chairman since April 2006.Mr. Day is the president of Seagin International and was the chairman of our manager’s predecessor from 1999 to 2006. Previously, Mr. Day was with Navios Corporation and Citicorp Venture Capital. Mr. Day is currently the chairman of the boards of directors of Teekay Shipping Corporation; Teekay Offshore GP LLC, the general partner of Teekay Offshore Partners LP; Teekay GP LLC, the general partner of Teekay LNG Partners LP; and a member of the board of directors of Kirby Corporation, all NYSE listed companies; and serves as a director for certain of our subsidiary companies. Mr. Day is a graduate of the University of Capetown and Oxford University.

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I. Joseph Massoudhas served as a director of the company since December 2005, as well its chief executive officer since its inception on November 18, 2005. Mr. Massoud has also been the president of our manager and its predecessor since 1998. Previously, Mr. Massoud was with Petroleum Heat and Power, Inc., Colony Capital, Inc. and McKinsey & Co. Mr. Massoud currently serves as a director for all of our subsidiary companies, as well as for Teekay GP LLC, the general partner of Teekay LNG Partners LP, a NYSE company. Mr. Massoud is a graduate of Claremont McKenna College and the Harvard Business School.
James J. Bottiglierihas served as a director of the company since December 2005, as well its chief financial officer since its inception on November 18, 2005. Mr. Bottiglieri has also been an executive vice president of our manager since 2005. Previously, Mr. Bottiglieri was the senior vice president/controller of WebMD Corporation. Prior to that, Mr. Bottiglieri was with Star Gas Corporation and a precdecessor firm to KPMG LLP. Mr. Bottiglieri is a graduate of Pace University. Mr. Bottiglieri serves as a director for all of our subsidiary companies.
D. Eugene Ewinghas served as a director since April 2006.Mr. Ewing is the managing member of Deeper Water Consulting, LLC. Previously, Mr. Ewing was with Arthur Andersen LLP and the Fifth Third Bank. Mr. Ewing is on the advisory boards for the business schools at Northern Kentucky University and the University of Kentucky. Mr. Ewing is a graduate of the University of Kentucky. Mr. Ewing is also a member of the board of directors of CBS Personnel Holdings, Inc.
Ted Waitmanhas served as a director of the company since April 2006. Mr. Waitman is presently the chief executive officer of CPM-Roskamp Champion, or CPM. Previously, Mr. Waitman has served in a variety of roles with CPM. Mr. Waitman is currently the president of the Process Equipment Manufacturers Association. Mr. Waitman is a graduate of the University of Evansville.
Compensation Committee Interlocks and Insider Participation
None of the company’s executive officers or members of the company’s board of directors has served as a member of a compensation committee (or if no committee performs that function, the board of directors) of any other entity that has an executive officer serving as a member of the company’s board of directors or compensation committee.
Other Matters
In addition to his role as chief executive officer of CPM, Mr. Waitman is the acting general manager of a subsidiary of CPM that is a direct competitor of Aeroglide, which we acquired on February 28, 2007. As such, Mr. Waitman recused himself from all deliberations and approval of the Aeroglide acquisition. Moreover, we and Mr. Waitman intend to take steps going forward to address potential conflicts arising from Mr. Waitman’s service on our board and Mr. Waitman’s position with the subsidiary of CPM that competes with Aeroglide.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of our Executive Compensation
The company was formed on November 18, 2005 and completed the IPO on May 16, 2006. It had no prior operating history. The current executive officers, Messrs. Massoud and Bottiglieri, are employed by Compass Group Management LLC, our manager, and are seconded to the company, which means that they have been assigned by our manager to work for the company during the term of the management services agreement. The company does not have any other executive officers. Our manager determines and pays the compensation of these officers, subject to the reimbursement described below.

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We do not pay any compensation to our executive officers seconded to us by our manager. Our manager is responsible for the payment of compensation to the executive officers seconded to us. We do not reimburse our manager for the compensation paid to our chief executive officer, I. Joseph Massoud. We do, however, pay our manager a quarterly management fee and our manager uses the proceeds from the management fee, in part, to pay compensation to Mr. Massoud. Pursuant to the management services agreement with our manager, we reimburse our manager for the compensation paid to our chief financial officer, Mr. James J. Bottiglieri. Such reimbursement is approved by the company’s compensation committee. Mr. Bottiglieri is paid pursuant to an employment agreement as described below.
Our manager owns 100% of the allocation interests of the company, which generally entitles our manager to receive a 20% profit allocation as a form of equity incentive, subject to the company’s profits with respect to a business exceeding an annualized hurdle rate of 7%, which hurdle is tied to such business’ growth relative to our consolidated net equity. No amounts were paid under these allocation interests during fiscal year 2006. A profit allocation of approximately $7.9 million will be paid to our manager as a result of the sale of Crosman during the first quarter of fiscal 2007.
The discussion that follows relates to the compensation policies and philosophy for Mr. Bottiglieri only, as the compensation of Mr. Massoud is not reimbursed by the company.
Elements of Our Executive Compensation and How Each Relates to Our Overall Compensation Objectives
Annual compensation for Mr. Bottiglieri is paid pursuant to an employment agreement. Mr. Bottiglieri’s employment agreement provides that his annual compensation is to be paid through a combination of a base salary and an annual cash bonus. Both elements are designed to be competitive with comparable employers in our industry and intended to provide incentives and reward Mr. Bottiglieri for his contributions to the company.
Objectives of Our Executive Compensation and What it is Designed to Reward
The primary objective of the base salary and annual cash bonus elements of our executive compensation is to attract and retain a qualified and talented individual as chief financial officer. Through payment of a competitive base salary, we recognize particularly the experience, skills, knowledge and responsibilities required of the chief financial officer position. An annual cash bonus is designed to reward our chief financial officer’s individual performance during the year and can therefore be variable from year to year.
How We Determine the Amount of Each Element
To determine the amount of our chief financial officer’s base salary and annual cash bonus, we informally consider competitive market practices, by speaking with reputable recruitment agencies and reviewing compensation of similarly situated executive officers of publicly traded companies that we believe are in our peer group. We do not use compensation consultants at this time.
When establishing Mr. Bottiglieri’s 2006 base salary, the compensation committee and management considered a number of factors including Mr. Bottiglieri’s seniority, the functional role of his position, the level of his responsibility, the ability to replace Mr. Bottiglieri and the base salary of Mr. Bottiglieri at his prior employment.
Mr. Bottiglieri’s salary is reviewed on an annual basis, as well as at the time of promotion or other changes in responsibilities. The leading factor in determining increases in salary level is the employment market in Connecticut for other senior financial executives. We expect the salary of our chief financial officer to stay relatively constant with adjustments largely reflecting additional responsibilities assumed or to compensate for cost of living increases.
The annual cash bonus element of our executive compensation policy is determined on a discretionary basis and is largely based upon the job performance of Mr. Bottiglieri in completing his responsibilities. It is not based upon the performance of the company and is unrelated to the amount of Mr. Bottiglieri’s base salary. The employment agreement for Mr. Bottiglieri defines the minimum amount of annual cash bonus

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to be paid for any fiscal year to be $100,000, but does not limit the amount of his annual bonus. The amount of Mr. Bottiglieri’s annual cash bonus for 2006 was established by our chief executive officer and approved by our compensation committee. Mr. Bottiglieri’s annual cash bonus is accrued quarterly in the company’s consolidated financial statements and is updated based on the amount of the annual cash bonus approved by the compensation committee.
Summary Compensation Table
The following Summary Compensation Table summarizes the total compensation accrued for our chief financial officer in 2006.

Change in

Pension Value

and Non-

Qualified

Non-Equity
Deferred

Stock
Option
Incentive Plan
Compensation
All Other

Salary
Bonus
Awards
Awards
Compensation
Earnings
Compensation
Total

Name
Year ($) ($) ($) ($) ($) ($) ($) ($)

James J. Bottiglieri
chief financial officer(1)(2) 2006 218,750 75,000 — — — — 41,004(3 ) 334,754
(1) Mr. Bottiglieri began employment with our manager on May 16, 2006. Mr. Bottiglieri’s annual rate of salary for 2006 was $350,000.
(2) Mr. Bottiglieri did not participate in any ~~business prior to such calculation date.~~stock award, stock option, non equity incentive or non qualified deferred stock compensation plans.
(3) Includes the following payments we paid on behalf of the executive:

Healthcare
Insurance
401-K

Contributions
Premiums
Contributions
Total

Name
($) ($) ($) ($)

James J. Bottiglieri $ 9,711 $ 68 $ 30,625 $ 41,004
Grants of Plan Based Awards
None of our named executives participate in or have account balances in any plan based award programs.
Employment Agreements
Employment Agreement with James J. Bottiglieri.  In September 2005, The Compass Group entered into an employment agreement with Mr. Bottiglieri, our chief financial officer that provided for a two-year term. This agreement was assigned to our current manager as part of the IPO. A summary of the terms of Mr. Bottiglieri’s current employment agreement is set forth below.
Pursuant to the employment agreement, Mr. Bottiglieri’s current base salary is $350,000. The manager has the right to increase, but not decrease, the base salary during the term of the employment agreement. The employment agreement provides that Mr. Bottiglieri is entitled to receive an annual bonus, which bonus must not be less than $100,000, as determined in the sole judgment of our board of directors. Pursuant to the employment agreement, if Mr. Bottiglieri’s employment is terminated by him without good reason (as defined in the employment agreement) before the completion of two years of employment or terminated by our manager for cause (as defined in the employment agreement), he will be entitled to receive his accrued but unpaid base salary. In addition, if his employment is terminated due to a disability, he will be entitled to receive an amount equal to six months of his base salary and one-half times his average bonus for any fiscal year during his employment. If Mr. Bottiglieri terminates his employment for good reason or without good reason after the completion of two years of employment but prior to the completion of four years of employment or if our manager terminates his employment other than for cause, he will be entitled to receive his accrued but unpaid base salary plus $300,000. The employment agreement prohibits Mr. Bottiglieri from soliciting any of our manager’s or company’s employees for a period of two

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years after the termination of his employment. The employment agreement also requires that he protect the company’s confidential information.
Outstanding Equity Awards at Fiscal Year-End; Option Exercises and Stock Vested
None of our named executives have ever held options to purchase interests in us or other awards with values based on the value of our interests.
Pension Benefits
None of our named executives participate in or have account balances in qualified or non-qualified defined benefit plans sponsored by us.
Nonqualified Deferred Compensation
None of our named executives participate in or have account balances in non-qualified defined contribution plans or other deferred compensation plans maintained by us.
Potential Payments upon Termination or Change in Control
The following summarizes potential payments payable to our executive officers upon termination of employment or a change in control of us under their current employment agreements:
Employment Agreement with James J. Bottiglieri.  Pursuant to his employment agreement, if Mr. Bottiglieri’s employment is terminated by him without good reason (as defined in the employment agreement) before the completion of two years of employment or terminated by our manager for cause (as defined in the employment agreement), he will be entitled to receive his accrued but unpaid base salary. In addition, if his employment is terminated due to a disability, he will be entitled to receive an amount equal to six months of his base salary and one-half times his average bonus for any fiscal year during his employment. If Mr. Bottiglieri terminates his employment for good reason or without good reason after the completion of two years of employment but prior to the completion of four years of employment or if our manager terminates his employment other than for cause, he will be entitled to receive his accrued but unpaid base salary plus $300,000. The company is accruing this obligation to Mr. Bottiglieri over a three year period and accrued $67,000 for this obligation during fiscal 2006.
Supplemental Put Agreement.  As distinct from its role as our manager, our manager is also the owner of 100% of the allocation interests in the company. Our manager is owned and controlled by its sole and managing member, our chief executive officer, Mr. Massoud. Concurrent with the IPO, we entered into a supplemental put agreement with our manager pursuant to which our manager shall have the right to cause the company to purchase the allocation interests then owned by our manager upon either (i) the termination of the management services agreement (other than as a result of our manager’s resignation), or (ii) our manager resigns on any date that is at least three years after the closing of the IPO. Essentially, the put rights granted to our manager require us to acquire our manager’s allocation interests in the company at a price based on a percentage of the increase in fair value in the company’s businesses over its basis in those businesses. At any point in time, the supplemental put liability recorded on the company’s balance sheet is our estimate of what the allocation interests are worth based upon a percentage of the increase in fair value of our businesses over our basis in those businesses. Because the supplemental put price would be calculated based upon an assumed profit allocation for the sale of all of our businesses, the growth of the supplemental put liability over time is indicative of our estimate of the company’s unrealized gains on its interests in our businesses. A decline in the supplemental put liability is indicative either of the realization of gains associated with the sale a business and the corresponding payment of a profit allocation to our manager (as with Crosman), or a decline in our estimate of the company’s unrealized gains on its interests in our businesses. We account for the change in the estimated value of the supplemental put liability on a quarterly basis in our income statement. The expected value of the supplemental put liability effects our results of operation but it does not affect our cash flows or our cash flow available for distribution. For the year ended December 31, 2006, the company accrued approximately $22.5 million for the potential liability

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associated with the supplemental put agreement. See the section “Certain Relationships and Related Party Transactions” for additional information related to the supplemental put agreement.
Compensation of Directors
Our non-management directors receive annual cash retainers of $40,000, or $60,000 if serving as the company’s chairman, payable in equal quarterly installments, as well as cash compensation for attendance at committee meetings and an annual retainer for service as committee chairman, both as described below. For fiscal year 2006, the annual retainers began to accrue to the directors as of April 25, 2006. Directors (including the chairman) are reimbursed for reasonable out-of -pocket expenses incurred in attending meetings of the board of directors or committees and for any expenses reasonably incurred in their capacity as directors. The company also reimburses directors for all reasonable and authorized business expenses related to service to the company by the directors in accordance with the policies of the company as in effect from time to time.
Messrs. Edwards, Ewing, Lazarus and Waitman have been independent directors since the closing of the IPO in May 2006.
Each member of the company’s various standing committees also receives the following compensation related to service to these committees:
• for attending a committee meeting in person (if any): $2,000 for each meeting of the audit committee; $2,000 for each meeting of the nominating and corporate governance committee; and $2,000 for each meeting of the compensation committee; and

• ~~“Realized gains”~~for attending a telephonic committee meeting (if any): $1,000 for each meeting of the audit committee; $1,000 for each meeting of the nominating and corporate governance committee; and $1,000 for each meeting of the compensation committee.
The chairperson of the audit committee, nominating and corporate governance committee and compensation committee also receive an annual cash retainer of $10,000, $5,000 and $5,000, respectively, payable in equal quarterly installments.
Non-management directors also receive on or around January 1^st of each year that number of our shares that can be purchased with $20,000, or $30,000 if serving as chairman, at the market price on the date of issue.
Mr. Day is an equity owner in an entity that is entitled to receive a percentage of any profit allocation paid by the company to our manager, as more particularly described herein under the section entitled “Certain Relationships and Related Party Transactions.”

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The following table provides compensation paid or accrued by us to our directors in 2006:

Change in

Pension Value

and Non-

Qualified

Fees Earned
Non-Equity
Deferred

or Paid in
Stock
Option
Incentive Plan
Compensation
All other

Cash
Awards
Awards
Compensation
Earnings
Compensation

Name
($) ($) ($) ($) ($) ($) Total

C. Sean Day $ 41,045 $ 30,000 (1) $ — $ — $ — $ — $ 71,045
Harold S. Edwards 42,783 20,000 (1) — — — — 62,783
D. Eugene Ewing 45,204 20,000 (1) — — — — 65,204
Mark H. Lazarus 31,363 20,000 (1) — — — — 51,363
Ted Waitman 40,783 20,000 (1) — — — — 60,783

Totals $ 201,178 $ 110,000 $ (2) $ (2) $ (2) $ — $ 311,178

(1) Represents 1,683 fully vested shares for C. Sean Day and 1,122 fully vested shares for each other director issued pursuant to the annual award described above. These shares were received by the directors on January 3, 2007.
(2) The company does not have any stock option, non-equity incentive or deferred compensation arrangements for any of its directors.

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PRINCIPAL SHAREHOLDERS/SECURITY OWNERSHIP OF
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the beneficial ownership of our shares by each person who is known to us to be the beneficial owner of more than five percent of our outstanding shares, each of our directors and executive officers and our directors and executive officers as a group as of February 28, 2007, based on 20,450,000 shares issued and outstanding.
All holders of our shares of trust stock are entitled to one vote per share on all matters submitted to a vote of share holders. The voting rights attached to shares held by our directors, executive officers or major shareholders do not differ from those that attach to shares held by any other holder.
UnderRule 13d-3 of the Exchange Act, “beneficial ownership” includes shares for which the individual, directly or indirectly, has voting power, meaning the power to control voting decisions, or investment power, meaning the power to cause the sale of the shares, whether or not the shares are held for the individual’s benefit. The address for each Director, Executive Officer, Compass Group International and Pharos is 61 Wilton Road, Westport, Connecticut 06880.

Shares of Trust Stock

Representing Sole
Percent of

Voting and/or
Shares

Name and Address of Beneficial Owner
Investment Power Outstanding

5% Beneficial Owners

CGI(1) 7,350,000 35.9 %
Prides Capital Partners, L.L.C.(2) 1,308,653 6.4 %
Chilton Investment Company, L.L.C.(3) 1,105,045 5.4 %
Directors and Executive Officers:

C. Sean Day 323,350 1.6 %
I. Joseph Massoud(4) 266,667 1.3 %
James J. Bottiglieri 6,667 *
Harold S. Edwards 3,830 *
D. Eugene Ewing 9,455 *
Mark H. Lazarus 1,122 *
Ted Waitman 14,455 *
All Directors and Executive Officers as a Group
625,546 3.1 %
* Less than 1%.
(1) These shares are owned by CGI Diversified Holdings LP, a wholly owned subsidiary of CGI. Upon completion of this offering and the separate private placement transaction, CGI will ~~be calculated only~~own approximately           shares representing 30.2% of our shares. See the section entitled “Certain Relationships and Related Party Transactions” for more information about the relationship of CGI and its affiliates.
(2) Number of shares presented is based solely on the information provided in a filing by such person with the SEC on Schedule 13D. The address for Prides Capital Partners, L.L.C. is 200 High Street, Suite 700, Boston, Massachusetts 02110
(3) The address for Chilton Investment Company, L.L.C. is 300 Park Avenue, 19^th floor, New York, N.Y. 10022.
(4) Our chief executive officer, Mr. Massoud, as managing member of Pharos, exercises sole voting and investment power with respect to the ~~sale~~shares owned by Pharos. Amounts with respect to Mr. Massoud reflect his beneficial ownership of ~~stock or assets~~shares through his interest in and control of ~~any business that gave rise~~Pharos.

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The following table sets forth certain information regarding the beneficial ownership of the Company’s two classes of equity interests.

Number of
Percent of

Interests(1) Class

Compass Group Management LLC
Allocation interests 1,000 100 %
Trust interests — —
Compass Diversified Trust(2)
Allocation interests — —
Trust interests 20,450,000 100 %
(1) Compass Group Diversified Holdings LLC has two classes of interests: allocation interests and trust interests.
(2) Each beneficial interest in the trust corresponds to one underlying trust interest of the company. Unless the trust is dissolved, it must remain the sole holder of 100% of the trust interests and at all times the company will have outstanding the identical number of trust interests as the number of outstanding shares of the trust. As a ~~sale event~~result of corresponding interest between shares and trust interests, each holder of shares identified in the table above relating to the trust must be deemed to beneficially own a correspondingly proportionate interest in the company.
The following table sets forth certain information as of February 28, 2007, regarding the beneficial ownership by certain executive officers and directors of the company of equity interests in certain of our businesses.

Number of
Percent of
Shares Class

C. Sean Day
Advanced Circuits, Series B Common Stock(1) 10,000 0.8%
(1) Mr. Day is the direct owner of 6,480 shares of Series B Common Stock and Mr. Day’s children are the owners in the aggregate of 3,520 shares of Series B Common Stock.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Relationships with Related Parties
CGI
Compass Group Investments, Inc., which we refer to as CGI, through its wholly owned subsidiaries, was the sole limited partner in each of the entities from which the company acquired a controlling interest in our initial businesses and Anodyne, as well as the sole limited partner in CGI Diversified Holdings, LP. CGI is also an affiliate of Navco Management, Inc., the general partner of CGI Diversified Holdings, LP and the entities from which the company acquired controlling interests in our initial businesses and Anodyne.
We used a portion of the net proceeds from the IPO, the separate private placement transactions that are described below and our initial borrowing from our prior credit agreement to acquire controlling interests in our businesses from CGI and its subsidiaries. Such controlling interests were acquired or otherwise obtained by CGI and its subsidiaries pursuant to equity investments totaling approximately $71.9 million, which controlling interests we acquired from CGI and its subsidiaries for approximately $147.7 million in cash.

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CGI was the sole owner of The Compass Group, the former manager of these businesses. The members of our management team, while working for The Compass Group, advised CGI on the acquisition and management of these businesses.
CGI Diversified Holdings, LP currently owns an aggregate of 7,350,000, or 35.9% of our shares. CGI Diversified Holdings, LP purchased, in conjunction with the IPO in a separate private placement transaction, 5,733,333 shares at the IPO price per share, having an aggregate purchase price of approximately $86 million. In addition, CGI Diversified Holdings, LP purchased 666,666 shares having an aggregate purchase price of $10 million through the IPO. As indicated above, the proceeds of these sales were used in part to pay the purchase price to CGI Diversified Holdings, LP and its subsidiaries for the acquisition of our businesses. CGI Diversified Holdings, LP also became a non-managing member of our manager following the IPO. In addition, in connection with the acquisition of Anodyne on August 1, 2006, we issued 950,000 of our newly issued shares to CGI Diversified Holdings, LP valued at $13.1 million, or $13.77 per share. In November of 2006, CGI Diversified Holdings, LP contributed its membership interest in our manager to a newly formed entity: CGI Seagin Holdings, LLC, which we refer to as CGI Seagin, in exchange for a managing membership interest in CGI Seagin. As a result, CGI Seagin is entitled to receive 10% of any profit allocation paid by the company to our manager and CGI Diversified Holdings, LP, is indirectly entitled to receive half of any such profit allocation paid CGI Seagin. Mr. Day, our chairman, also holds a 50% non-managing membership interest in CGI Seagin, which entitles him, indirectly, to receive half of any profit allocation paid by the company to CGI Seagin.
CGI has agreed to purchase, in conjunction with the closing of this offering in a separate private placement transaction, that number of shares, at a per share price equal to the public offering price, having an aggregate purchase price of approximately $30 million or approximately           shares. CGI will have certain registration rights in connection with the shares it acquires in the separate private placement transaction. See the section entitled “Shares Eligible for Future Sale — Registration Rights” for more information about these registration rights. CGI is a 50% managing member in CGI Seagin, a non-managing member of our manager. CGI Seagin is entitled to receive 10% of any profit allocation paid by the company to our manager.
Our Manager
Our relationship with our manager is governed principally by the following three agreements:
• the management services agreement relating to the management services our manager performs for us and the ~~calculation of profit allocation~~businesses we own and ~~will~~the management and transaction fees to be ~~equal~~paid to ~~the amount, adjusted for minority interests, by which (i) the net sales price of such stock or assets, as the case may be,~~~~exceeds~~~~(ii) the book value of such stock or assets, as the case may be, at the time of such sale.~~our manager in respect thereof;

• ~~The~~the company’s ~~“cumulative aggregate realized losses” will be equal~~LLC agreement setting forth our manager’s rights with respect to ~~as of any calculation date,~~ the ~~aggregate amount of realized losses~~allocation interests our manager owns, including the right to receive profit allocations from ~~all of~~ the ~~sales of stock or assets of any business prior to such calculation date.~~company; and

• ~~“Realized losses” will be calculated only with respect~~the supplemental put agreement relating to our manager’s right to cause the ~~sale of stock or assets of any business that gave rise~~company to ~~a sale event and~~purchase the ~~calculation of profit~~ allocation ~~and will be equal to the amount, adjusted for minority~~ interests owned by ~~which (i) the book value of such stock or assets, as the case may be, at the time of such sale,~~~~exceeds~~~~(ii) the net sales price of such stock or assets, as the case may be.~~our manager.
Concurrent with the IPO, all the employees of The Compass Group became employees of our manager. While our manager will provide management services to the company, our manager is also permitted to provide services, including services similar to the management services provided to us, to other entities. In this respect, the management services agreement and the obligation to provide management services will not create a mutually exclusive relationship between our manager and the company or our businesses. As such, our manager, and our management team, will be permitted to engage in other business endeavors, which may be related to or affiliated with CGI. Mr. James Bottiglieri, our chief financial officer, will devote 100% of his time to our affairs.
The company reimbursed our manager and its affiliates after the closing of the IPO, for certain costs and expenses incurred prior to and in connection with the closing of the IPO in the amount of approximately $6 million. The company paid our manager approximately $300,000 in transaction services

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~~188~~
fees and expense payments in respect of our manager’s services as an advisor to us in connection with the acquisition of Anodyne from CGI.
~~Example of Calculation of Manager’s Profit Allocation~~
Mr. Massoud, as managing member of our manager, will beneficially receive the management fees, offsetting management fees, fees under any transaction services agreements and expense reimbursements related to the foregoing, and he will use such proceeds to pay the compensation, overhead,out-of-pocket and other expenses of our manager, satisfy its contractual obligations and otherwise distribute such proceeds to the members of our manager in accordance with our manager’s organizational documents.
Mr. C. Sean Day
Mr. Day, the chairman of the company’s board of directors, was the chairman of The Compass Group, a wholly owned subsidiary of CGI. Mr. Day is not an employee, director or officer of our manager. Mr. Day owns a 50% non-managing membership interest in CGI Seagin, a non-managing member of our manager. CGI Seagin is entitled to receive 10% of any profit allocation paid by the company to our manager.
Pharos I LLC
Pharos purchased, in conjunction with the closing of the IPO in a separate private placement transaction, 266,667 shares at the IPO price per share having an aggregate purchase price of $4 million. As indicated above, this amount was used in part to pay the purchase price to CGI and its subsidiaries for the acquisition of our businesses by the company. Pharos is owned by certain employees of our manager, including Mr. Massoud, our chief executive officer. Mr. Massoud, as managing member, controls Pharos.
Contractual Arrangements with Related Parties
The following discussion sets forth the agreements that we entered into with related parties in connection with the IPO.
Stock Purchase Agreement with Sellers, including CGI and its Subsidiaries
CGI and its subsidiaries, together with the other sellers, entered into stock purchase agreements with the company pursuant to which the company acquired controlling interests in our initial businesses and Anodyne. Upon consummation of the transactions contemplated by the stock purchase agreements, the company succeeded to the rights and interests of the applicable selling CGI subsidiaries under certain shareholders’ agreements and registration rights agreements then in place at our initial businesses and Anodyne.
Loan Agreements with each of our Subsidiaries
The company is a party to a loan agreement with each of our businesses pursuant to which the company will make loans and financing commitments to each of our businesses.
Management Services Agreement
The company entered into a management services agreement pursuant to which we will pay our manager, for services performed by our manager, a quarterly management fee equal to 0.5% (2.0% annualized) of the company’s adjusted net assets as of the last day of each fiscal quarter. The management services agreement was amended on November 8, 2006, to clarify that adjusted net assets are not reduced by non-cash charges associated with the supplemental put agreement. Such amendment was unanimously approved by the company’s board of directors and the compensation committee of the board of directors. The management fee paid to our manager is required to be paid prior to the payment of any distributions to shareholders. The management fee will be offset by fees paid to our manager by our businesses under management services agreements that our manager entered into with, or be assigned with respect to, our businesses, which we refer to as offsetting management services agreements. We accrued and paid approximately $3.0 million of management fees under this agreement during fiscal 2006.

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Offsetting Management Services Agreements
Our manager has entered into and may, at any time in the future, enter into offsetting management services agreements directly with the businesses that we own relating to the performance by our manager of offsetting management services for such businesses. All fees, if any, paid by the businesses that we own to our manager pursuant to an offsetting management services during any fiscal quarter will offset, on adollar-for-dollar basis, the management fee otherwise due and payable by the company to our manager under the management services agreement for such fiscal quarter. The manager has entered into offsetting management services agreements with all of its subsidiaries. Offsetting management fees were approximately $1.4 million during fiscal 2006.
LLC Agreement
The trust and our manager are each equity holders of the company’s limited liability company interests and parties to the LLC agreement relating to their respective interests in the company. The LLC agreement sets forth our manager’s rights with respect to their profit allocation interest among other things. The LLC agreement was amended on January 9, 2007, to address a drafting error related to the methodology used to calculate our manager’s profit allocation. The impact of the amendment to the LLC agreement is positive for shareholders as it ensures that 100% of the company’s overhead and equity are allocated among our businesses for purposes of the hurdle calculation prior to payment of profit allocation to our manager. The amendment to the LLC agreement was unanimously approved by our board of directors on January 4, 2007. A copy of the LLC agreement, as amended, is an exhibit to the registration of which this prospectus is a part.
The company will ~~receive~~pay a profit allocation ~~at the end~~with respect to its businesses to our manager, as holder of 100% of the ~~fiscal quarter~~allocation interests, upon the occurrence of certain events if the company’s profits with respect to a business exceeding an annualized hurdle rate of 7%, which hurdle is tied to such business’ adjusted net assets (as defined in ~~which~~the LLC agreement) relative to the sum of all of our subsidiaries’ adjusted net assets. The calculation of profit allocation with respect to a ~~trigger event occurs as follows (all dollar amounts are in millions):~~particular business will be based on:
~~Assumptions~~
~~Year 1:~~
~~Acquisition of Company A (“Company A”)~~• such business’ contribution-based profit, which generally will be equal to such business’ aggregate contribution to the company’s profit during the period such business is owned by the company; and

~~Acquisition of Company B (“Company B”)~~• the company’s cumulative gains and losses to date.
Generally, a profit allocation will be paid in the event that the amount of profit allocation exceeds the annualized hurdle rate of 7% in the following manner: (i) 100% of the amount of profit allocation in excess of the hurdle rate of 7% but that is less than the hurdle rate of 8.75%, which amount is intended to provide our manager with an overall profit allocation of 20% once the hurdle rate of 7% has been surpassed; and (ii) 20% of the amount of profit allocation in excess of the hurdle rate of 8.75%. Our manager has the right to cause the company to purchase the allocation interests it owns, as described below under “— Supplemental Put Agreement.” Mr. Day owns a 50% non-managing membership interest in CGI Seagin, a non-managing member of our manager. CGI Seagin is entitled to receive 10% of any profit allocation paid by the company to our manager.
Supplemental Put Agreement
As distinct from its role as our manager, our manager is also the owner of 100% of the allocation interests in the company. Concurrent with the IPO, we entered into a supplemental put agreement with our manager pursuant to which our manager shall have the right to cause the company to purchase the allocation interests then owned by our manager upon termination of the management services agreement. Essentially, the put rights granted to our manager require us to acquire our manager’s allocation interests in the company at a price based on a percentage of the increase in fair value in the company’s businesses over its basis in those businesses. At any point in time, the supplemental put liability recorded on the company’s balance sheet is our manager’s estimate of what its allocation interests are worth based upon a percentage of the increase in fair value of our businesses over our basis in those businesses. Because the supplemental put price would be calculated based upon an assumed profit allocation for the sale of all of our businesses, the growth of the supplemental put liability over time is indicative of our manager’s estimate of the

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company’s unrealized gains on its interests in our businesses. A decline in the supplemental put liability is indicative either of the realization of gains associated with the sale a business and the corresponding payment of a profit allocation to our manager (as with Crosman), or a decline in our manager’s estimate of the company’s unrealized gains on its interests in our businesses. We account for the change in the estimated value of the supplemental put liability on a quarterly basis in our income statement. The expected value of the supplemental put liability effects our results of operation but it does not affect our cash flows or our cash flow available for distribution.
Private Placement Agreement
CGI has agreed to purchase, in conjunction with the closing of this offering in a separate private placement transaction, that number of shares, at a per share price equal to the public offering price, having an aggregate purchase price of $30 million, or approximately      shares.
Registration Rights Agreements
In connection with CGI’s and Pharos’ purchase of 5,733,333 and 266,667 shares, respectively, pursuant to the separate private placement transactions in connection with the IPO and described above, we entered into registration rights agreements with CGI Diversified Holdings, LP and Pharos for the registration of such shares under the Securities Act, which we refer to as the IPO registration rights agreements. Likewise, in connection with the grant of 950,000 restricted shares to CGI in connection with the company’s purchase of Anodyne from CGI’s subsidiary Compass Medical Mattress Partners L.P., we entered into a registration rights agreement with CGI Diversified Holdings, LP for the registration of such shares under the Securities Act.
The IPO registration rights agreements require us to file a shelf registration statement under the Securities Act relating to the resale of all the shares acquired by Pharos and CGI in the private placement transactions in connection with the IPO as soon as reasonably possible following the first anniversary of the closing of the IPO, or earlier if so requested by the holders of registration rights, to permit the public resale of (i) 30% of CGI’s and Pharos’ shares, as the case may be, after November 16, 2006, (ii) an additional 35% of CGI’s and Pharos’ shares, as the case may be, after November 16, 2007, and (iii) all of CGI’s and Pharos’ shares, as the case may be, after May 15, 2009. The registration rights agreement we entered into with CGI with respect to the 950,000 shares issued to CGI in connection with our acquisition of Anodyne requires us to file a shelf registration statement under the Securities Act relating to the resale of all the shares issued to CGI in connection with our acquisition of Anodyne as soon as reasonably possible following the first anniversary of the closing of the acquisition, or earlier if so requested by the holders of registration rights, to permit the public resale of (i) 30% of CGI’s shares until January 31, 2007, (ii) an additional 35% of CGI’s shares after January 31, 2007 until July 31, 2009, and (iii) all of CGI’s shares after July 31, 2009. In addition, we will enter into a registration rights agreement with CGI in connection with the separate private placement transaction described in this prospectus. This registration rights agreement will require us to file a shelf registration statement under the Securities Act relating to the resale of all shares issued to CGI in connection with such separate private placement transaction as soon as reasonably possible following May 16, 2007. In each case, we have agreed, or will agree, to use our best efforts to have the registration statement declared effective as soon as possible thereafter and to maintain effectiveness of the registration statement (subject to limited exceptions). We are obligated to take certain actions as are required to permit resales of the registrable shares. In addition, the holders of registration rights may require us to include their shares in future registration statements that we file, subject to cutback at the option of the underwriters of any such offering. Each registration statement will provide that we will bear the expenses incurred in connection with the filing of any registration statements pursuant to the exercise of registration rights. We do not expect any holders of registration rights to include their shares in this offering.
Policy for Approval of Related Person Transactions
Our independent directors, through the various committees of our board of directors, are responsible for reviewing and approving, prior to our entry into any such transaction, all transactions in which we are a

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participant and in which any of the following related parties have or will have a direct or indirect material interest:
~~Year 3~~
~~Acquisition of Company C (“Company C”)~~
•
~~Year 4~~
~~Company A (or assets thereof) sold for $20 capital gain over book value of assets at time of sale, which is a qualifying trigger event~~our chief executive officer and chief financial officer;

~~Company A’s average allocated share of~~ • our ~~consolidated net equity over its ownership is $40~~directors; and

~~Company A’s holding period~~• other members of the management team involved in ~~quarters is 12~~
~~Company A’s contribution-based profit since acquisition is $8.5~~the oversight of theday-to-day operations of the company and its subsidiaries.
~~Year 6:~~
Any transaction required to be disclosed pursuant to Item 404 ofRegulation S-K (“related party transactions”) must be reviewed and approved for potential conflict of interest by our independent directors, through the various committees of our board of directors. The company may not enter into or engage in any related party transaction with a related party without such approval. All related party transactions involving an acquisition from or sale to an affiliate of our manager, including any entity managed by an affiliate of our manager, must be submitted to the nominating and corporate governance committee for pre-approval. Details of related party transactions will be publicly disclosed as required by applicable law.
~~Company B’s contribution-based profit since acquisition is $4.5~~
~~Company B’s average allocated share of our consolidated net equity over its ownership is $30~~
~~Company B’s holding period in quarters is 20~~
~~Manager elects to have holding period measured for purposes of profit allocation for Company B~~
~~Year 7:~~
Director Independence
~~Company B (or assets thereof) is sold for $5 capital loss under book value of assets at time of sale~~
~~Company B’s average allocated share of our consolidated net equity over its ownership is $30~~
~~Company B’s holding period in quarters is 24~~
~~Company B’s contribution-based profit since acquisition is $8.5~~
~~Company C (or assets thereof) is sold for $12 capital gain over book value of assets at time of sale~~
~~Company C’s average allocated share of our consolidated net equity over its ownership is $35~~
~~Company C’s holding period in quarters is 16~~
~~Company C’s contribution-based profit since acquisition is $8~~
Our board of directors has reviewed the materiality of any relationship that each of our directors has with the trust or the company, either directly or indirectly. Based on this review, the board has determined that the following directors are “independent directors” as defined by The NASDAQ Global Select Market: Messrs. Edwards, Ewing, Lazarus and Waitman.
DESCRIPTION OF SHARES
General
The following descriptions of the trust agreement and the LLC agreement are subject to the provisions of the Delaware Statutory Trust Act and the Delaware Limited Liability Company Act. Certain provisions of the trust agreement and the LLC agreement are intended to be consistent with the DGCL, and the powers of the company, the governance processes and the rights of the trust as the holder of the trust interests and the shareholders of the trust are generally intended to be similar in many respects to those of a typical Delaware corporation under the DGCL, with certain exceptions.
The statements that follow are subject to and are qualified in their entirety by reference to all of the provisions of each of the trust agreement and the LLC agreement, which will govern your rights as a holder of the shares and the trust’s rights as a holder of trust interests, forms of each of which have been filed with the SEC as exhibits to the registration statement of which this prospectus forms a part.
Shares in the Trust
Each share of the trust represents one undivided beneficial interest in the trust property and each share of the trust corresponds to one underlying trust interest held by the trust. Unless the trust is dissolved, it must remain the holder of 100% of the trust interests and at all times the company will have outstanding the identical number of trust interests as the number of outstanding shares of the trust. Pursuant to the trust agreement, the trust is authorized to issue 500,000,000 shares and the company is authorized to issue a corresponding number of trust interests. As of December 31, 2006, the trust had 20,450,000 shares outstanding and the company had an equal number of corresponding trust interests outstanding. All shares and trust interests will be fully paid and nonassessable upon payment thereof.
Equity Interests in the Company
The company is authorized, pursuant to action by the company’s board of directors, to issue up to 500,000,000 trust interests in one or more series. In addition to the trust interests, the company is authorized, pursuant to action by the company’s board of directors, to issue up to 1,000 allocation interests. In connection with the formation of the company, our manager acquired 100% of the allocation interests so authorized and issued. All allocation interests are fully paid and nonassessable. Other than the allocation interests held by our manager, the company is not authorized to issue any other allocation interests.

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~~189~~

With Respect to Relevant Managed Subsidiary Year 4 Year 6 Year 7 Year 7

A, due to B, due to B, due to C, due to
sale 5 year hold sale sale
1 Contribution-based profit since acquisition for respective subsidiary $ 8.5 $ 4.5 $ 1 $ 8
2 Gain/ Loss on sale of company 20 0 (5 ) 12
3 Cumulative gains and losses 20 20 15 27
4 High water mark prior to transaction 0 20 20 20
5 Total Profit Allocation Amount (1 + 3) 28.5 24.5 16 35
6 Business’ holding period in quarters since ownership or last measurement due to holding event 12 20 4 16
7 Business’ average allocated share of consolidated net equity 40 30 30 35
8 Business’ level 1 hurdle amount (1.75% * 6 * 7) 8.4 10.5 2.1 9.8
9 Business’ excess over level 1 hurdle amount (5 - 8) 20.1 14 13.9 25.2
10 Business’ level 2 hurdle amount (125% * 8) 10.5 13.125 2.625 12.25
11 Allocated to manager as “catch-up” (10 - 8) 2.1 2.625 0.525 2.45
12 Excess over level 2 hurdle amount (9 - 11) 18 11.375 13.375 22.75
13 Allocated to manager from excess over level 2 hurdle amount (20% * 12) 3.6 2.275 2.675 4.55
14 Cumulative allocation to manager (11 +13) 5.7 4.9 3.2 7
15 High water mark allocation (20% * 4) 0 4 4 4

16 Manager’s Profit Allocation for Current Period
(14 - 15,> 0) $ 5.7 $ 0.9 $ 0 $ 3

Distributions
General
The company, acting through its board of directors, may declare and pay quarterly distributions on the interests of the company. Any distributions so declared will be paid on the interests in proportion to the number of interests held by such holder of interests. Our manager currently has a nominal equity interest in the company, which is subject to dilution if additional shares, including the shares offered hereby, are offered in the future. The company’s board of directors may, in its sole discretion and at any time, declare and pay distributions from the cash flow available for distributions to the holders of its interests.
Upon receipt of any distributions declared and paid by the company, the trust will, pursuant to the terms of the trust agreement, distribute within five business days the whole amount of such distributions in cash to its shareholders, in proportion to their percentage ownership of the trust on the related record date. The record date for distributions by the company will be the same as the record date for corresponding distributions by the trust.
In addition, under the terms of the LLC agreement, the company will pay a profit allocation to our manager, as holder of the allocation interests. See the section entitled “Certain Relationships and Related Party Transactions — Relationships with Related Parties — Manager’s Profit Allocation” for more information about the profit allocation to our manager.
Voting and Consent Rights
~~General~~
General

Each outstanding share is entitled to one vote per share on any matter with respect to which the trust is entitled to vote, as provided in the LLC agreement and as detailed below. Pursuant to the terms of the LLC agreement and the trust agreement, the company will act at the direction of the trust only with respect to those matters subject to vote by the holders of ~~non-management~~trust interests of the company. The company, as sponsor of the trust, will provide to the trust, for transmittal to shareholders of the trust, the appropriate form of proxy to enable shareholders of the trust to direct, in proportion to their percentage ownership of the shares, the trust’s ~~vote.~~vote with respect to the trust interests. The trust will vote its ~~non-management~~trust interests of the company in the same proportion as the vote of holders of the shares. For the purposes of this summary, the voting rights of holders of the ~~non-management~~trust interests of the company that effectively will be exercised by the shareholders of the trust by proxy will be referred to as the voting rights of the holders of the shares.

The LLC agreement provides that the holders of ~~non-management~~trust interests are entitled, at the annual meeting of members of the company, to vote for the election of all of the directors other than ~~the~~any director appointed by our manager. Because neither the trust agreement nor the LLC agreement provides for cumulative voting rights, the holders of a plurality of the voting power of the then outstanding shares ~~of the trust~~ represented at a shareholders meeting will effectively be able to elect all the directors of the company standing for election.
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The LLC agreement further provides that holders of ~~management~~allocation interests will not be entitled to any voting rights, except that holders of ~~management~~allocation interests will have, in accordance with the terms of the LLC agreement:
• voting or consent rights in connection with ~~the~~certain anti-takeover provisions, as discussed below;
• ~~a consent right with respect to the amendment or modification of any anti-takeover provisions in the LLC agreement;~~

• a consent right with respect to the amendment or modification of the provisions providing for distributions to the holders of ~~management~~allocation interests;
• ~~a consent right with respect to any amendment of the provisions providing for the duties of our manager and the secondment of our officers pursuant to the management services agreement;~~

• a consent right to any amendment to the provision entitling the holders of ~~management~~allocation interests to appoint ~~a director~~directors who will serve on the board of directors of the company;

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• ~~a consent right with respect to business combinations or transactions;~~
• a consent right with respect to any amendment of the provision of the LLC agreement governing amendments thereof; and

• a consent right with respect to any amendment that would adversely affect the holder of ~~management~~allocation interests.
~~Board of Directors Appointee~~
Board of Directors Appointee

As holder of the ~~management~~allocation interests, our manager has the right to appoint one director (or two directors if the board size is increased to nine or more directors) to the company’s board of ~~directors commencing with the first annual meeting following the closing of this offering. Our manager’s appointee~~directors. Any appointed director on the company’s board of directors will not be required to stand for election by the shareholders.
      ~~Our manager’s~~ Any appointed director who is also a member of the company’s management will not receive any compensation (other than ~~reimbursement of out-of-pocket expenses consistent with our policy~~reimbursements that are permitted for ~~reimbursement of expenses)~~directors) and will not have any special voting rights. The appointee of our manager will not participate in discussions regarding, or vote on, any related-party transaction in which any affiliate of our manager has an interest. The nominating and corporate governance committee of the board of directors will be responsible for approving all related-party transactions.
Right to Bring a Derivative Action and Enforcement of the Provisions of the LLC Agreement by Holders of the Shares and Our Manager

The trust agreement and the LLC agreement both provide that ~~a holder~~holders of shares ~~has~~representing at least ten percent of the outstanding shares shall have the right to directly institute a legal proceeding against the company to enforce the provisions of the LLC agreement. In addition, the trust agreement and the LLC agreement provide that holders of shares representing at least ten percent ~~or more~~ of the outstanding shares have the right to cause the trust to ~~bring~~institute any legal proceeding for any remedy available to the trust, including the bringing of a derivative action in the ~~right~~place of the company underSection 18-1001 of the Delaware Limited Liability Company Act relating to the right to bring derivative actions. Holders of shares will have the right to direct the time, method and place of conducting such legal proceedings brought by the trust. Our manager, as holder of the allocation interests, has the right to directly institute proceedings against the company to enforce the provisions of the LLC agreement.
Acquisition Exchange and Optional Purchase

The trust agreement and the LLC agreement provide that, if at any time more than 90% of the then outstanding shares are ~~held~~beneficially owned by one person, who we refer to as the acquirer and which time we refer to as the control date, such acquirer has the right to cause the trust, acting at the direction of the company’s board of directors, to mandatorily exchange all shares then outstanding for an equal number of ~~non-management~~trust interests, which we refer to as an acquisition exchange, and dissolve the trust. The company, as sponsor of the trust, will cause the transfer agent of the shares to mail a copy of notice of such exchange to the shareholders of the trust at least 30 days prior to the exchange of shares for ~~non-management~~trust interests. ~~We refer to the date upon which~~
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~~the exchange occurs as the exchange date.~~ Upon the completion of such acquisition exchange, each holder of shares immediately prior to the completion of the acquisition exchange will be admitted to the company as a member in respect of an equal number of ~~non-management~~trust interests and the trust will cease to be a member of the company.

Following the exchange, the LLC agreement provides that the acquirer has the right to purchase from the other holders of ~~non-management~~trust interests for cash all, but not less than all, of the outstanding ~~non-management~~trust interests that the acquirer does not ~~own.~~own at the offer price, as defined in the LLC agreement, as of the control date. While this provision of the LLC agreement provides for a fair price requirement, the LLC agreement does not provide members with appraisal rights to which shareholders of a Delaware corporation would be entitled under Section 262 of the DGCL. The acquirer can exercise its right to effect such purchase by delivering notice to the company and the transfer agent of its election to make the purchase not less than 60 days prior to the date which it selects for the purchase. The company will cause the transfer agent to mail the notice of the purchase to the record holders of the ~~non-management~~trust interests at least 30 days prior to purchase. We refer to the date of purchase as the purchase date.

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      Upon the acquirer’s exercise of its purchase right, the LLC agreement provides that holders of non-management interests other than the acquirer will be required to sell all, but not less than all, of their outstanding non-management interests at the offer price as of the purchase date. While this provision of the LLC agreement provides for a fair price requirement, the LLC agreement does not provide members with appraisal rights that shareholders of a Delaware corporation would be entitled to under Section 262 of the DGCL.
      ~~For purposes of this provision:~~
• The “offer price” will be equal to, as of any purchase date, the average closing price (as described below) per share on the 20 trading days immediately prior to, but not including, the exchange date.
• ~~The “closing price” of the shares, on any trading day, means:~~
• ~~the closing price, or if no closing price is reported, the last reported price of the shares on the Nasdaq National Market on such trading day;~~
• ~~if the shares are not so quoted on the Nasdaq National Market, the price as reported by another recognized securities exchange on which the shares are listed as of such trading day;~~
• if the shares are not so reported, the last quoted bid price for the shares in the over-the-counter market as reported by the National Quotation Bureau or a similar organization on such trading day; or
• if the shares are not so quoted, the average of the midpoint of the last bid and ask prices for the shares from at least three nationally recognized investment banking firms that the company selects for such purpose.
Voluntary Exchange

The ~~LLC~~trust agreement and the ~~trust~~LLC agreement provide that in the event the company’s board of directors determines that either:
• the trust or the company, or both, is, or is reasonably likely to be, treated as a corporation for United States federal income tax purposes;

• the trust is, or is reasonably likely to be, required to issue Schedules K-1 to holders of shares; or

• the existence of the trust otherwise results, or is reasonably likely to result, in a material tax detriment to the trust, the holders of shares, the company or any of the ~~members,~~members; and
• the company’s board of directors obtains an opinion of counsel to such effect, the company, as sponsor of the trust, may cause the trust to exchange all shares then outstanding for an equal number of trust interests and dissolve the trust. We refer to such an exchange as a voluntary exchange. The company, as sponsor of the trust, will cause the transfer agent for the shares to mail a copy of notice of such exchange to the shareholders of the trust at least 30 days prior to the exchange of shares for trust interests. Upon the completion of a voluntary exchange, each holder of shares immediately prior to the completion of the voluntary exchange will be admitted to the company as a member in respect of an equal number of trust interests and the trust will cease to be a member of the company.
and the board of directors obtains an opinion of counsel to such effect, the company, as sponsor of the trust, may cause the trust to exchange all shares then outstanding for an equal number of non-management interests and dissolve the trust. We refer to such an exchange as a voluntary exchange. The company, as sponsor of the trust, will cause the transfer agent for the shares to mail a copy of notice of such exchange to the shareholders of the trust at least 30 days prior to the exchange of shares for non-management interests. Upon the completion of a voluntary exchange, each holder of shares
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immediately prior to the completion of the voluntary exchange will be admitted to the company as a member in respect of an equal number of non-management interests and the trust will cease to be a member of the company.
Election by the Company

In circumstances where the trust has been dissolved, the LLC agreement provides that the company’s board of directors may, without the consent of vote of holders of ~~non-management~~trust interests, cause the company to elect to be treated as a corporation for United States federal income tax purposes only if the board receives an opinion from a nationally recognized financial adviser to the effect that the market valuation of the company is expected to be significantly lower as a result of the company continuing to be treated as a partnership for United States federal income tax purposes than if the company instead elected to be treated as a corporation for United States federal income tax purposes.
Dissolution of the Trust and the Company

The LLC agreement provides for the dissolution and winding up of the company upon the occurrence of:
• the adoption of a resolution by a majority vote of the company’s board of directors approving the dissolution, winding up and liquidation of the company and such action has been approved by the affirmative vote of a majority of the outstanding ~~non-management~~trust interests entitled to vote thereon;

• the unanimous vote of the outstanding ~~non-management~~trust interests to dissolve, wind up and liquidate the company; or

• a judicial determination that an event has occurred that makes it unlawful, impossible or impractical to carry on the business of the company as then currently operated as determined in accordance withSection 18-802 of the Delaware Limited Liability Company Act; or
• the termination of the legal existence of the last remaining member or the occurrence of any other event that terminates the continued membership of the last remaining member, unless the company is continued without dissolution in a manner provided under the LLC agreement or the Delaware Limited Liability Company Act.

The trust agreement provides for the dissolution and winding up of the trust upon the occurrence of:
• an acquisition exchange or a voluntary exchange;
• the filing of a certificate of cancellation of the company or its failure to revive its charter within 10 days following revocation of the company’s charter;

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	•	the entry of a decree of judicial dissolution by a court of competent jurisdiction over the company or the trust; or

	•	the written election of the company.

We refer to these events as dissolution events. Following the occurrence of a dissolution event with respect to the ~~company,~~trust, each share will be mandatorily exchanged for a ~~non-management~~trust interest of the ~~company and~~company. Upon dissolution of the company ~~will then be liquidated~~ in accordance with the terms of the LLC ~~agreement. Upon liquidation and winding up of the company,~~agreement, the then holders of interests will be entitled to share in the assets of the company legally available for distribution following payment to creditors in accordance with the positive balance in such holders’ tax-based capital accounts required by the LLC agreement, after giving effect to all contributions, distributions and allocations for all periods.

Anti-Takeover Provisions

Certain provisions of the management services agreement, the trust agreement and the LLC agreement ~~which will become effective upon the closing of this offering,~~ may make it more difficult for third parties to acquire control of the trust and the company by various means. These provisions could deprive the shareholders of the trust of opportunities to realize a premium on the shares owned by them. In addition, these provisions may adversely affect the prevailing market price of the shares. These provisions are intended to:


	•	protect ~~the holder of management interests~~our manager and its economic interests in the company;

	•	protect the position of our manager and its rights to manage the business and affairs of the company under the management services agreement;

	•	enhance the likelihood of continuity and stability in the composition of the company’s board of directors and in the policies formulated by the board of directors;

	•	discourage certain types of transactions which may involve an actual or threatened change in control of the trust and the company;

	•	discourage certain tactics that may be used in proxy fights;

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	•	encourage persons seeking to acquire control of the trust and the company to consult first with the company’s board of directors to negotiate the terms of any proposed business combination or offer; and

	•	reduce the vulnerability of the trust and the company to an unsolicited proposal for a takeover that does not contemplate the acquisition of all of the outstanding shares or that is otherwise unfair to shareholders of the trust.


	*~~Anti-Takeover Effects of the Management Services Agreement~~*

Anti-Takeover Effects of the Management Services Agreement

The limited circumstances in which our manager may be terminated means that it will be very difficult for a potential acquirer of the company to take over the management and operation of our business. Under the terms of the management services agreement, our manager may only be terminated by the company in ~~the following circumstances:~~


	•	our manager materially breaches the terms of the management services agreement and such breach continues unremedied for 60 days after the manager receives written notice setting forth the terms of such breach; or

	•	our manager acts with gross negligence, willful misconduct, bad faith or reckless disregard of its duties in carrying out its obligations under the management services agreement or engages in fraudulent or dishonest acts with respect to the company.

In addition, any proceeds from the sale, lease or exchange of a significant amount of assets of the company must be reinvested in new assets of our company. We will also be prohibited from incurring any new indebtedness or engaging in any transactions with the shareholders of the trust, the company or their affiliates without the prior written approval of the manager. These provisions could deprive the shareholders of the trust of opportunities to realize a premium on the shares owned by them.certain limited circumstances.

Furthermore, our manager has the right to resign and terminate the management services agreement upon 90 days notice. Upon the termination of the management service agreement, seconded officers, employees, representatives and delegates of ~~the~~our manager and its affiliates who are performing the services that are the subject of the management services agreement, will resign their respective position with the company and cease to work at the date of our manager’s termination or at any other time as determined by our manager. ~~Our manager’s~~Any appointed director may continue serving on the company’s board of directors subject to our manager’s continued ownership of the ~~management~~allocation interests.

~~Likewise, if~~

If we terminate the management services agreement, ~~is terminated pursuant~~the company and the trust will agree, and the company will agree to ~~a termination event, then~~cause its businesses, to cease using the term “Compass”, including any trademarks

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based on the name of the company and trust owned by our manager, entirely in their businesses and operations within 180 days of such termination. This agreement would require the trust, the company and ~~the managed subsidiaries each agree~~its businesses to ~~cease using the term “Compass” entirely in its business or operations within 30 days of such termination, including by changing its name~~change their names to remove any reference to the term “Compass”. or any trademarks owned by our manager.

~~See the section entitled “Management Services Agreement — Termination of Management Services Agreement” for more information about the termination provisions set forth~~

Anti-Takeover Provisions in the ~~management services agreement.~~Trust Agreement and the LLC Agreement


	*~~Anti-Takeover Provisions in the Trust Agreement and the LLC Agreement~~*

A number of provisions of the trust agreement and the LLC agreement also could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of the trust and the company. The trust agreement and the LLC agreement prohibit the merger or consolidation of the trust and the company with or into any limited liability company, corporation, statutory trust, business trust or association, real estate investment trust, common-law trust or any other unincorporated business, including a partnership, or the sale, lease or exchange of all or substantially all of the trust’s ~~and~~or the company’s property or assets unless, in each case, the company’s board of directors adopts a resolution by a majority vote approving such action and unless (i) in the case of the company, such action is approved by the affirmative vote of the holders of a majority of each of the outstanding ~~shares~~trust interests and ~~management~~allocation interests entitled to vote thereon or (ii) in the case of the trust, such action is approved by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote thereon.

In addition, the trust agreement and the LLC agreement each contain provisions ~~substantially~~ based on Section 203 of the DGCL which

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prohibit the company and the trust from engaging in a business combination with an interested shareholder unless (i) in the case of the company, such business combination is approved by the affirmative vote of the holders of 66²/3% of each of the outstanding ~~shares~~trust interests and ~~management interests.~~

~~As defined~~allocation interests or (ii) in the ~~trust agreement and the LLC agreement, a “business combination” means:~~


	•	~~any merger or consolidation~~case of the trust, the company or a subsidiary of the company with an interested shareholder or any person that is, or after such merger or consolidation would be, an affiliate or associate of an interested shareholder; or

	•	any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with, or proposed by or on behalf of, an interested shareholder or an affiliate or associate of an interested shareholder of any assets of the trust, the company or subsidiary of the company, having an aggregate fair market value of not less than ten percent of the net investment value of the company; or

	•	the issuance or transfer by the trust, the company or any subsidiary of the company (in one transaction or series of transactions) of any securities of the trust, the company or any subsidiary of the company to, or proposed by or on behalf of, an interested shareholder or an affiliate or associate of an interested shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of not less than ten percent of the net investment value of the company; or

	•	any spinoff or split-up of any kind of the trust, the company or a subsidiary of the company proposed by or on behalf of an interested shareholder or an affiliate or associate of the interested shareholder; or

	•	any reclassification of the shares of the trust or non-management interests (including any reverse split of shares or non-management interests, or both) or recapitalization of the trust or the company, or both, or any merger or consolidation of the trust or company with any subsidiary of the company, or any other transaction that has the effect of increasing the percentage of the outstanding shares of the trust, the company or any subsidiary of the company or any class of securities of the company or any subsidiary of the company or the trust convertible or exchangeable for shares, non-management interests or equity securities of any subsidiary, as the case may be, that are directly or indirectly owned by an interested shareholder or any affiliate or associate of an interested shareholder; or

	•	~~any agreement, contract or other arrangement providing for any one or more of the actions in the above bullet points.~~

~~As defined in~~ the trust, ~~agreement and~~such business combination is approved by the ~~LLC agreement, an “interested shareholder” is a person (other than our manager and its affiliates,~~affirmative vote of the ~~trust,~~holders of 662/3% of the ~~company~~outstanding shares, in each case, excluding shares or interests, as the case may be, held by the interested stockholder or any ~~subsidiary~~affiliate or associate of the ~~company or any employee benefit plan) who:~~interested stockholder.


	•	is, or was at any time within the three-year period immediately prior to the date in question, the beneficial owner of 15% or more of the shares or non-management interests, as the case may be, and who did not become the beneficial owner of such amount of shares or non-management interests, as the case may be, pursuant to a transaction that was approved by the company’s board of directors; or

	•	is an assignee of, or has otherwise succeeded to, any shares or non-management interests, as the case may be, of which an interested shareholder was the beneficial owner at any time within the three-year period immediately prior to the date in question, if such assignment or succession occurred in the course of a transaction, or series of transactions, not involving a public offering.

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~~As defined in the trust agreement and the LLC agreement, “net investment value” of the company means:~~


	•	~~the “market value” of the shares (as defined in the LLC agreement);~~~~plus~~

	•	the amount of any borrowings (other than intercompany borrowings) of the company and its subsidiaries that are party to the management services agreement (but not including borrowings on behalf of any subsidiary of the subsidiaries that are party to the management services agreement);~~plus~~

	•	the value of contractual commitments made by the company and/or any of its subsidiaries to invest that are represented by definitive agreements other than cash or cash equivalents, as calculated by the manager and approved by a majority of the “continuing directors” (as defined in the LLC agreement);~~provided,~~~~that such contractual commitments have not been outstanding for more than two consecutive full fiscal quarters;~~~~less~~

	•	the aggregate amount held by the company and its subsidiaries that are party to the management services agreement in cash or cash equivalents (but not including cash or cash equivalents held specifically for the benefit of any subsidiary of the subsidiaries that are party to the management services agreement).

Subject to the right of our manager to appoint ~~a director~~directors and ~~their successors~~any successor in the event of a vacancy, the LLC agreement authorizes only the chairman of the company’s board of directors to fill vacancies ~~including for newly created directorships.~~until the second annual meeting of members (and thereafter allowing the company’s board of directors to fill such vacancies) following the closing of the IPO. This provision could prevent a shareholder of the trust from effectively obtaining an indirect majority representation on the company’s board of directors ~~of the company~~ by permitting the existing board of directors to increase the number of directors and to fill the vacancies with its own nominees. The ~~trust agreement and the~~ LLC agreement also ~~provide~~provides that directors may be removed, with or without cause, ~~but~~ only by the affirmative vote of holders of 85% of the outstanding ~~shares and management interests,~~shares. An appointed director may only be removed by our manager, as holder of the ~~case may be, which so elected such directors.~~allocation interests.

The trust agreement and the LLC agreement do not permit holders of the shares to act by written consent. Instead, shareholders may only take action via proxy, which, when the action relates to the trust’s exercise of its rights as a member of the company, may be presented at a duly called annual or special meeting of members of the company and will constitute the vote of the trust. For so long as the trust remains a member of the company, the trust will act by written consent, including to vote its ~~non-management~~trust interests in a manner that reflects the vote by proxy of the holders of the shares. Furthermore, the trust agreement and the LLC agreement provide that special meetings may only be called by the chairman of the company’s board of directors or by resolution adopted by the company’s board of directors.

The trust agreement and the LLC agreement also provide that members, or holders of shares, seeking to bring business before an annual meeting of members or to nominate candidates for election as directors at an annual meeting of members of the company, must provide notice thereof in writing to the company not less than 120 days and not more than 150 days prior to the anniversary date of the preceding year’s annual meeting of ~~the company~~members or as otherwise required by requirements of the Exchange Act. In addition, the member or holder of shares furnishing such notice must be a member or shareholder, as the case may be, of record on both (i) the date of delivering such notice and (ii) the record date for the determination of members or shareholders, as the case may be, entitled to vote at such meeting. The trust agreement and the LLC agreement specify certain requirements as to the form and content of a member’s or shareholder’s

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notice, as the case may be. These provisions may preclude members or holders of shares from bringing matters before holders of shares at an annual meeting or from making nominations for directors at an annual or special meeting.

~~Our~~

The company’s board of directors ~~will be~~is divided into three classes serving staggered three-year ~~terms.~~terms, which effectively requires at least two election cycles for a majority of the company’s board of directors to be replaced. See the section entitled “Management” for more information about the company’s staggered board. In addition, our manager will have certain rights with respect to appointing ~~a director,~~one or more directors, as discussed above.

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Authorized but unissued shares are available for future issuance, without approval of the shareholders of the trust. These additional shares may be utilized for a variety of purposes, including future public offerings to raise additional capital or to fund ~~acquisitions.~~acquisitions, as well as option plans for employees of the company or its businesses. The existence of authorized but unissued shares could render more difficult or discourage an attempt to obtain control of the trust by means of a proxy contest, tender offer, merger or otherwise.

In addition, the company’s board of directors ~~of the company~~ has broad authority to amend the trust agreement and the LLC agreement, as discussed below. The company’s board of directors could, in the future, choose to amend the trust agreement or the LLC agreement to include other provisions which have the intention or effect of discouraging takeover attempts.

Amendment of the LLC Agreement

The LLC agreement (including the distribution provisions thereof) may be amended only by a majority vote of the board of directors of the company, except ~~with respect to~~that amending the following provisions ~~which effectively require~~requires an affirmative vote of at least a majority of the outstanding shares:


	•	the purpose or powers of the company;

	•	the authorization of an increase in ~~non-management~~trust interests;

	•	the distribution rights of the trust interests;

	•	the voting rights of the trust interests;

	•	the provisions regarding the right to acquire ~~non-management~~trust interests after an acquisition exchange described above;

	•	the right of ~~a holder~~holders of shares to enforce the LLC ~~agreement;~~agreement or to institute any legal proceeding for any remedy available to the trust;

	•	the hiring of a replacement manager following the termination of the management services agreement;

	•	the merger or consolidation of the company, the sale, lease or exchange of all or substantially all of the company’s assets and certain other business combinations or transactions;

	•	the right of holders to vote on the dissolution, winding up and liquidation of the company; and

	•	the provision of the LLC agreement governing amendments thereof.

In addition, ~~the~~our manager, as holder of the ~~management~~allocation interests, will have the rights specified above under “— Voting and Consent ~~Rights”.~~Rights.”

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Amendment of the Trust Agreement

The trust agreement may be amended by the company, as sponsor of the ~~trust.~~trust, and the regular trustees acting at the company’s direction. However, the company may not, without the ~~approval~~affirmative vote of a majority of the outstanding shares, enter into or consent to any amendment of the ~~trust:~~trust agreement that would:


	•	~~enter into or consent to any amendment which would~~ cause the trust to fail or cease to qualify for the exemption from the status of an “investment company” under the Investment Company Act or be classified as anything other than a grantor trust for United States federal income tax purposes;

	•	cause the trust to fail to qualify as a grantor trust for U.S. federal income tax purposes;

	•	cause the trust to issue a class of equity securities other than the shares (as described above under “— Shares in the Trust”), ~~including shares in one or more series,~~ or issue any debt securities or any derivative securities or amend the provision of the trust agreement prohibiting any such issuances;

	•	~~enter into or consent to any amendment of the trust agreement that would~~ affect the exclusive and absolute right of our shareholders to direct the voting of the trust, as a member of the company, with respect to all matters reserved for the vote of members of the company pursuant to the LLC agreement;

	•	~~conduct~~effect the merger or consolidation of the trust, effect the sale, lease or exchange of all or substantially all of the trust’s property or assets and certain other business combinations or transactions;

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	•	amend the distribution rights of the shares;

	•	increase the number of authorized ~~shares without the affirmative vote of a majority of the~~ shares; or

	•	amend the provision of the trust agreement governing the amendment ~~thereof without the affirmative vote of a majority of the shares.~~thereof.

~~Supplemental Put Agreement~~Trustees

The following discussion addresses the right of the manager to cause the company to purchase, which we refer to as the manager’s put right, the management interests owned by the manager. The statements that follow are subject to and are qualified in their entirety by reference to all of the provisions of the supplemental put agreement, a form of which has been filed with the SEC as an exhibit to the registration statement of which this prospectus is a part.

If (i) the management services agreement is terminated at any time other than as a result of our manager’s resignation or (ii) our manager resigns on any date that is at least three years after the closing of this offering, then the manager will have the right, but not the obligation, for one year from the date of termination or resignation, as the case may be, to elect to cause the company to purchase the management interests then owned by the manager for the put price.

~~For purposes of this provision, the “put price” shall be equal to, as of any exercise date, (i) if we terminate the management services agreement, the~~~~sum~~~~of two separate calculations of the aggregate amount of manager’s profit allocation as of such exercise date or (ii) if our manager resigns, the~~~~average~~of two separate calculations of the aggregate amount of manager’s profit allocation as of such exercise date, in each case, calculated assuming that (x) the businesses are each sold as of such exercise date in the order in which the controlling interest in each business was acquired or otherwise obtained by the company and (y) such exercise date is the relevant calculation date for purposes of calculating manager’s profit allocation as of such exercise date.

Termination of the management services agreement, by any means, will not affect our manager’s rights with respect to the management interests in the company that it owns. In this regard, our manager will retain its put right and its management interest, at its discretion, after ceasing to serve as our manager.

~~Trustees~~

Messrs. ~~Massoud~~Alan B. Offenberg and Bottiglieri ~~will~~currently serve as the regular trustees of the trust, and The Bank of New York (Delaware) ~~will serve~~currently serves as the Delaware trustee of the trust.

Transfer Agent and Registrar

The transfer agent and registrar for the shares and the ~~non-management~~trust interests is The Bank of New York.

Listing

~~The~~

Our shares ~~have been approved for quotation~~are listed on the ~~Nasdaq National~~NASDAQ Global Select Market under the symbol ~~“CODI”, subject to notice of issuance.~~“CODI.”

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~~SHARES ELIGIBLE FOR FUTURE SALE~~
      Prior to this offering, no public market existed for our shares. The prevailing market price of our shares could decline because of sales of a large number of shares in the open market following this offering or the perception that those sales may occur. These factors also could impair our ability to raise capital through future offerings of shares.
      Upon completion of this offering and the separate private placement transactions, we will have outstanding an aggregate of                 shares, or                 shares assuming the underwriters’ overallotment option is exercised in full. All of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for shares, if any, which may be acquired by our “affiliates” as that term is defined in Rule 144 under the Securities Act. Persons who may be deemed to be affiliates generally include individuals or entities that control, are controlled by, or are under common control with, us and may include our directors and officers as well as our significant shareholders, if any.
      We expect that certain directors and officers and employees of our manager will purchase an aggregate of                 shares, representing approximately      % of the then outstanding shares, in connection with this offering pursuant to our directed share program. If purchased, such shares will be deemed “control securities”, as that concept is embodied in Rule 144 under the Securities Act, notwithstanding the purchase of such shares pursuant to an effective registration statement. As a result, such shares may not be resold except in accordance with the requirements of Rule 144 under the Securities Act. See the section entitled “Underwriting — Directed Share Program” for more information about the directed share program.
      An aggregate of                shares, representing approximately      % of the then outstanding shares, held by CGI upon completion of this offering, which were purchased pursuant to a separate private placement transaction, will be deemed “restricted securities,” as that term is defined in Rule 144 under the Securities Act, and may not be resold in the absence of registration under the Securities Act or pursuant to exemptions from such registration, including, among others, the exemptions provided by Rule 144 under the Securities Act. An aggregate of                 shares, representing approximately      % of the then outstanding shares, held by Pharos upon completion of this offering, which were purchased pursuant to a separate private placement transaction, will be deemed “restricted securities,” as that term is defined in Rule 144 under the Securities Act, and may not be resold in the absence of registration under the Securities Act or pursuant to exemptions from such registration, including, among others, the exemptions provided by Rule 144 under the Securities Act. See the section entitled “Certain Relationships and Related Party Transactions” for more information about the private placement transactions with CGI and Pharos and the section entitled “— Registration Rights” for more information about CGI’s and Pharos’ registration rights with respect to their restricted securities.
~~Lock-Up Agreements~~
      We, our directors and officers, CGI, Pharos, the employees of our manager and each participant in the directed share program have agreed, subject to certain exceptions, to enter into lock-up agreements in favor of the underwriters that prohibit us and them, directly or indirectly, from selling or otherwise disposing of any shares of the trust or securities convertible into shares of the trust for a period of 180 days from the date of this prospectus, without the prior written consent of Ferris, Baker Watts, Incorporated, subject to certain exceptions. See the section entitled “Underwriting — Lock-Up Agreements” for more information about the lock-up agreements.
      Immediately following this offering, we expect our directors and officers and the employees of our manager will own                 shares, representing approximately      % of the then outstanding shares, or approximately      % if the underwriters’ overallotment option is exercised in full. Immediately following this offering, CGI will own                 shares, representing approximately      % of the then outstanding shares, or approximately      % if the underwriters’ overallotment option is exercised in full. Immediately following this offering, Pharos will own                 shares, representing approximately      % of the then outstanding shares, or approximately      % if the underwriters’ overallotment option is exercised in full. Other than with respect to
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~~restrictions on trading pursuant to Rule 144, these shares will not be restricted pursuant to the lock-up agreements upon the expiration of the 180 lock-up period.~~
~~Rule 144~~
      In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned restricted securities for at least one year is entitled to sell within any three-month period the number of those restricted securities that does not exceed the greater of:
• ~~1% of the total number of shares then outstanding (or approximately                 shares upon closing of this offering); and~~
• ~~the average weekly trading volume of the shares on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.~~
      Sales under Rule 144 are also subject to satisfaction of manner-of-sale provisions and notice requirements and to the availability of current public information about us. Under Rule 144(k), a person that has not been one of our affiliates at any time during the three months preceding a sale, and that has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell those shares without regard to the volume, manner of sale or other limitations contained in Rule 144.
      Rule 144 also imposes certain limitations on securities held by a person in a control relationship with the issuer of such securities, including securities that were acquired by such person pursuant to an effective registration statement.
~~Registration Rights~~
      In connection with our private placement transactions with CGI and Pharos, we intend to enter into registration rights agreements for the sale of shares owned by CGI and Pharos. See the section entitled “Certain Relationships and Related Party Transactions” for more information about the private placement transactions with CGI and Pharos. After CGI’s and Pharos’ shares are registered pursuant to their respective registration rights agreements, such shares will be freely tradable without restriction.
      We expect that the registration rights agreements will require us to file a shelf registration statement under the Securities Act relating to the resale of all the shares owned by Pharos and CGI as soon as reasonably possible following the first anniversary of the closing of this offering, or earlier if requested by Pharos or CGI to permit the public resale of (i) 30% of CGI’s and Pharos’ shares, as the case may be, after the date that is six months after the closing of this offering, (ii) an additional 35% of CGI’s and Pharos’ shares, as the case may be, after the date that is eighteen months after the closing of this offering, and (iii) all of CGI’s and Pharos’ shares, as the case may be, after the date that is three years after the closing of this offering. We will agree to use our best efforts to have the registration statement declared effective as soon as possible thereafter and to maintain effectiveness of the registration statement (subject to limited exceptions). We will be obligated to take certain actions as are required to permit resales of the registrable shares. In addition, CGI or Pharos may require us to include its shares in future registration statements that we file, subject to cutback at the option of the underwriters of any such offering. Each registration statement will provide that we will bear the expenses incurred in connection with the filing of any registration statements pursuant to the exercise of registration rights.
~~Option Plan~~
      We intend to file a registration statement on Form S-8 under the Securities Act to register a certain number of shares for issuance under our Option Plan. See the section entitled “Management — Option Plan” for more information about our Option Plan.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of material U.S. federal income tax considerations associated with the purchase, ownership and disposition of shares by U.S. holders (as defined below) andnon-U.S. holders (as defined below). The following summary is based upon current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), currently applicable United States Treasury Regulations (“Regulations”) and judicial and administrative rulings as of the date hereof. This summary is not binding upon the Internal Revenue Service (“IRS”), and no rulings have been or will be sought from the IRS regarding any matters discussed in this summary. In that regard, there can be no assurance that positions taken with respect to, for example, the status of the trust ~~as a grantor trust,~~ or ~~the status of~~ the company as a publicly traded partnership exempt from taxation as a corporation will not be challenged by the IRS. In addition, legislative, judicial or administrative changes may be forthcoming that could alter or modify the tax consequences, possibly on a retroactive basis.

The IRS has recently issued a pronouncement stating its position that a grantor trust owning interests in a limited liability company, on facts very similar to our current structure, would be treated as a

149

partnership for federal income tax purposes, and not as a grantor trust. The rationale for this position is that the overall arrangement permits a variance in the investment of the holders, even though the trustees of the trust do not have that power directly.

In light of this development, the company expects to submit to its shareholders for approval an amendment to the trust agreement that would permit our board to amend the trust agreement to provide that the trust be treated as a tax partnership effective January 1, 2007, and has also initiated discussions with the IRS with respect to a closing agreement that would permit the trust to be treated as a grantor trust with respect to the 2006 taxable year, and possibly a portion of the 2007 taxable year if shareholder approval is not obtained. If the company is not able to satisfactorily conclude a closing agreement, the IRS may challenge the tax status of the trust for 2006 and the portion of 2007 that it is in existence and if successful the trust may lose an opportunity to effectively make an election under Code Section 754, although the company intends to take actions to minimize this risk.

This summary deals only with shares of the trust that are held as capital assets by holders who acquire the shares upon original issuance and does not address (except to the limited extent described below) special situations, such as those of:


	•	brokers and dealers in securities or currencies;

	•	financial institutions;

	•	regulated investment companies;

	•	real estate investment trusts;

	•	tax-exempt organizations;

	•	insurance companies;

	•	persons holding shares as a part of a hedging, integrated or conversion transaction or a straddle, or as part of any other risk reduction transaction;

	•	traders in securities that elect to use amark-to-market method of accounting for their securities holdings; or

	•	persons liable for alternative minimum tax.

A “U.S. holder” of shares means a beneficial owner of shares that is, for U.S. federal income tax purposes:


	•	an individual citizen or resident of the United States;

	•	a corporation (or other entity taxable as a corporation) created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

	•	a partnership (or other entity treated as a partnership for tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia, the interests in which are owned only by U.S. persons;

	•	an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

	•	a trust if it (1) is subject to the primary supervision of a federal, state or local court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Regulations to be treated as a U.S. person.

A ~~“non-U.S.~~“non-U.S. holder” of shares means a beneficial owner of shares that is not a U.S. holder.

If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of the trust, the tax treatment of anynon-U.S. partner in such partnership (or other entity) will generally depend upon the status of the partner and the activities of the partnership. If you are

150

~~201~~

~~you are~~
anon-U.S. partner of a partnership (or similarly treated entity) that acquires and holds shares of the trust, we urge you to consult your own tax adviser.

No statutory, administrative or judicial authority directly addresses many of the U.S. federal income tax issues pertaining to the treatment of shares or instruments similar to the shares. As a result, we cannot assure you that the IRS or the courts will agree with the positions described in this summary. A different treatment of the shares, the trust or the company from that described below could adversely affect the amount, timing, character, and manner for reporting of income, gain or loss in respect of an investment in the shares.If you are considering the purchase of shares, we urge you to consult your own tax adviser concerning the particular U.S. federal income tax consequences to you of the purchase, ownership and disposition of shares, as well as any consequences to you arising under the laws of any other taxing jurisdiction.
Status of the Trust
~~Under current law and assuming full compliance with the terms of the~~
The trust ~~agreement (and other relevant documents), although the matter is not free from doubt, in the opinion of Sutherland Asbill & Brennan LLP, the trust will~~was intended to be ~~classified~~treated as a grantor trust for ~~U.S. federal income~~ tax purposes and ~~not as an association~~has provided tax information to its shareholders with respect to the 2006 taxable ~~as a corporation. The trust intends to qualify as a fixed-investment trust, which is authorized to own only non-management interests in the company. The administrative powers~~year consistently therewith. In light of the ~~trustee include~~recent IRS pronouncement described above, the ~~requirement that the trustee pay~~company expects to ~~the holders~~submit to its shareholders of ~~shares all cash distributions received by the trust from the company. The trustee, however, is not authorized~~record as of April 10, for approval an amendment to sell, exchange, convey, pledge, encumber, or otherwise transfer, assign or dispose of the non-management interests held by the trust, nor to invest or reinvest assets of the trust. There is, accordingly, no intended power under the trust agreement ~~of the trustees~~that would permit it to ~~vary the investments of the holders of shares of the trust. At all times, each share of~~be treated as a tax partnership effective January 1, 2007. If such approval is obtained, it is likely that the trust will ~~correspond to one non-management interest~~remain in ~~the company. As a result, for U.S. federal income tax purposes, a holder of shares generally will~~existence and be treated as a tax partnership beginning January 1, 2007, although no final decision has been made in that regard. If shareholder approval is not obtained, and possibly even if approval is obtained, the ~~beneficial owner of a pro rata share of~~trustees will elect to dissolve the ~~non-management~~trust pursuant to current provisions in the trust agreement, in which case the shareholders would receive direct interests in the company held by the trust. You should be aware that an opinion of counsel is not binding on the IRS or the courts. Therefore, there can be no assurance that the IRS will not contend, or that a court will not ultimately hold, that the trust does not constitute a fixed-investment trust, and, thus, a grantor trust, for U.S. federal income tax purposes. If the trust were to be determined not to constitute a grantor trust for U.S. federal income tax purposes, or if the board of directors determines that the existence of the trust results or is reasonably likely to result in a material tax detriment to holders, among other things, then the board of directors may dissolve the trust and transfer the non-management interests held by the trust to holders in exchange for their shares ofin the trust.
The company has also initiated discussions with the IRS with respect to a closing agreement that would permit the trust to be treated as a grantor trust with respect to the 2006 taxable year, and possibly a portion of the 2007 taxable year if shareholder approval is not obtained. If the company is not able to satisfactorily conclude a closing agreement, the IRS may challenge the tax status of the trust for 2006 and the portion of 2007 that it is in existence and if successful the trust may lose an opportunity to effectively make an election under Code Section 754.
If the trust is treated as a tax partnership, on the effective date of such change (which is likely to be January 1, 2007), the shareholders will be deemed to contribute their interests in the company to a new tax partnership in exchange for interests in that new partnership. The contribution would generally be tax-free to both shareholders and the trust pursuant to Code Section 721. The contribution may cause the company to technically terminate for tax purposes pursuant to Code Section 708(b)(1)(B), but this should not have any material adverse consequences to the shareholders, although a shareholder that has a taxable year other than the calendar year may have additional consequences and should consult with their own tax advisor.
For any period in which the trust is treated as a tax partnership, it would be intended to qualify as a publicly traded partnership exempt from taxation as a corporation. See the discussion under “— Status of the Company” below. For purposes of applying the “qualifying income” tests, the trust’s share of the company’s income will be treated as received directly by the trust and will retain the same character as it had in the hands of the company. References to the “company” in this discussion of “Material U.S. Federal Income Tax Considerations” shall be deemed to include the trust for periods when the trust is treated as a tax partnership.
Status of the Company
~~Pursuant to current Regulations,~~
Unless and ~~subject to~~until the ~~discussion of “publicly traded partnerships” herein,~~trust is treated as a tax partnership, the company intends to be ~~classified~~treated as a publicly traded partnership exempt from taxation as a corporation for U.S. federal income tax purposes, and, accordingly, no federal income tax will be payable by it as an entity. Instead, each holder of shares in the trust ~~shares~~ who, in turn, will be treated as a beneficial owner of ~~non-management~~trust interests in the company, will be required to take into account its distributive share of the items of income, gain, loss, deduction and credit of the company.

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If the company were not treated as a publicly traded partnership exempt from taxation as a corporation and, instead, were to be classified as an association taxable as a corporation, the company would be subject to federal income tax on any taxable income at regular corporate tax rates, thereby reducing the amount of cash available for distribution to the ~~trust.~~shareholders. In that event, the holders of shares would not be entitled to take into account their distributive shares of the company’s deductions in computing their taxable income, nor would they be subject to tax on their respective shares of the company’s income. Distributions to a holder would be treated as (i) dividends to the extent of the company’s current or accumulated earnings and profits, (ii) a return of basis to the extent of each holder’s basis in its shares, and (iii) gain from the sale or exchange of property to the extent that any remaining distribution exceeds the holder’s basis in its shares. Overall, treatment of the company as an association taxable as a corporation may substantially reduce the anticipated benefits of an investment in the company.

~~202~~

A “publicly traded partnership” (as defined in Section 7704 of the Code) is any partnership the interests in which are traded on an established securities market or which are readily tradable on a secondary market (or the substantial equivalent thereof). A publicly traded partnership is treated as a corporation unless ~~a certain percentage~~90% or more of its gross income ~~during certain prescribed periods~~each year is “qualifying income” (generally, passive-type income). and the partnership is not required to register as an investment company under the Investment Company Act of 1940.

Under the qualifying income exception, 90% or more of the gross income of a partnership during each taxable year must consist of “qualifying income” within the meaning of Section 7704(d) of the Code.

Qualifying income includes dividends, interest and capital gains from the sale or other disposition of stocks and ~~bonds.~~bonds held as capital assets. We ~~estimate~~intend to restrict the sources of our income so that more than 90% of our gross income for each taxable year will constitute qualifying income within the meaning of Section 7704(d) of the Code.

~~Under~~

Until the trust is treated as a tax partnership, and under current law and assuming full compliance with the terms of the LLC agreement (and other relevant documents) and based upon factual representations made by us and assuming that we satisfied the qualifying income tests for earlier years (in light of the risks discussed in the third following paragraph), in the opinion of ~~Sutherland Asbill~~Squire, Sanders & ~~Brennan LLP,~~Dempsey L.L.P., the company will be classified as a publicly traded partnership exempt from taxation as a corporation for U.S. federal income tax purposes. The factual representations made by us upon which ~~Sutherland Asbill~~Squire, Sanders & ~~Brennan LLP~~Dempsey L.L.P. has relied include: (a) the company has not elected and will not elect to be treated as a corporation for U.S. federal income tax purposes; (b) the company is not required to register as an investment company under the Investment Company Act of 1940, and ~~(b)~~(c) for each taxable year, more than 90% of the ~~company’s~~ gross income of the trust or the company, as the case may be, will consist of dividends, interest (other than interest derived in the conduct of a financial or insurance business or interest the determination of which depends in whole or in part on the income or profits of any person) and gains from the sale of stock or debt instruments which are held as capital assets.

From the effective date of the treatment of the trust as a tax partnership, and under current law and assuming full compliance with the terms of the trust agreement (and other relevant documents) and based upon factual representations made by us, in the opinion of Squire, Sanders & Dempsey L.L.P., the trust will be classified as a publicly traded partnership exempt from taxation as a corporation for U.S. federal income tax purposes. The factual representations made by us upon which Squire, Sanders & Dempsey L.L.P. has relied include: (a) neither the trust nor the company has elected and will not elect to be treated as a corporation for U.S. federal income tax purposes; (b) neither the trust nor the company is required to register as an investment company under the Investment Company Act of 1940, and (c) for each taxable year, more than 90% of the gross income of the trust or the company, as the case may be, will consist of dividends, interest (other than interest derived in the conduct of a financial or insurance business or interest the determination of which depends in whole or in part on the income or profits of any person) and gains from the sale of stock or debt instruments which are held as capital assets.

Squire, Sanders & Dempsey L.L.P. will have no obligation to advise us of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in, or differing IRS interpretation of, the applicable law. Our taxation as a publicly traded partnership exempt from taxation as a corporation will depend on our ability to meet, on a continuing basis, through actual operating results, the ”qualifying

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income exception” (as described above), the compliance with which will not be reviewed by Squire, Sanders & Dempsey L.L.P. on an ongoing basis. Accordingly, no assurance can be given that the actual results of our operations for any taxable year will satisfy the qualifying income ~~within~~exception. You should be aware that opinions of counsel are not binding on the ~~meaning of Section 7704(d) of~~IRS, and no assurance can be given that the ~~Code.~~IRS will not challenge the conclusions set forth in such opinions.

There can be no assurance that the IRS will not successfully assert that the trust or the company should be treated as a publicly traded partnership taxable as a corporation. No ruling has been or will be sought from the IRS, and the IRS has made no determination, as to the status of the trust or the company for U.S. federal income tax purposes or whether the company will have sufficient qualifying income under Section 7704(d) of the Code. Whether the company or the trust will continue to meet the qualifying income exception is dependent on the company’s continuing activities and the nature of the income generated by those activities. ~~The~~In this regard, while the company does not anticipate realizing any management fee income, the treatment of income earned by our manager from offsetting management services agreements between our manager and the operating businesses is uncertain. For future periods, the amount of such offsetting management fees will be limited to 9.99% of the company’s gross income. In any event, the company’s board of directors will use its best efforts to cause the company to conduct its activities in such a manner ~~as is necessary for~~that the company ~~to continue~~continues to meet the qualifying income exception.

If the company fails to satisfy the qualifying income exception described above (other than a failure which is determined by the IRS to be inadvertent and which is cured within a reasonable period of time after the discovery of such ~~failure)~~failure and with respect to which certain adjustments are made), the company will be treated as if it had (i) transferred all of its assets, subject to its liabilities, to a newly-formed corporation on the first day of the year in which it fails to satisfy the exception, in return for stock in that corporation, and (ii) then distributed that stock to the trust and, in turn, to the holders of shares in liquidation of their beneficial interests in the company. This contribution and liquidation should be tax-free to holders and the company so long as the company, at that time, does not have liabilities in excess of its tax basis in its assets. Thereafter, the company would be treated as a corporation for U.S. federal income tax purposes. If the company were taxable as a corporation as a result of a failure to meet the qualifying income exception described above, its items of income, gain, loss and deduction would be reported on its tax return, and its net income would be taxed at the tax rates applicable to a domestic corporation. In addition, any distribution made to the trust (and, in turn, to the holders of shares) would be treated as a taxable dividend, as a nontaxable return of capital, or as taxable capital gain, as described above. Taxation of the company as a corporation could result in a material reduction in cash flows to the holders of shares, as well as a material reduction in after-tax return and, thus, could result in a substantial reduction of the value of the shares.

The discussion below is based on the opinion of ~~Sutherland Asbill~~Squire, Sanders & ~~Brennan LLP~~Dempsey L.L.P. that the company will be classified as a publicly traded partnership exempt from taxation as a corporation for U.S. federal income tax purposes. From the effective date on which the trust is treated as a tax partnership (if any), the following discussion will apply to the trust in addition to or in lieu of the company.

Tax Considerations for U.S. Holders


	*~~Tax Treatment of the Company~~*

Tax Treatment of the Company

As a publicly traded partnership exempt from taxation as a corporation, the company itself will not be subject to U.S. federal income tax, although it will file an annual partnership information return with the IRS, which information return will report the results

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of its activities. That information return also will contain schedules reflecting allocations of profits or losses (and items thereof) to members of the company, that is, to ~~the~~our manager and to the ~~trust.~~trust, or to the shareholders if the trust is dissolved.


	*~~Tax Treatment of Company Income to Holders~~*

Tax Treatment of Company Income to Holders

Each partner of a partnership is required to take into account its share of items of income, gain, loss, deduction and other items of the partnership. ~~Assuming the trust is regarded as a grantor trust and, accordingly, that each~~Each holder of shares ~~is treated as beneficially owning~~will directly or indirectly own a pro rata share of ~~non-management~~trust interests ~~held by~~in the ~~trust, each holder~~company, and thus will be required to include ~~in income~~on its tax return its allocable share of company income, gain, loss, deduction and other items without regard to whether the holder receives corresponding cash distributions. Thus, holders of shares may be required to report taxable income without a corresponding current receipt of cash if the company were to recognize taxable income and not make cash ~~distributions to the trust.~~distributions.

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The company’s taxable income is expected to consist mostly of interest income, capital gains and dividends. Interest income will be earned upon the funds loaned by the company to the operating subsidiaries and from temporary investments of the company, and will be taxable to the holders at ordinary income rates. Capital gains will be ~~earned~~reported upon the sale of stock or assets by the company, and will be taxed to the holders at the appropriate capital gains rates. Any dividends received by the company from its domestic corporate holdings generally will constitute qualified dividend income, which will, under current law (which, without additional Congressional action, will expire with respect to dividends received after December 31, 2010), qualify for a reduced rate of tax. Any dividends received by the company that do not constitute qualified dividend income will be taxed to holders at the tax rates generally applicable to ordinary income. Dividend income of the company from its domestic operating subsidiaries that is allocated to corporate holders of shares will qualify for the dividends received deduction.


	*~~Allocation of Company Profits and Losses~~*

Allocation of Company Profits and Losses

Under Section 704 of the Code, the determination of a partner’s distributive share of any item of income, gain, loss, deduction, or credit of a partnership shall be governed by the partnership agreement unless the allocation so provided lacks “substantial economic ~~effect.”~~effect” and is not otherwise in accordance with the partner’s interests in the partnership. Accordingly, a holder’s share of the company’s items of income, gain, loss, deduction, and credit will be determined by the LLC agreement, unless the allocations under the LLC agreement are determined not to have “substantial economic ~~effect.~~effect” and is not otherwise in accordance with the partner’s interests in the partnership. Subject to the discussion below in this section and under “— Tax Considerations for U.S. Holders — Allocations Among Holders” and “Section 754 Election,” ~~The company believes~~we believe that the allocations under the LLC agreement should be considered to have substantial economic ~~effect and, accordingly should be respected by the IRS.~~effect. If the allocations were found to lack substantial economic effect, the allocations nonetheless ~~may~~should be ~~respected if such allocations were~~deemed to be made in accordance with the “partners’ interests in the partnership,” a facts and circumstances analysis of the underlying economic arrangement of the company’s members.

In general, under the LLC agreement, items of ordinary income and loss will be allocated ratably between the trust and ~~the~~our manager based upon their relative right to receive distributions from the company; and further, items allocated to the trust would be allocable ratably among the holders based on the number of ~~non-management~~trust interests ~~beneficially~~ held. Allocations of capital gains realized by the company will be made first to the manager to the extent of any ~~incentive~~profit allocation to ~~the~~our manager. Thereafter gains and losses from capital transactions will be allocated among the holders, based on the number of ~~non-management~~trust interests beneficially held. If the allocations provided by the LLC agreement were successfully challenged by the IRS, the amount of income or loss allocated to holders for U.S. federal income tax purposes could be increased or reduced or the character of the income or loss could be modified.

The U.S. federal income tax laws require specified items of taxable income, gain, loss and deduction to be allocated in a manner that accounts for the difference between the tax basis and the fair market value of property contributed to a partnership. Because all capital contributions to the company are to be in the form of cash and the company does not anticipate acquiring by contribution any property other than cash, these special allocation rules that account for a book-tax disparity would not generally apply to the company. These special allocation rules, however, also may apply to a partnership in the event of the issuance of new shares in a subsequent equity offering. The intended effect of these rules would be to

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allocate built-in tax gain or tax loss in a partnership’s assets to investors who economically earned such gain or loss. However, the trust’s ability to monitor shareholder activities to make such allocations in a precise and accurate way is limited, and any convention that may be applied in an effort to do so may be challenged by the IRS. Accordingly, the company does not anticipate making special tax allocations to account for a book-tax disparity in the company’s assets as of any subsequent offering of shares. Instead, the terms of the LLC agreement provide in substance that all holders share equally in any capital gains (after payment of any profit allocation to the manager). As a result, if one of the businesses owned by the company had appreciated (or declined) in value before, and was sold after, a subsequent offering of shares, the resulting taxable gain (or tax loss) from the sale of the business (after any profit allocation to the manager) would be allocable to all holders, including holders that purchased their shares in the trust in the later offering.

~~The U.S.~~ tax rules that apply to partnership allocations are complex, and their application, particularly to ~~exchange traded~~exchange-traded partnerships, is not always clear. We will apply certain conventions and assumptions intended to achieve general compliance with the intent of these rules, and to report items of income and loss in a manner that generally reflects a holder’s economic gains and losses; however, these conventions and assumptions may not be considered to comply with all aspects of the Regulations. It is, therefore, possible the IRS will successfully assert that certain of the conventions or assumptions are not acceptable, and may require items of company income, gain, loss or deduction to be ~~reallocated.~~reallocated in a manner that could be adverse to a holder of shares.


	*~~Treatment of Distributions~~*

As required by the rules and regulations under Sections 704(b) and 704(c) of the Code (as appropriate), specified items of income, gain, loss and deduction will be allocated to account for the difference between the tax basis and fair market value of property contributed to us and our property that has been revalued and reflected in the partners’ capital accounts upon the issuance of shares in connection with this offering. An allocation of our items of income, gain, loss and deduction, other than an allocation required by the Code to eliminate the difference between a shareholder’s “book” capital account, credited with the fair market value of contributed or adjusted property, and “tax” capital account, credited with the tax basis of contributed or adjusted property, referred to in this discussion as the “book-tax disparity,” will generally be given effect for federal income tax purposes in determining a shareholder’s distributive share of

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an item of income, gain, loss or deduction only if the allocation has “substantial economic effect” under the Treasury Regulations. In any other case, a shareholder’s distributive share of an item will be determined on the basis of the shareholder’s interest in us, which will be determined by taking into account all the facts and circumstances, including the shareholder’s relative contributions to us, the interests of all the shareholders in profits and losses, the interest of all the shareholders in cash flow and other nonliquidating distributions and rights of all the shareholders to distributions of capital upon liquidation. Under the Code, partners in a partnership cannot be allocated more tax depreciation, gain or loss than the total amount of any such item recognized by that partnership in a particular taxable period (the “ceiling limitation”). This “ceiling limitation” is not expected to have significant application to allocations with respect to contributed or adjusted property. However, to the extent the ceiling limitation is or becomes applicable, our partnership agreement requires that certain items of income and deduction be allocated in a way designed to effectively “cure” this problem and eliminate the impact of the ceiling limitation. Such allocations will not have substantial economic effect because they will not be reflected in the capital accounts of our shareholders. The legislative history of Section 704(c) of the Code states that Congress anticipated that Treasury Regulations would permit partners to agree to a more rapid elimination of book-tax disparities than required provided there is no tax avoidance potential. Further, under Treasury Regulations under Section 704(c) of the Code, allocations similar to our curative allocations would be allowed.

Treatment of Distributions

Distributions of cash by a partnership generally are not taxable to the ~~distribute-partner~~distributee-partner to the extent the amount of cash distributed does not exceed the distributee’s tax basis in its partnership interest. Cash distributions made by the company to the trust, which cash distributions the trustee in turn will distribute to the holders of shares, would create taxable gain to a holder only to the extent the distribution were to exceed the holder’s tax basis in the ~~non-management~~trust interests ~~the holder is treated as beneficially owning~~ (see the section entitled “— Tax Basis in ~~Non-management~~Trust Interests”). Any cash distribution in excess of a holder’s tax basis generally will be considered to be gain from the sale or exchange of the shares (see the section entitled “— Disposition of Shares” below).

Cash distributions to the holders of shares generally will be funded by gain realized by the company and payments to the company from the operating subsidiaries, which payments will consist of interest and principal payments on indebtedness owed to the company, and, subject to availability and board of director’s discretion, dividends. After payment of expenses, the company, again subject to the board of director’s discretion, intends to distribute the net cash to the trust, which in turn will distribute the net cash to the holders of shares. Distributions that are attributable to payments in amortization of loans made by the ~~debt~~company may exceed the company’s taxable income, thus, resulting in distributions to the holders of shares that should constitute a return of their investment. As indicated, if cash distributions to a holder exceed the holder’s adjusted tax basis in the ~~non-management~~trust interests such holder is treated as beneficially owning, a taxable gain would result.


	*~~Disposition of Shares~~*

Disposition of Shares

If a U.S. holder transfers shares, it will be treated for U.S. federal income tax purposes as having transferred its ~~pro rata~~ share of the ~~non-management~~trust interests held by the trust. If such transfer is a sale or other taxable disposition, the holder will generally be required to recognize gain or loss measured by the difference between the amount realized on the sale and the holder’s adjusted tax basis in the ~~non-management~~trust interests deemed sold. The amount realized will include the holder’s share of the company’s liabilities, as well as any proceeds from the sale. The gain or loss recognized will generally be taxable as capital gain or loss, except that the gain or loss will be ordinary (and not capital gain or loss) to the extent attributable to the holder’s allocable share of unrealized gain or loss in assets of the company ~~to the extent~~ described in Section 751 of the Code (including certain unrealized receivables ~~inventory or unremitted earnings of any controlled foreign corporations held, directly or indirectly, by the company)~~and inventory). Capital gain of non-corporate U.S. holders is eligible to be taxed at reduced rates where the ~~non-management~~trust interests deemed sold are considered held for more than one year. Capital gain of corporate U.S. holders is taxed at the

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same rate as ordinary income. Any capital loss recognized by a U.S. holder on a sale of shares will generally be deductible only against capital gains, except that a non-corporate U.S. holder may also offset up to $3,000 per year of ordinary income.

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Pursuant to certain IRS rulings, a partner is treated as having a single, “unified” basis in all partnership interests that it owns. As a result, if a holder acquires shares at different prices and sells less than all of its shares, such holder will not be entitled to specify particular shares ~~(which correspond to non-management interests)~~ as having been sold (as it could do if the company were a corporation). Rather, the holder ~~would~~should determine its gain or loss on the sale by using an “equitable apportionment” method to allocate a portion of its unified basis to its shares sold. For example, if a holder purchased 200 shares for $10 per share and 200 shares for $20 per share (and assuming no other adjustments to basis), the holder would have “unified” basis of $6,000 in its 400 ~~shares (each of which corresponds to one non-management interest in the company).~~shares. If the holder sold 100 of its shares, the adjusted basis in the shares sold would be $1,500.

Gain or loss recognized by a holder on the sale or exchange of shares held for more than one year will generally be taxable as long-term capital gain or loss; otherwise, such gain or loss will generally be taxable as short-term capital gain or loss. A special election is available under the Regulations that will allow a holder to identify and use the actual holding periods for the shares sold for purposes of determining long-term capital gain or loss. If a holder fails to make the election or is not able to identify the holding periods for shares sold, the holder likely will have a fragmented holding period in the shares sold.

A holder that sells some or all of its shares is urged to consult its tax advisor to determine the proper application of these rules in light of the holder’s particular circumstances.


	*~~Tax Basis in Non-management Interests~~*

Tax Basis in Trust Interests

A U.S. holder’s initial tax basis in its shares, and, in turn, in its ~~ratable~~ share of ~~non-management~~trust interests, ~~it is treated as beneficially owning,~~ will equal the sum of (a) the amount of cash paid by such holder for its shares and (b) such holder’s share of the company’s liabilities. A U.S. holder’s tax basis in the ~~non-management~~trust interests ~~it is treated as beneficially owning~~ will be increased by (a) the holder’s share of the company’s taxable income, including capital gain, (b) the holder’s share of the company’s income, if any, that is exempt from tax and (c) any increase in the holder’s share of the company’s liabilities. A U.S. holder’s tax basis in the ~~non-management~~trust interests ~~it is treated as beneficially owning~~ will be decreased (but not below zero) by (a) the amount of any cash distributed (or deemed distributed) to the holder, (b) the holder’s share of the company’s losses and deductions, (c) the holder’s share of the company’s expenditures that are neither deductible nor properly chargeable to a capital account and (d) any decrease in the holder’s share of the company’s liabilities.


	*~~Treatment of Securities Loans~~*

Treatment of Securities Loans

A U.S. holder whose shares are loaned to a “short seller” to cover a short sale of shares may be considered to have disposed of those shares. If so, such holder would no longer be regarded as a beneficial owner of a ~~pro rata~~ portion of the ~~company non-management~~trust interests with respect to those shares during the period of the loan and may recognize gain or loss from the disposition. As a result, during the period of the loan (i) company income, gain, loss, deduction or other items with respect to those shares would not be includible or reportable by the holder, and (ii) cash ~~payments~~distributions received by the holder with respect to those shares ~~would~~could be fully taxable, likely as ordinary income. A holder who ~~desires to participate~~participates in any such ~~transactions~~transaction is urged ~~to review any applicable brokerage account agreements and~~ to consult with its tax ~~advisor.~~adviser.


	*~~Limitations on Interest Deductions~~*

Limitations on Interest Deductions

The deductibility of a non-corporate U.S. holder’s “investment interest expense” is generally limited to the amount of such holder’s “net investment income.” Investment interest expense would generally

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include interest expense incurred by the company, if any, and ~~investment~~ interest expense incurred by the U.S. holder on any margin account borrowing or other loan incurred to purchase or carry shares of the trust. Net investment income includes gross income from property held for investment and amounts treated as portfolio income, such as dividends and interest, under the passive loss rules, less deductible expenses, other than interest, directly connected with the production of investment income. For this purpose, any long-term capital gain or qualifying dividend income that is taxable at long-term capital gains rates is excluded from net investment income unless the holder elects to pay tax on such gain or dividend income at ordinary income rates.

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Management Fees and Other Expenses


	*~~Management Fees and Other Expenses~~*

The company will pay an annual management fee to ~~the manager (or its delegee).~~our manager. The company will also pay certain costs and expenses incurred in connection with activities of ~~the~~our manager. The company intends to deduct such fees and expenses to the extent that they are reasonable in amount and are not capital in nature or otherwise nondeductible. The tax treatment of these expenses will depend, among other things, on whether or not the company is deemed to be engaged in a trade or business, which is a factual determination. Although the matter is not free from doubt, the company believes that it will not be treated as engaged in a trade or business for tax purposes. Accordingly, management fees and other ~~administrative~~ expenses ~~incurred by the company will~~should generally constitute miscellaneous itemized deductions for individual U.S. holders of ~~shares and~~shares. Accordingly, as described immediately below, certain limitations on deductibility of such fees and expenses by the shareholder could reduce or eliminate any associated tax benefits. Corporate U.S. holders of shares generally will not be subject to these limitations. Organizational and syndication expenses, in general, may not be deducted currently by either the company or any U.S. holder of shares. An election may be made by the company to amortize organizational expenses over a 180-month period. Syndication expenses cannot be amortized or deducted.

In general, a U.S. holder’s share of the expenses incurred by the company that are considered miscellaneous itemized deductions may be deducted by a U.S. holder that is an individual, estate or trust only to the extent that the holder’s share of the expenses exceeds 2% of the adjusted gross income of such holder. The Code imposes additional limitations (which are scheduled to be phased out between 2006 and 2010) on the amount of certain itemized deductions allowable to individuals, by reducing the otherwise allowable portion of such deductions by an amount equal to the lesser of:


	•	3% of the individual’s adjusted gross income in excess of certain threshold amounts; or

	•	80% of the amount of certain itemized deductions otherwise allowable for the taxable year.

Organizational and syndication expenses, in general, may not be deducted currently by either the company or any U.S. holder of shares. An election may be made by the company to amortize organizational expenses over a180-month period. Syndication expenses cannot be amortized or deducted.

The company will report such expenses on a pro rata basis, and each U.S. holder will be required to determine separately to what extent these items are deductible on such holder’s tax return. A U.S. holder’s inability to deduct all or a portion of such expenses could result in such holder’s reporting as its share of company taxable income an amount that exceeds any cash actually distributed to such U.S. holder for the year.


	*~~Section 754 Election~~*

Section 754 Election

The company will make the election permitted by Section 754 of the Code. Such an election, once made, is irrevocable without the consent of the IRS. The election will generally require, in connection with a purchase of shares in the open market, that the company adjust its proportionate share of the tax basis in the company’s assets, or the “inside” basis, pursuant to Section 743(b) of the Code to fair market value (as reflected in the purchase price for the purchaser’s shares), as if the purchaser of shares had acquired a direct interest in the company’s assets. The Section 743(b) basis adjustment is attributed solely to a purchaser of shares and does not affect the tax basis of the company’s assets associated with other holders. The Section 754 election, however, could result in adjustments to the “common basis” of the company’s assets, under Section 734, in connection with certain distributions.

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Generally, the Section 754 election is intended to eliminate the disparity between a purchaser’s “outside” tax basis in its shares and its share of “inside” tax basis of the company’s assets such that the amount of gain or loss allocable to the purchaser on the disposition by the company of its assets will correspond to the purchaser’s share in the appreciation or depreciation in the value of such assets since the purchaser acquired its shares. The consequences of this basis adjustment may be favorable or unfavorable as to the purchaser-holder.

The calculations under Section 754 of the Code are complex, and there is little legal authority concerning the mechanics of the calculations, particularly in the context of publicly traded partnerships. To help reduce the complexity of those calculations and the resulting administrative costs to the company, the company will apply certain simplifying conventions in determining and allocating these inside basis adjustments. It is possible that the IRS will successfully assert that the conventions utilized by the company do not satisfy the technical requirements of the Code or the Regulations and, thus, will require different

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basis adjustments to be made. If different adjustments were to be required by the IRS, some holders could be adversely affected.


	*~~Limitations on Deductibility of Losses~~*

Limitations on Deductibility of Losses

The deduction by a U.S. holder of its share of the company’s losses, if any, will be limited to the lesser of (i) the tax basis in such holder’s shares ~~(and, in turn, in the non-management interests the holder is deemed to own),~~ or (ii) in the case of a holder that is an individual or a closely-held corporation (a corporation where more than fifty percent (50%) of the value of its stock is owned directly or indirectly by five or fewer individuals or certain tax-exempt organizations), the amount which the holder is considered to be “at risk” with respect to certain activities of the company. In general, the amount “at risk” includes the holder’s actual amount paid for the shares and any share of company debt that constitutes “qualified nonrecourse financing.” The amount “at risk” excludes any amount the holder borrows to acquire or hold its shares if the lender of such borrowed funds owns shares or can look only to shares for repayment. Losses in excess of the amount at risk must be deferred until years in which the company generates taxable income against which to offset such carryover losses.


	*~~Passive Activity Income and Loss~~*

Passive Activity Income and Loss

The “passive activity loss” limitations generally provide that individuals, estates, trusts and certain closely-held corporations and personal service corporations can deduct losses from passive activities (generally, activities in which the taxpayer does not materially participate) only to the extent of the taxpayer’s income from passive activities. It is expected that holders will not recognize any passive activity income or passive activity loss as a result of an investment in shares.


	*~~Allocations Among Holders~~*

Allocations Among Holders

In general, the company’s profits and losses (other than capital gains and losses) will be determined ~~annually~~on an annual basis and will be prorated on a monthly ~~basis. The profits or losses will then~~basis, to be apportioned among the holders in proportion to the number of ~~non-management interests treated as beneficially~~shares of the trust owned by each holder as of the close of the last trading day of the preceding month. As a result, a ~~purchaser~~seller of shares prior to the close of the last trading day of a month may be allocated income ~~gain, loss~~ or ~~deduction~~deductions realized ~~prior to~~by the company following the date of ~~purchase. Thus, for example, if a holder acquires a trust share on~~sale. Furthermore, all dividends and distributions by the ~~last day of a month and holds such share at the close of business, that holder~~company will be allocated the profit or loss allocable to that share for the entire month. As a further example, if a holder acquires a share during one month and transfers the share on the last day of the second month, that holder will be allocated the profit or loss allocable to that share for the first month only; profit or loss for the following month will be allocatedmade to the ~~transferee, assuming~~transferor of shares if the ~~transferee does not further dispose of the share~~record date is on or before the ~~close~~date of ~~business on~~transfer; similarly, if the ~~last trading day for~~record date is after the ~~second month. Furthermore,~~date of transfer, dividends and distributions shall be made to the transferee. Thus, a holder who owns shares as of the last trading day of any month and who disposes of the shares prior to the record date set for a cash distribution for that month, ~~will~~would be allocated items of income or loss attributable to ~~such~~the next succeeding month but ~~will~~would not be entitled to receive the cash distribution.

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The company will allocate capital gains and losses to the holders of shares on the actual date on which such gains or losses are realized.

The Code generally requires that items of partnership income, gain, loss and deduction be allocated between transferors and transferees of partnership interests on a daily basis to take into account changes in the ~~make up~~make-up of the partnership. It is possible that a transfer of shares could be considered to occur for U.S. federal income tax purposes on the day when the transfer is completed without regard to the company’s monthly convention for allocating profit and loss. In that event, the company’s allocation method might be considered a method that does not comply with the tax laws.

If the IRS were to treat the transfer of shares as occurring throughout each month, and the use of a monthly convention were not allowed, or if the IRS otherwise does not accept the company’s allocation ~~convention,~~conventions, the IRS may contend that taxable income or losses of the company must be reallocated among the holders. If such a contention by the IRS were sustained, the holders’ respective tax liabilities would be adjusted to the possible detriment of certain holders. The company’s board of directors is authorized to revise the company’s allocation methods in order to comply with the applicable tax laws or to allocate items of company income, gain, loss or deduction in a manner that may more accurately reflect the holders’ respective beneficial interests in the company as may be necessary.

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Constructive Termination


	*~~Constructive Termination~~*

The company will be considered to have terminated for tax purposes if there is a sale or exchange of 50 percent or more of the total shares within a12-month period. A constructive termination results in the closing of the company’s taxable year for all holders. In the case of a holder reporting on a taxable year other than a fiscal year ending December 31, the closing of the company’s taxable year may result in more than 12 months of its taxable income or loss being includable in such holder’s taxable income for the year of termination. The company would be required to make new tax elections after a termination, including a new election under Section 754. A termination could also result in penalties if the company were unable to determine that the termination has occurred.


	*~~Tax Reporting by the Trust and the Company~~*

Tax Reporting by the Trust and the Company

Information returns will be filed by the trust and the company with the IRS, as required, with respect to income, gain, loss, deduction and other items derived from the company’s activities. The company will file a partnership return with the IRS and intends to issue aSchedule K-1 to the ~~trustee, on behalf of the holders as beneficial owners of the non-management interests.~~trustee. The trustee intends to ~~report~~provide information to each holder of shares using a monthly convention as the calculation period. The trustee has provided information to the shareholders on a schedule to Form ~~1099 (or substantially similar form)~~1041 for 2006, and will not amend that reporting if a satisfactory closing agreement with the IRS, as ~~soon~~discussed above, is obtained. For 2007 and future years, the trust will file a Form 1065 and issue Schedules K-1 to shareholders for the period beginning with its treatment as ~~practicable after the end of each year. Additionally, a holder will be informed of necessary tax information on~~ a tax ~~statement (or such other form~~partnership. The information provided on the schedule to Form 1041 and onSchedule K-1 is substantially the same. Moreover, we expect to deliver theSchedule K-1 to shareholders within the same time frame as ~~may be required by law) in a manner sufficient~~we delivered the schedule to Form 1041 to shareholders for the holder to complete its own tax return. If a holder holds shares through a nominee (such as a broker), we anticipate that the nominee will provide the holder with an IRS Form 1099 or substantially similar form, which will be supplemented by additional tax information that we will make directly available. In this context, we2006 taxable year. We further expect that the relevant and necessary information for tax purposes also will be readily available electronically through our website. Each holder will be deemed to have consented to provide relevant information, and if the shares are held through a broker or other nominee, to allow such broker or other nominee to provide such information as is reasonably requested by us for purposes of complying with our tax reporting obligations. ~~We note that, given the lack of authority addressing structures similar~~

Audits and Adjustments to that of the trust and the company, it is not certain that the IRS will agree with the manner in which tax reporting by the trust and the company will be undertaken. Furthermore, holders should be aware that Regulations have been proposed which, if finalized, could cause the trust or the company (or a nominee) to modify the manner in which tax reporting will be undertaken.Tax Liability


	*~~Audits and Adjustments to Tax Liability~~*

A challenge by the IRS, such as in a tax audit, to the tax treatment by a partnership of any item generally must be conducted at the partnership, rather than at the partner, level. A partnership ordinarily designates a “tax matters partner” (as defined under Section 6231 of the Code) as the person to receive

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notices and to act on behalf of the partnership and the partners in the conduct of such a challenge or audit by the IRS.

~~Pursuant to the LLC agreement,~~ The company, as a limited liability company, has designated our manager ~~will be appointed~~as the “tax matters ~~partner” of~~member,” who shall serve as the ~~company.~~ tax matters partner.

Our tax matters ~~partner,~~member, which is required by the LLC agreement to notify all holders of any U.S. federal income tax audit of the company, will have the authority under the LLC agreement to conduct, respond to, and if appropriate, contest (including by pursuing litigation) any IRS audit of the company’s tax returns or other tax-related administrative or judicial proceedings and, if considered appropriate, to settle such proceedings. A final determination of U.S. tax matters in any proceeding initiated or contested by the tax matters partner will be binding on all holders of shares who held their shares during the period for which the audit adjustment is made. As the tax matters ~~partner,~~member, our manager will have the right on behalf of all holders to extend the statute of limitations relating to the holders’ U.S. federal income tax liabilities with respect to company items. If shareholder approval is obtained and the trust becomes a partnership, the Trustees intend to designate James J. Bottiglieri or an affiliate as the “tax matters member” with the same duties and obligations as discussed above.

A U.S. federal income tax audit of the company’s information return may result in an audit of the tax return of a holder of shares, which, in turn, could result in adjustments to a holder’s items of income and loss that are unrelated to the company as well as to company-related items. There can be no assurance that the IRS, upon an audit of an information return of the company or of an income tax return of a U.S. holder, might not take a position that differs from the treatment thereof by the company or by such holder, possibly resulting in a tax deficiency. A holder ~~could~~would also be liable for interest on any tax deficiency that

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resulted from any such adjustments. Potential U.S. holders should also recognize that they might be forced to incur legal and accounting costs in resisting any challenge by the IRS to items in their individual returns, even if the challenge by the IRS should prove unsuccessful.


	*~~Foreign Tax Credits~~*

Foreign Tax Credits

Subject to generally applicable limitations, a U.S. holder of shares will be able to claim foreign tax credits with respect to certain foreign income taxes (if any) paid or incurred by the company, withheld on payments made to the company or paid by the company on behalf of holders. If a holder elects to claim a foreign tax credit, it must include in its gross income, for U.S. federal income tax purposes, both its share of the company’s items of income and gain and also its share of the amount which ~~we deem~~is deemed to be the holder’s portion of foreign income taxes paid with respect to, or withheld from, dividends, interest or other income derived by the company. ~~The~~Subject to certain limitations, the U.S. holder may ~~then~~ claim as a credit against its U.S. federal income tax the amount of such taxes incurred or withheld. Alternatively, a U.S. holder may elect to treat such foreign taxes as deductions from gross income. ~~The Code imposes a required holding period on stock for U.S. holders to be eligible to claim such foreign tax credits.~~ Even if the holder is unable to claim a credit or a deduction, he or she must include all amounts described above in income. We urge U.S. holders to consult their tax advisers regarding this election and its consequences to them.


	*~~Taxation of Certain Foreign Earnings~~*

Taxation of Certain Foreign Earnings

Under Subpart F of the Code, certain undistributed earnings and certain passive income of a foreign company constituting a controlled foreign corporation, or CFC, as defined in the Code, are taxed to certain U.S. shareholders prior to being distributed. None of the businesses in which the company currently intends to invest are CFCs; however, no assurances can be given that other businesses in which the company may invest in the future will not be CFCs. While distributions made by a foreign company could generally constitute “qualified dividend income;” the ~~operation of the~~ Subpart F provisions of the Code ~~would result in~~may operate to prevent distributions (or deemed distributions) of such earnings ~~when distributed or deemed distributed by a CFC, as not~~from being so regarded. Additionally, if the company were to invest in a passive foreign investment company, or PFIC, a U.S. holder of shares may be subject to certain adverse U.S. federal income tax consequences, including a deferred interest charge upon the distribution of previously accumulated earnings with respect to that investment.

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	*~~Tax Shelter Disclosure Rules~~*

Reportable Transaction Disclosure Rules

There are circumstances under which certain transactions must be disclosed to the IRS in a disclosure statement attached to a taxpayer’s U.S. federal income tax return (a copy of such statement must also be sent to the IRS Office of Tax Shelter Analysis). In addition, the Code imposes a requirement on certain “material advisers” to maintain a list of persons participating in such transactions, which list must be furnished to the IRS upon written request. These provisions can apply to transactions not conventionally considered to involve abusive tax planning. Consequently, it is possible that such disclosure could be required by the company or the holders of shares if, for example, ~~(1)~~ a holder incurs a loss (in excess of a threshold computed without regard to offsetting gains or other income or limitations) from the disposition of ~~shares, or (2) the company’s activities result in certain book-tax differences.~~shares. While the tax shelter disclosure rules generally do not apply to a loss recognized on the disposition of an asset in which the taxpayer has a qualifying basis (generally a basis equal to the amount of cash paid by the taxpayer for such asset), such rules will apply to a taxpayer recognizing a loss with respect to interests (such as the shares) in a pass-through entity even if its basis in such interests is equal to the amount of cash it paid. We urge U.S. holders to consult their tax advisers regarding the tax shelter disclosure rules and ~~their~~the possible application of these rules to them.

Non-U.S. Holders

Anon-U.S. holder will not be subject to U.S. federal income tax on such holder’s distributive share of the company’s income, provided that such income is not considered to be effectively connected with the conduct of a trade or business within the United States. However, in the case of an individualnon-U.S. holder, such holder will be subject to U.S. federal income tax on gains on the sale of shares in the company

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or such holder’s distributive share of company gains if such holder is present in the United States for 183 days or more during a taxable year and certain other conditions are met.

The company should not be treated as “engaged in a trade or business within the United States” and therefore should not realize income that would be treated as effectively connected with the conduct of a U.S. trade or business. If the income from the company is effectively connected with a U.S. trade or business (and, if certain income tax treaties apply, is attributable to a U.S. permanent establishment), then anon-U.S. holder’s share of any company income and of any gain realized upon the sale or exchange of shares will be subject to U.S. federal income tax at the graduated rates applicable to U.S. citizens and residents and domestic corporations, and suchnon-U.S. holder will be subject to tax return filing requirements in the U.S.Non-U.S. holders that are corporations may also be subject to a 30% branch profits tax (or lower treaty rate, if applicable) on their effectively connected earnings and profits that are not timely reinvested in a U.S. trade or business.

In addition, gains, if any, allocable to anon-U.S. holder and attributable to a sale by the company of a “U.S. real property interest,” or USRPI (other than such gains subject to tax under the rules discussed above), are generally subject to U.S. federal income tax as if such gains were effectively connected with the conduct of a U.S. trade or business. Moreover, a withholding tax is imposed with respect to such gain as a means of collecting such tax. For this purpose, a USRPI includes an interest (other than solely as a creditor) in a “U.S. real property holding corporation” (in general, a U.S. corporation, at least 50% of whose real estate and trade or business assets, measured by fair market value, consists of USRPIs), as well as an interest in a partnership that holds USRPIs. This withholding tax would be creditable against anon-U.S. holder’s actual U.S. federal income tax liability and any excess withholding tax may generally be eligible for refund. Although anon-U.S. holder who is a partner in a partnership that owns USRPIs is generally subject to tax on its sale or other disposition of its partnership interest to the extent attributable to such USRPIs, no withholding tax is generally imposed on the transfer of publicly traded partnership interests, and gain will not be taxable under the USRPI provisions where thenon-U.S. holder owns no more than 5% of a publicly traded entity such as the company. Anon-U.S. holder that owns more than 5% of the company is urged to consult its tax adviser about the potential application of the USRPI provisions. We ~~believe that none~~have made no determination as to whether any of the company’s ~~initial~~ investments will constitute a ~~USRPI, however,~~

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~~our conclusion may be incorrect and as such no assurances can be given that one or more of the company’s assets does not or will not constitute a USRPI either now or in the future.~~USRPI.

While generally not subject to U.S. federal income tax as discussed above, anon-U.S. holder generally will be subject to U.S. federal withholding tax at the rate of 30% (or, under certain circumstances, at a reduced rate provided by an income tax treaty, if applicable) in respect of such holder’s distributive share of dividends from U.S. corporations and certain other types ofU.S.-source income realized by the company. To the extent any interest income allocated to anon-U.S. holder that otherwise would be subject to U.S. withholding tax is considered “portfolio interest,” neither the allocation of such interest income to thenon-U.S. holder nor a subsequent distribution of such interest income to thenon-U.S. holder will be subject to withholding, provided (among other things) that thenon-U.S. holder is not otherwise engaged in a trade or business in the U.S. and provides us with a timely and properly completed and executedform W-8BEN or other applicable ~~form.~~form and said holder does not directly or indirectly own 10 percent or more of the shares or capital of the interest payor. The withholding tax as described herein will apply upon the earlier of the distribution of income to anon-U.S. holder or, if not previously distributed to anon-U.S. holder, at the time such income is allocated to anon-U.S. holder. Amounts withheld on behalf of anon-U.S. holder will be treated as being distributed to suchnon-U.S. holder; however, to the extent we are unable to associate amounts withheld with particular ~~non-management~~trust interests, the economic burden of any withholding tax paid by us to the appropriate tax authorities will be borne by all holders, including U.S. holders.

Anon-U.S. holder will be subject to U.S. federal estate tax on the value ofU.S.-situs property owned at the time of his or her death. It is unclear whether partnership interests ~~(such as the non-management interests)~~ will be consideredU.S.-situs property. Accordingly, anon-U.S. holder is urged to consult its tax advisors to determine whether such holder’s estate would be subject to U.S. federal estate tax on all or part of the value of the ~~non-management~~trust interests beneficially owned at the time of his or her death.

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Non-U.S. holders will be required to timely and accurately complete aform W-8BEN (or other applicable form) and provide such form to us, for withholding tax purposes.Non-U.S. holders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the company.

Regulated Investment Companies

Under recently enacted legislation, interests in and income from “qualified publicly traded partnerships” satisfying certain gross income tests are treated as qualifying assets and income, respectively, for purposes of determining eligibility for regulated investment company, ~~(“RIC”)~~or RIC, status. A RIC may invest up to 25% of its assets in interests inof a qualified publicly traded partnership. The determination of whether a publicly traded partnership such as the company is a qualified publicly traded partnership is made on an annual basis. The company ~~expects~~likely will not qualify to be treated as a qualified publicly traded ~~partnership~~partnership. However, because the company expects to satisfy the gross income requirements of Section 7704(c)(2) (determined as provided in ~~each~~Section 851(h)), the company anticipates the flow-thru of at least 90% of its ~~taxable years. However, such qualification is not assured.~~gross income to constitute qualifying income for regulated investment company testing purposes.

Tax-Exempt Organizations

With respect to any holder that is an organization that is otherwise exempt from U.S. federal income tax, such holder nonetheless ~~would~~may be subject to taxation with respect to its “unrelated business taxable income,” or UBTI, to the extent that its UBTI from all sources exceeds $1,000 in any taxable year. Except as noted below with respect to certain categories of exempt income, UBTI generally includes income or gain derived (either directly or through ~~partnerships)~~a partnership) from a trade or business, the conduct of which is substantially unrelated to the exercise or performance of the organization’s exempt purpose or function.

UBTI generally does not include passive investment income, such as dividends, interest and capital gains, whether realized by the organization directly or indirectly through a partnership (such as the company) in which it is a partner. This type of income is exempt, subject to the discussion of “unrelated debt-financed income” below, even if it is realized from securities trading activity that constitutes a trade or business.

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UBTI includes not only trade or business income or gain as described above, but also “unrelated debt-financed income.” This latter type of income generally consists of (1) income derived by an exempt organization (directly or through a partnership) from income-producing property with respect to which there is “acquisition indebtedness” at any time during the taxable year and (2) gains derived by an exempt organization (directly or through a partnership) from the disposition of property with respect to which there is acquisition indebtedness at any time during the twelve-month period ending with the date of the disposition.

The company expects to incur debt that would be treated as “acquisition indebtedness” with respect to certain of its investments. To the extent the company recognizes income in the form of dividends ~~and~~or interest from ~~investments~~any investment with respect to which there is “acquisition indebtedness” during a taxable year, the percentage of the income that will be treated as UBTI generally will be equal to the amount of the income from such investment times a fraction, the numerator of which is the “average acquisition indebtedness” incurred with respect to the ~~investments,~~investment, and the denominator of which is the “average amount of the adjusted basis” of the company’s ~~investments~~investment during the period such ~~investments are~~investment is held by the company during the taxable year.

To the extent the company recognizes gain from the disposition of ~~stock or securities~~any company investment with respect to which there is “acquisition indebtedness,” the portion of the gain that will be treated as UBTI will be equal to the amount of the gain times a fraction, the numerator of which is the highest amount of the “acquisition indebtedness” with respect to the ~~investments~~investment during the twelve-month period ending with the date of disposition, and the denominator of which is the “average amount of the adjusted basis” of the investment during the period such investment is held by the company during the taxable year.

Certain State and Local Taxation Matters

State and local tax laws often differ from U.S. federal income tax laws with respect to the treatment of specific items of income, gain, loss, deduction and credit. A holder’s distributive share of the taxable income

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or loss of the company generally will be required to be included in determining its reportable income for state and local tax purposes in the jurisdiction in which the holder is a resident. ~~Prospective~~The company believes that it is likely that the nature of its activities in Connecticut will require non-residents of Connecticut to pay income taxes to Connecticut, subject to certain limitations. Non-residents of Connecticut should check with their own tax advisors concerning their obligations to file tax returns and pay tax in Connecticut. Also, the company may conduct business in other jurisdictions that will subject a holder to income tax in that jurisdiction (and require a holder to file an income tax return with that jurisdiction in respect of the holder’s share of the income derived from that business). A prospective holder should consult its tax advisor with respect to the availability of a credit for such tax in the jurisdiction in which the holder is resident. Moreover, prospective holders should consider, in addition to the U.S. federal income tax consequences described above, potential state and local tax considerations in investing in the shares.

Backup Withholding

The trust is required in certain circumstances to withhold tax (called “backup withholding”) on certain payments paid to noncorporate holders of shares who do not furnish their correct taxpayer identification number (in the case of individuals, their social security number) and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to you may be refunded or credited against your U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.

Each holder of shares should be aware that certain aspects of the U.S. federal, state and local income tax treatment regarding the purchase, ownership and disposition of shares are not clear under existing law. Thus, we urge each holder to consult its own tax advisers to determine the tax consequences of ownership of the shares in such holder’s particular circumstances.

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UNDERWRITING
We
Citigroup Global Markets Inc. is acting as sole bookrunning manager of this offering and representative of the underwriters named ~~below have entered into an underwriting agreement with respect to the shares offered by this prospectus.~~below. Subject to the terms and conditions ~~contained~~stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has ~~severally~~ agreed to purchase, ~~from us~~and we have agreed to sell to that underwriter, the number of ~~offered~~ shares set forth opposite ~~its name in~~ the ~~following table.~~underwriter’s name.

Number of
Offered
~~Name of~~
Underwriter
Shares
Citigroup Global Markets Inc.
Ferris, Baker Watts, Incorporated
A.G. Edwards & Sons, Inc.
BB&T Capital Markets, a division of Scott & Stringfellow, Inc.
~~J.J.B. Hilliard, W.L. Lyons,~~Morgan Keegan & Company, Inc.
~~Oppenheimer & Co.,~~Sanders Morris Harris Inc.
Total
The underwriters’ obligations are several, which means that each underwriter is required to purchase a specific number of shares of offered shares, but it is not responsible for the commitment of any other underwriter.
The underwriting agreement provides that ~~each~~the obligations of the ~~underwriters’ several obligations~~underwriters to purchase the shares included in this offering are subject to approval of ~~our offered shares depend on the satisfaction of the conditions contained in the underwriting agreement, including:~~
• ~~the representations and warranties made by us to the underwriters are true and our agreements have been performed;~~
• ~~there is no material adverse change in the financial markets; and~~
• ~~we deliver customary closing documents to the underwriters.~~
legal matters by counsel and to other conditions. The underwriters are ~~committed~~obligated to purchase ~~and pay for~~ all ~~of our shares offered by this prospectus, if any such shares are taken. However, the underwriters are not obligated to take or pay for~~ the shares (other than those covered by the ~~underwriters’~~ over-allotment option described ~~below, unless and until this option is exercised.~~
      ~~There has been no public market for our shares prior to this offering. The public offering price will be determined by negotiation by us and the representatives~~below) if they purchase any of the ~~underwriters. The principal factors to be considered in determining the public offering price include:~~shares.
• ~~the information set forth in this prospectus and otherwise available to the representatives of the underwriters;~~
• ~~the history and the prospects for the industry in which we compete;~~
• ~~the ability of our manager;~~
• ~~our prospects for future earnings, the present state of our development, and our current financial position;~~
• ~~the general condition of the securities markets at the time of this offering; and~~
• ~~the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies.~~
~~Over-Allotment~~Overallotment Option

We have granted to the underwriters an option, exercisable ~~no later than~~for 30 days ~~after~~from the date of ~~the underwriting agreement,~~this prospectus, to purchase up to           an additional ~~15% of offered~~ shares at the public offering price, less the underwriting ~~discount, financial advisory fee and commissions set forth on the cover page of this~~
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~~prospectus. We will be obligated to sell these offered shares to the underwriters to the extent the over-allotment option is exercised.~~
      If any shares are purchased with this option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.discount. The underwriters may exercise ~~this~~the option ~~only to cover~~solely for the purpose of covering over-allotments, ~~made~~if any, in connection with this offering. To the ~~sale~~extent the option is exercised, each underwriter must purchase a number of ~~the~~additional shares ~~offered by this prospectus.~~approximately proportionate to that underwriter’s initial purchase commitment.
Commissions and Expenses
The shares are quoted on the NASDAQ Global Select Market under the symbol “CODI.” The underwriters propose to offer some of the ~~offered~~ shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the shares to dealers at the public offering price less a concession not ~~in excess of~~to exceed $      per share. The underwriters may allow, and ~~the~~ dealers may reallow, a concession not ~~in excess of~~to exceed $      per share on sales to other ~~brokers and~~ dealers. ~~After~~If all of the shares are not sold at the initial offering price, the representatives may change the public offering ~~of the offered shares, the underwriters may change the offering~~ price and the other selling terms.

The following table shows the ~~per share and total~~ underwriting discounts ~~financial advisory fees~~ and commissions that we ~~will~~are to pay to the underwriters ~~and the proceeds we will receive before expenses.~~in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional ~~shares of offered~~ shares.

~~Total Without~~ ~~Total With~~
Per Share ~~Over-Allotment~~ ~~Over-Allotment~~
~~Per Share~~ No Exercise ~~Exercise~~
Full Exercise
Public offering price $    $    $
Underwriting discount ~~payable by us~~
~~Financial advisory fee~~and commissions payable by us
Proceeds before ~~expenses~~public offering costs
We have agreed to pay a financial advisory fee of 0.25% of the gross proceeds of the offering to Ferris, Baker Watts for strategic and other advice in connection with the offering, if any offering is made prior to March 15, 2006.
We estimate that our portion of the total expenses of this offering ~~exclusive of underwriting discounts and commissions,~~ will be approximately $           ~~and are payable by us.~~million.
Directed Share Program

At our request, the underwriters have reserved for sale to our directors, ~~and~~ employees of our manager and others, at the ~~initial~~ public offering price, up to          shares or approximately     % of the shares being offered

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by this prospectus. The sales will be made by ~~Ferris, Baker Watts, Incorporated~~ through a directed share program. ~~The shares sold pursuant to the directed share program will be subject to a 180 day lock-up agreement. We do not know if our directors or~~Other employees of our manager ~~will choose~~or others have also indicated that they intend to purchase ~~all or any~~a portion of the reserved shares, ~~but~~and any purchases they do make will reduce the number of shares available to the general public through this offering. If all of these reserved shares are not purchased, the underwriters will offer the remainder to the general public on the same terms as the other shares offered by this prospectus.

Lock-Up Agreements

We, our officers and directors, CGI, Pharos and the employees of our manager have agreed ~~not to offer, sell, contract to sell or otherwise dispose of, or enter into any transaction~~ that, is designed to, or could reasonably be expected to, result in the disposition of any of the shares of the trust or other securities convertible into or exchangeable or exercisable for shares of the trust for a period of ~~180~~90 days ~~after~~from the date of this prospectus, we and they will not, without the prior written consent of ~~Ferris, Baker Watts, Incorporated. CGI, Pharos, the employees of our manager and our officers and directors have agreed not to offer, sell, contract to sell or otherwise~~Citigroup, dispose of or ~~enter into~~hedge any ~~transaction that is designed to, or could reasonably be expected to result in the disposition of shares~~ of the ~~trust, other than such~~ shares ~~purchased~~or any securities convertible into or exchangeable for the shares owned by each of them. Citigroup in ~~open market transactions after the pricing of this offering, for a period of 180 days after the~~

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~~date of this prospectus without the prior written consent of Ferris, Baker Watts, Incorporated. In addition, each person who purchases shares~~its sole discretion may release any of the ~~trust through the directed share program has agreed not~~securities subject to offer, sell, contract to sell or otherwise dispose of or enter into any transaction that is designed to, or could reasonably be expected to result in the disposition of shares of the trust, other than shares of the trust purchased in open market transactions after the pricing of this offering, for a period of 180 days after the date of this prospectus without the prior written consent of Ferris, Baker Watts, Incorporated. The consent of Ferris, Baker Watts, Incorporated may be giventheselock-up agreements at any time without ~~public~~ notice. However, shares of the trust that are subject to these lock-up agreements may be transferred as a bona fide gift or to a trust for the benefit of any of our officers and directors, any employee of our manager or any participant in the directed share program and/or an immediate family member of such person, provided that the donee or trust agrees in writing to the terms of the lock-up agreement to which such person is bound. With the exception of the underwriters’ over-allotment option, there are no present agreements between the underwriters and us, GCI, Pharos, any employees of our manager, our officers and directors or any participant in the directed share program releasing us or them from these lock-up agreements prior to the expiration of the 180 day period.

Indemnity

We have agreed to indemnify the underwriters and persons who control the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make ~~for these~~because of any of those liabilities.

Stabilization

In connection with this offering, Citigroup on behalf of the underwriters may ~~engage~~purchase and sell shares in ~~stabilizing~~the open market. These transactions ~~over-allotment transactions,~~may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of shares in excess of the number of shares to be purchased by the underwriters in this offering, which creates a syndicate short position. “Covered” short sales are sales of shares made in an amount up to the number of shares represented by the underwriters’ over-allotment option. In determining the source of shares to close out the covered syndicate short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Transactions to close out the covered syndicate short involve either purchases of the shares in the open market after the distribution has been completed or the exercise of the over-allotment option. The underwriters may also make “naked” short sales of shares in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares of in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in this offering. Stabilizing transactions consist of bids for or purchases of shares in the open market while this offering is in progress.

The underwriters also may impose a penalty ~~bids.~~bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when Citigroup repurchases shares originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.


	•	Stabilizing transactions permit bids to purchase offered shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the offered shares while the offering is in progress.

	•	Over-allotment transactions involve sales by the underwriters of offered shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position that may be either a covered short position or a naked short position. In a covered short position, the number of shares of offered shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares of offered shares in the open market.

	•	Syndicate covering transactions involve purchases of offered shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase offered shares through exercise of the over-allotment option. If the underwriters sell more offered shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying offered shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the offered shares in the open market that could adversely affect investors who purchase in the offering.

	•	Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the offered shares originally sold by that syndicate member is purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.

~~216~~

~~These stabilizing transactions, syndicate covering transactions and penalty bids~~Any of these activities may have the effect of ~~raising or maintaining the market price of our offered shares or~~ preventing or retarding a decline in the market price of ~~our offered~~the shares. ~~As a result,~~They may also cause the price of ~~our offered~~the shares to be higher than the price that would otherwise exist in the open market ~~may be higher than it would otherwise be~~ in the absence of these transactions. ~~Neither we nor~~The underwriters may conduct these transactions on the NASDAQ Global Select Market or in theover-the-counter market, or otherwise. If the underwriters ~~makes~~commence any ~~representation or prediction as to the effect that the~~of these transactions, ~~described above~~they may ~~have on the price of our offered shares. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued~~discontinue them at any time.

Passive Market Making

In connection with this offering, some of the underwriters (and selling group members) may engage in passive market making transactions in ~~our offered~~the shares on ~~The Nasdaq National~~the NASDAQ Global Select Market, ~~in accordance with Rule 103~~prior to the pricing and completion of ~~Regulation M under~~ the ~~Securities Act. Rule 103 permits passive market making activity by the participants in this~~ offering. Passive market making ~~may occur before~~consists of displaying bids on the ~~pricing~~NASDAQ Global Select Market no higher than the bid prices of ~~our offering,~~independent market makers and before the commencement of offers or sales of the offered shares. Each passive market maker must comply with applicable volume and price limitations and must be identified as a passive market maker. In general, a passive market maker must display its bidmaking purchases at ~~a price not in excess of the highest independent bid for the security. If all~~prices no higher than those independent bids ~~are lowered below the bid of the passive market maker, however, the bid must then be lowered when purchase limits are exceeded.~~and effected in response to order flow. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive market maker’s

165

average daily trading volume in the ~~offered~~ shares during a specified period and must be discontinued when that limit is reached. ~~The~~Passive market making may cause the price of the shares to be higher than the price that otherwise would exist in the open market in the absence of those transactions. If the underwriters ~~and other dealers are not required to engage in~~commence passive market making ~~and~~transactions, they may ~~end passive market making activities~~discontinue them at any time.

European Economic Area

In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of the shares described in this prospectus may not be made to the public in that relevant member state prior to the publication of a prospectus in relation to the shares that has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus Directive, except that, with effect from and including the relevant implementation date, an offer of securities may be offered to the public in that relevant member state at any time:


	•	to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or

	•	to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts or

	•	in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the Prospectus Directive.

Each purchaser of the shares described in this prospectus located within a relevant member state will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of Article 2(1)(e) of the Prospectus Directive.

For purposes of this provision, the expression an “offer to the public” in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression “Prospectus Directive” means Directive2003/71/EC and includes any relevant implementing measure in each relevant member state.

The seller of the shares has not authorized and do not authorize the making of any offer of the shares through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the seller or the underwriter.

United Kingdom

This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (“Qualified Investors”) that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

166

France

Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or by the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be


	•	released, issued, distributed or caused to be released, issued or distributed to the public in France or

	•	used in connection with any offer for subscription or sale of the shares to the public in France.

Such offers, sales and distributions will be made in France only


	•	to qualified investors (investisseurs qualifiés)and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in, and in accordance with,Article L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the FrenchCode monétaire et financier or

	•	to investment services providers authorized to engage in portfolio management on behalf of third parties or

	•	in a transaction that, in accordance with article L.411-2-II-1º-or-2º-or 3º of the FrenchCode monétaire et financierandarticle 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à l’épargne).

The shares may be resold directly or indirectly, only in compliance withArticles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the FrenchCode monétaire et financier.

No Public Offering Outside the United States

No action has been or will be taken in any jurisdiction (except in the United States) that would permit a public offering of the shares of the trust or the possession, circulation or distribution of this prospectus or any other material relating to us or the shares of the trust in any jurisdiction where action for that purpose is required. Accordingly, the shares of the trust may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the shares of the trust may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.

Purchasers of the shares offered by this prospectus may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price on the cover page of this prospectus.

Our Relationship with the Underwriters

Certain of the underwriters and some of their respective affiliates have performed and may continue to perform financial advisory and investment banking services for us in the ordinary course of their respective businesses, and have received, and may continue to receive, compensation for such services.

The offered shares are being offered by the underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the underwriters and other conditions. The underwriters reserve the right to withdraw, cancel or modify this offer and to reject orders in whole or in part.

Ferris, Baker Watts, Incorporated has performed, is performing and expects to continue to perform financial advisory and investment banking services for us in the ordinary course of its respective business, and may have received, and may continue to receive, compensation for those services and reimbursement for their expenses in relation to the performance of those services.

Electronic Availability of Prospectus

A prospectus in electronic format may be made available on the website maintained by one or more of the underwriters. The representatives may agree to allocate a number of shares to underwriters for sale to

167

~~217~~

their online brokerage account holders. The representatives will allocate shares to underwriters that may make Internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders.

LEGAL MATTERS

The validity of the securities offered in this prospectus is being passed upon for us by ~~Sutherland Asbill~~Richards, Layton & ~~Brennan LLP, Washington, D.C.~~Finger, P.A., Wilmington, Delaware; Squire, Sanders & Dempsey L.L.P., Cincinnati, Ohio will pass upon certain other matters, including with respect to federal income tax matters addressed herein. Attorneys at Squire, Sanders & Dempsey L.L.P. beneficially own an aggregate of approximately 44,500 shares of the trust. Certain legal matters will be passed upon on behalf of the underwriters by Alston & Bird LLP, ~~Atlanta, Georgia.~~Washington, D.C.
~~218~~
EXPERTS

The consolidated financial statements of Compass Diversified Trust at ~~November 30,~~December 31, 2006 and 2005, and for the period from November 18, 2005 (inception) to ~~November 30, 2005~~December 31, 2006 appearing in this prospectus and registration statement have been audited by Grant Thornton LLP, independent registered public accountants, as set forth in their reports thereon appearing elsewhere herein and are included herein in reliance upon such reports given the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of ~~CBS Personnel Holdings, Inc. (formerly Compass CS, Inc.~~Aeroglide Corporation and ~~Subsidiaries)~~Subsidiary at December 31, ~~2004~~2006 and ~~2003,~~2005, and for each of the three years in the period ending December 31, ~~2004,~~2006, appearing in this prospectus and registration statement have been audited by Grant Thornton LLP, independent registered public accountants, as set forth in their reports thereon appearing elsewhere herein and are included herein in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of ~~Crosman Acquisition Corporation~~Halo Branded Solutions, Inc. and Subsidiary at ~~June 30, 2005~~December 31, 2006 and ~~2004 and for the year ended June 30,~~ 2005, and for each of the three years in the period from February 10, 2004 to June 30, 2004 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
      The consolidated financial statements of Crosman Acquisition Corporation for the period from July 1, 2003 to February 9, 2004 and for the year ended June 30, 2003 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
      ~~The consolidated financial statements of Compass AC Holdings, Inc. at December 31, 2004 and 2003 and for the years~~ ending December 31, ~~2004, 2003 and 2002~~2006, appearing in this prospectus and registration statement have been audited by ~~Bauerle and Company P.C.,~~Clifton Gunderson LLP, independent registered public accountants, as set forth in their reports thereon appearing elsewhere herein and are included herein in reliance upon such reports given on the authority of such ~~firms~~firm as experts in accounting and auditing.
The consolidated financial statements of Silvue Technologies Group, Inc. at December 31, 2004 and 2003 and for the years ended December 31, 2004 and 2003 appearing in this prospectus and registration statement have been audited by White Nelson and Co. LLP, independent accountants, as set forth in their reports thereon appearing elsewhere herein and are included herein in reliance upon such reports given the authority of such firms as experts in accounting and auditing.
~~219~~
WHERE YOU CAN FIND ADDITIONAL INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission or SEC under the Securities Exchange Act of 1934, as amended. You may read and copy this information at the following location of the SEC:
Public Reference Room
100 F Street, NE
Washington, D.C. 20549
You may obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. The SEC also maintains an Internet web site that contains reports, proxy and information statements and other information about issuers that file electronically with the SEC. The address of that site iswww.sec.gov.
We have filed with the SEC a registration statement onForm S-1, which includes exhibits, schedules and amendments, under the Securities Act with respect to this offering of our securities. Although this prospectus, which forms a part of the registration statement, contains all material information included in the registration statement, parts of the registration statement have been omitted as permitted by rules and regulations of the SEC. We refer you to the registration statement and its exhibits for further information about us, our securities and this offering. The registration statement and its exhibits can be inspected and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549-1004. The public may obtain information about the operation of the public reference room by calling the SEC at 1-800-SEC-0300. In addition, the SEC maintains a web site at http://www.sec.gov that contains the Form S-1 and other reports, proxy and information statements and information regarding issuers that file electronically with the SEC.
      Following this offering, we will be required to file current reports, quarterly reports, annual reports, proxy statements and other information with the SEC. You may read and copy these reports, proxy statements and other information at the SEC’s public reference room or through its Internet web site.

168
~~220~~
INDEX TO FINANCIAL STATEMENTS

Page
Number(s)

Compass ~~Group~~ Diversified Trust
Report of ~~independent registered public accounting firm~~Independent Registered Public Accounting Firm ~~F-4~~F-2
Consolidated ~~balance sheet~~Balance Sheets as of ~~November 30,~~December 31, 2005 and December 31, 2006 ~~F-5~~F-3
Consolidated ~~statement~~Statements of ~~operations~~Operations for the ~~period~~Period November 18 2005 (date of inception) through ~~November 30,~~December 31, 2005 and for the Year Ended December 31, 2006 ~~F-6~~F-4
Condensed Consolidated Statement of Stockholder’s Equity for the Year Ended December 31, 2006 F-5
Condensed Consolidated ~~statement~~Statement of ~~stockholder’s equity~~Cash Flows for the ~~period~~Period November 18, 2005 (date of inception) through ~~November 30,~~December 31, 2005 and for the Year Ended December 31, 2006 ~~F-7~~F-6
~~Consolidated statement of cash flows for the period November 18, 2005 (date of inception) through November 30, 2005~~ ~~F-8~~
Notes to ~~financial statements~~Consolidated Financial Statements ~~F-9~~
~~CBS Personnel Holdings, Inc.~~
~~Reports of independent registered public accounting firm~~ ~~F-12~~
~~Consolidated balance sheets as of December 31, 2004 and 2003~~ ~~F-13~~
~~Consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2004, 2003 and 2002~~ ~~F-14~~
~~Consolidated statements of shareholders’ equity for the years ended December 31, 2004, 2003 and 2002~~ ~~F-15~~
~~Consolidated statements of cash flows for the years ended December 31, 2004, 2003 and 2002~~ ~~F-16~~
~~Notes to consolidated financial statements~~ ~~F-17~~
~~Consolidated balance sheet as of September 30, 2005 (unaudited)~~ ~~F-33~~
~~Consolidated statements of operations and comprehensive income for the nine months ended September 30, 2005 and 2004 (unaudited)~~ ~~F-34~~
~~Consolidated statements of stockholders’ equity for the nine months ended September 30, 2005 (unaudited)~~ ~~F-35~~
~~Consolidated statements of cash flows for the nine months ended September 30, 2005 and 2004 (unaudited)~~ ~~F-36~~
~~Notes to consolidated financial statements~~ ~~F-37~~
~~Crosman Acquisition Corporation~~
~~Reports of independent auditors~~ ~~F-42~~
~~Consolidated balance sheets as of June 30, 2005 and 2004~~ ~~F-44~~
~~Consolidated statements of income for the year ended June 30, 2005, for the seven month period ended February 9, 2004, for the five month period ended June 30, 2004 and for the year ended 2003~~ ~~F-45~~
Consolidated statements of shareholders’ equity for the year ended June 30, 2005 for the seven month period ended February 9, 2004, for the five month period ended June 30, 2004 and for the year ended 2003 ~~F-46~~
~~Consolidated statements of cash flows for the year ended June 30, 2005, for the seven month period ended February 9, 2004, for the five month period ended June 30, 2004 and for the year ended 2003~~ ~~F-47~~
~~Notes to consolidated financial statements~~ ~~F-48~~
~~Consolidated balance sheet as of October 2, 2005 (unaudited)~~ ~~F-65~~
~~Consolidated statements of income for the three month periods ended October 2, 2005 (unaudited) and September 26, 2004 (unaudited)~~ ~~F-66~~
~~F-1~~
~~Page~~F-7
~~Number(s)~~
~~Consolidated statements of shareholders’ equity for the three month period ended October 2, 2005 (unaudited)~~ ~~F-67~~
~~Consolidated statements of cash flows for the three month periods ended October 2, 2005 (unaudited) and September 26, 2004 (unaudited)~~ ~~F-68~~
~~Notes to consolidated financial statements~~ ~~F-69~~
~~Compass AC Holdings, Inc.~~

~~Independent auditors’ report~~ ~~F-83~~
~~Combined balance sheets as of December 31, 2004~~
Aeroglide Corporation and ~~2003~~
~~F-84~~
~~Combined statements of operations for the years ended December 31, 2004, 2003 and 2002~~ ~~F-85~~
~~Combined statements of stockholders’ equity and members’ capital for the years ended December 31, 2004, 2003 and 2002~~ ~~F-86~~
~~Combined statements of cash flows for the years ended December 31, 2004, 2003 and 2002~~ ~~F-87~~
~~Notes to combined financial statements~~ ~~F-88~~
~~Consolidated balance sheets as of September 30, 2005 (unaudited)~~ ~~F-95~~
~~Consolidated statements of operations for the nine months ended September 30, 2005 and 2004 (unaudited)~~ ~~F-96~~
~~Consolidated statements of cash flows for the nine months ended September 30, 2005 and 2004 (unaudited)~~ ~~F-97~~
~~Notes to consolidated financial statements~~ ~~F-98~~
~~Silvue Technologies Group, Inc.~~Subsidiary

~~Independent auditors’ report~~ ~~F-104~~
~~Consolidated balance sheets as of December 31, 2004 and 2003~~ ~~F-105~~
~~Consolidated statements of operations and comprehensive income for the years ended December 31, 2004 and 2003~~ ~~F-106~~
~~Consolidated statements of stockholders’ equity for the years ended December 31, 2004 and 2003~~ ~~F-107~~
~~Consolidated statements of cash flows for the years ended December 31, 2004 and 2003~~ ~~F-108~~
~~Notes to consolidated financial statements~~ ~~F-110~~
~~Consolidated balance sheets as of September 30, 2005 (unaudited)~~ ~~F-123~~
~~Consolidated statements of operations and comprehensive income for the nine months ended September 30, 2005 and 2004 (unaudited)~~ ~~F-124~~
~~Consolidated statements of stockholders’ equity for the nine months ended September 30, 2005 and 2004 (unaudited)~~ ~~F-125~~
~~Consolidated statements of cash flows for the nine months ended September 30, 2005 and 2004 (unaudited)~~ ~~F-126~~
~~Notes to consolidated financial statements~~ ~~F-127~~
~~F-2~~
~~Compass Diversified Trust~~
~~Index to Consolidated Financial Statement~~
~~Financial Statements~~
~~Page(s)~~

Report of ~~independent registered public accounting firm~~Independent Certified Public Accounting Firm ~~F-4~~F-30
Consolidated ~~balance sheet~~Balance Sheets as of ~~November 30, 2005.~~December 31, 2006 and 2005 ~~F-5~~F-31
Consolidated ~~statement~~Statements of ~~operations~~Operations and Comprehensive Income for the ~~period November 18,~~Years Ended December 31, 2006, 2005, ~~(date of inception) through November 30, 2005~~and 2004 ~~F-6~~F-32
Consolidated ~~statement~~Statements of ~~stockholders’ equity~~Shareholders’ Equity for the ~~period November 18,~~Years Ended December 31, 2006, 2005, ~~(date of inception) through November 30, 2005.~~and 2004 ~~F-7~~F-33
Consolidated ~~statement~~Statements of ~~cash flows~~Cash Flows for the ~~period November 18,~~Years Ended December 31, 2006, 2005 ~~(date of inception) through November 30, 2005.~~and 2004 ~~F-8~~F-34
Notes to ~~financial statements~~Consolidated Financial Statements ~~F-9-F-10~~F-35
Halo Branded Solutions, Inc. and Subsidiary
Independent Auditor’s Report F-44
Consolidated Balance Sheets as of December 31, 2006 and 2005 F-45
Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004 F-46
Consolidated Statement of Stockholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004 F-47
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004 F-48
Notes to Consolidated and Combined Financial Statements F-49

F-1
~~F-3~~
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and

Shareholders of Compass Diversified Trust

We have audited the accompanying consolidated balance sheet of Compass Diversified Trust (a Delaware corporation) as of ~~November 30,~~December 31, 2006 and 2005, and the related consolidated statement of operations, stockholders’ equity, and cash flows for the year ended December 31, 2006 and for the period from inception (November 18, 2005) to ~~November 30,~~December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our ~~audit.~~audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Compass Diversified Trust as of ~~November 30,~~December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for the year ended December 31, 2006 and for the period from inception (November 18, 2005) to ~~November 30,~~December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule II is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ Grant Thornton LLP

New York, New York
March 9, 2007
~~December 12, 2005~~

F-2
~~F-4~~
Compass Diversified Trust
Consolidated Balance ~~Sheet~~
~~November 30, 2005~~Sheets

December 31,
2006 2005
(In thousands)

ASSETS
Current assets:
Cash and cash equivalents $ 7,006 $ 100
Accounts receivable, less allowances of $3,327 at December 31, 2006 74,899 —
Inventories 4,756 —
Prepaid expenses and other current assets 7,059 3,308
Current assets of discontinued operations 46,636 —

Total current assets 140,356 3,408
Property, plant and equipment, net 10,858 —
Goodwill 159,151 —
Intangible assets, net 128,890 —
Deferred debt issuance costs, less accumulated amortization of $114 at December 31, 2006 5,190 —
Other non-current assets 15,894 —
Assets of discontinued operations 65,258 —

Total assets
$ 525,597 $ 3,408

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 14,314 $ —
Accrued expenses 38,586 1
Due to related party 469 3,308
Revolving credit facility 87,604 —
Current portion of supplemental put obligation 7,880 —
Current liabilities of discontinued operations 14,019 —

Total current liabilities 162,872 3,309
Supplemental put obligation 14,576 —
Deferred income taxes 41,337 —
Other non-current liabilities 17,336 —
Non-current liabilities of discontinued operations 6,634 —

Total liabilities
242,755 3,309
Minority interests 27,131 100
Stockholders’ equity (deficit)

Trust shares, no par value, 500,000 authorized; 20,450 shares issued and outstanding 274,961 —
Accumulated earnings (deficit) (19,250 ) (1 )

Total stockholders’ equity (deficit) 255,711 (1 )

Total liabilities and stockholders’ equity (deficit)
$ 525,597 $ 3,408

Assets

Current assets:
Cash $ 100,000
Deferred public offering costs 2,526,642

Total assets $ 2,626,642

Liabilities and Stockholders’ Equity

Current liabilities:
Accrued expenses $ 1,000
Due to related party 2,526,642

Total current liabilities 2,527,642

Stockholders’ Equity

Member interest 100,000
Accumulated deficit (1,000 )

Total stockholders’ equity 99,000

Total liabilities and stockholders’ equity $ 2,626,642

See notes to consolidated financial statements.

F-3
~~F-5~~
Compass Diversified Trust
Consolidated ~~Statement~~Statements of Operations

Year Ended December 31,
2006 2005
(In thousands, except per share data)

Net sales $ 410,873 $      —
Cost of sales 311,641 —

Gross profit
99,232 —
Operating expenses:
Staffing expense 34,345 —
Selling, general and administrative expenses 36,732 1
Supplemental put expense 22,456 —
Fees to Manager 4,376 —
Research and development expense 1,806 —
Amortization expense 6,774 —

Operating loss
(7,257 ) (1 )
Other income (expense):
Interest income 807 —
Interest expense (6,130 ) —
Amortization of debt issuance costs (779 ) —
Loss on debt extinguishment (8,275 ) —
Other income, net 541 —

Loss from continuing operations before income taxes and minority interests
(21,093 ) (1 )
Provision for income taxes 5,298 —
Minority interest 1,245 —

Loss from continuing operations
(27,636 ) (1 )
Income from discontinued operations, net of income tax 8,387 —

Net loss
$ (19,249 ) $ (1 )

Basic and fully diluted net loss per share from continuing operations $ (2.18 ) $ —
Basic and fully diluted income per share from discontinued operations 0.66 —

Basic and fully diluted net loss per share $ (1.52 ) $ —

Weighted average number of shares of Trust stock outstanding — basic and fully diluted 12,686 1

Cash dividends paid per share $ 0.3952 $ —

November 18, 2005
(Date of Inception)
Through
November 30, 2005

Formation and operating costs $ 1,000

Net loss for the period $ (1,000 )

See notes to consolidated financial statements.

F-4
~~F-6~~
Compass Diversified Trust
Condensed Consolidated Statement of Stockholders’ Equity

Total

Number of
Accumulated
Stockholders’

Shares Amount Deficit Equity
(In thousands)

Balance — December 31, 2005
— $ — $ (1 ) $ (1 )
Issuance of Trust shares, net of offering costs 19,500 269,816 — 269,816
Issuance of Trust shares — Anodyne acquisition 950 13,100 — 13,100
Dividends paid — (7,955 ) — (7,955 )
Net loss — — (19,249 ) (19,249 )

Balance — December 31, 2006
20,450 $ 274,961 $ (19,250 ) $ 255,711

Member Accumulated
Interest Deficit Total

Balance — November 18, 2005 (date of inception)

Initial capitalization of LLC $ 100,000 $ 100,000
Net loss $ (1,000 ) (1,000 )

Balance — November 30, 2005
$ 100,000 $ (1,000 ) $ 99,000

See notes to consolidated financial statements.

F-5
~~F-7~~

Compass Diversified Trust

Condensed Consolidated ~~Statement~~Statements of Cash Flows

Year Ended December 31,
2006 2005
(In thousands)

Cash flows from operating activities:

Net loss $ (19,249 ) $ (1 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of property and equipment 2,494 —
Amortization expense 7,796 —
Supplemental put expense 22,456 —
Loss on debt extinguishment 8,275 —
Minority interests 2,950 —
Loan forgiveness accrual 2,760 —
Deferred taxes (2,281 ) —
In-process research and development expense 1,120 —
Other (450 ) —
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable (7,867 ) —
Increase in inventories (6,314 ) —
Increase in prepaid expenses and other current assets (72 ) —
Increase in accounts payable and accrued expenses 8,555 1
Decrease in due to related party (1,308 ) —
Increase in other liabilities 2,251 —
Other (553 ) —

Net cash provided by operating activities 20,563 —

Cash flows from investing activities:

Acquisition of businesses, net of cash acquired (356,464 ) —
Purchases of property and equipment (5,822 ) —

Net cash used in investing activities (362,286 ) —

Cash flows from financing activities:

Proceeds from the issuance of debt 85,004 —
Proceeds from the issuance of Trust shares, net 284,969 100
Debt issuance costs (11,560 ) —
Distributions paid (7,955 ) —
Other 615 —

Net cash provided by financing activities 351,073 100

Net increase in cash and cash equivalents 9,350 100
Foreign currency adjustment 260 —
Cash and cash equivalents —beginning of period
100 —

Cash and cash equivalents —end of period
$ 9,710 $ 100

Cash reflected in discontinued operations at December 31, 2006 $ 2,704 $ —

November 18, 2005
(Date of Inception)
Through
November 30, 2005

Cash flows from operating activities:

Net loss $ (1,000 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Changes in:
Accrued expenses 1,000

Net cash provided by operating activities 0

Cash flows from financing activities:

Issuance of trust shares 100,000

Net cash provided by financing activities 100,000

Net increase in cash and cash equivalents
100,000

Cash and cash equivalents — beginning of period 0

Cash and cash equivalents — end of period
$ 100,000

Supplemental Disclosure of Non-Cash Activities:

Deferred public offering costs payable to a related party $ 2,526,642

See notes to consolidated financial ~~statements.~~statements

F-6

~~F-8~~

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements
~~November 30, 2005~~

December 31, 2006

Note A — Organization and Business Operations

Compass Diversified Trust, a Delaware statutory trust (the “Trust”), was incorporated in Delaware on November 18, 2005. Compass Group Diversified Holdings, LLC, ~~(the “Company”),~~ a Delaware limited liability ~~company~~Company (the “Company”), was also formed on November 18, 2005. Compass Group Management ~~(the~~LLC, a Delaware limited liability Company (“CGM” or the “Manager”) is, was the sole ~~member~~owner of 100% of the ~~LLC interests~~Interests of the Company (as defined in the Company’s operating agreement, dated as of November ~~30, 2005.~~18, 2005, which were subsequently reclassified as the “Allocation Interests” pursuant to the Company’s amended and restated operating agreement, dated as of April 25, 2006 (as amended and restated, the “LLC Agreement”) (see Note O — Related Parties).

The Trust and the Company were formed to acquire and manage a group of small ~~to middle market~~and middle-market businesses ~~that are~~ headquartered in the United States. ~~The Trust has neither engaged in any operations nor generated any revenue to date.~~ In accordance with the ~~Trust Agreement,~~amended and restated trust agreement, dated as of April 25, 2006 (the “Trust Agreement”), the Trust ~~will be the~~is sole ~~member~~owner of 100% of the Trust Interests (as defined in the LLC ~~interests~~Agreement) of the Company and, pursuant to the LLC Agreement, the Company ~~will have~~has, outstanding, the identical number of ~~LLC interests~~Trust Interests as the number of outstanding shares of ~~Trust stock. The Company will be~~the Trust. Compass Group Diversified Holdings, LLC, a Delaware limited liability company is the operating entity with a board of directors and other corporate governance responsibilities, ~~consistent with~~similar to that of a Delaware corporation.

On May 16, 2006, the Company completed its initial public offering of 13,500,000 shares of the Trust at an offering price of $15.00 per share (“the IPO”). Total net proceeds from the IPO, after deducting the underwriters’ discounts, commissions and financial advisory fee, were approximately $188.3 million. On May 16, 2006, the Company also completed the private placement of 5,733,333 shares to Compass Group Investments, Inc (“CGI”) for approximately $86.0 million and completed the private placement of 266,667 shares to Pharos I LLC, an entity controlled by Mr. Massoud, the Chief Executive Officer of the Company, and owned by our management team, for approximately $4.0 million. CGI also purchased 666,667 shares for $10.0 million through the IPO.

On May 16, 2006, the Company entered into a Financing Agreement, dated as of May 16, 2006 (the “Prior Financing Agreement”), which was a $225.0 million secured credit facility with Ableco Finance LLC, as collateral and administrative agent. Specifically, the Financing Agreement provided for a $60.0 million revolving line of credit commitment, a $50.0 million term loan and a $115.0 million delayed draw term loan commitment. This agreement was terminated on November 21, 2006 and replaced with a new $250.0 million Revolving Credit Facility (“Revolving Credit Facility”) with an optional $50.0 million increase from a group of lenders (“Lenders”) led by Madison Capital, LLC (“Madison”).

The Company ~~will use~~used the net proceeds of the ~~proposed offering of trust shares (as defined~~IPO, the separate private placements that closed in ~~Note C below) (the “Proposed Offering”)~~conjunction with the IPO, and initial borrowings under the Company’s Financing Agreement to ~~retire the third-party debt of~~make loans to and acquire controlling ~~interest~~interests in each of the following businesses (the “businesses”), which controlling interests were acquired from certain subsidiaries of ~~Compass Group Investments, Inc. (“CGI”):~~CGI and from certain minority owners of each business. The Company paid an aggregate of approximately $139.3 million for the purchase of controlling interests in our initial businesses (see Note C), which include:


	•	a controlling interest in CBS Personnel Holdings, ~~Inc.~~Inc (“CBS Personnel”) was purchased for approximately $54.6 million, representing at the time of purchase approximately 97.6% of the outstanding stock of CBS Personnel on a primary basis and ~~its consolidated subsidiaries,~~approximately 94.4% on a ~~human resources outsourcing firm;~~fully diluted basis, after giving effect to the exercise of vested and in the money options and vested non-contingent warrants;

F-7

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)


	•	a controlling interest in Crosman Acquisition Corporation (“Crosman”) was purchased for approximately $26.1 million representing approximately 75.4% of the outstanding stock of Crosman on a primary basis and 73.8% on a fully diluted basis (See Note O “Subsequent Events”);

	•	~~Crosman Acquisition Corporation and its consolidated subsidiaries,~~ a ~~recreational products company;~~

	•	controlling interest in Compass AC Holdings, Inc.(“Advanced Circuits or ACI”) was purchased for approximately $35.4 million, representing approximately 70.2% of the outstanding stock of Advanced Circuits on a primary and ~~its consolidated subsidiary, an electronic components manufacturing company;~~fully diluted basis; and

	•	a controlling interest in Silvue Technologies Group, Inc. (“Silvue”)was purchased for approximately $23.2 million, representing approximately 73.0% of the outstanding stock of Silvue on a primary and ~~its consolidated subsidiaries, a global hardcoatings company.~~fully diluted basis.

On July 31, 2006, the Company entered into a Stock and Note Purchase Agreement with CGI and Compass Medical Mattresses Partners, LP (the “Seller”), a wholly- owned, indirect subsidiary of CGI, to purchase approximately 47.3% of the outstanding capital stock, on a fully-diluted basis, of Anodyne Medical Device, Inc. (“Anodyne”), which represents approximately 69.8% of the voting power of all Anodyne stock. Pursuant to the same agreement, the Company also acquired from the Seller all of the outstanding debt under Anodyne’s credit facility (the “Original Loans”). On the same date, the Company entered into a Note Purchase and Sale Agreement with CGI and the Seller for the purchase from the Seller of a secured promissory note (the “Promissory Note”) issued by a borrower controlled by Anodyne’s chief executive officer, (see Note O — Related Party Transactions).

The ~~aggregate~~purchase price aggregated approximately $31.1 million for the Anodyne stock, the Original Loans and the Promissory Note, which purchase price was paid by the Company in the form of $17.3 million in cash and 950,000 shares of newly issued shares in the Trust. The shares were valued at $13.1 million or $13.77 per share, the average closing price of the shares on the NASDAQ Global Market for the ten trading days ending on July 27, 2006. Transaction expenses were approximately $0.7 million. The cash consideration was funded through available cash and a drawing on our Prior Financing Agreement of approximately $18.0 million.

Concurrent with the closing of the acquisition of Anodyne, the Company amended Anodyne’s credit facility and made available to Anodyne a $5.0 million secured revolving loan commitment and secured term loans in the amount ~~utilized~~of $8.75 million. The loans to ~~retire the third-party debt of and acquire the controlling~~Anodyne are secured by security interests in all of the ~~businesses from certain subsidiaries~~assets of ~~CGI will be~~Anodyne and the pledge of the equity interests in Anodyne’s subsidiaries.

Discontinued Operations

In October 2006, the Board of Directors approved the divestiture of our recreational products company, Crosman. We subsequently signed an Asset Purchase Agreement providing for the sale of Crosman for approximately ~~$312.8~~$143.0 million. The ~~Company will engage Compass Group Management LLC~~purchase price is subject to ~~manage its~~adjustment based on a determination of adjusted EBITDA (as defined in the Asset Purchase Agreement) and ~~the Trust’s day-to-day operations and affairs.~~working capital at closing. The sale closed in January 2007. See Note P, “Subsequent Events”.

To date the activities of the Trust and the Company have been incidental to its organization and the proposed acquisition and the proposed offering of Trust shares (“IPO”). Until the consummation of the IPO, the Company is dependent on financial support from CGI, who have agreed to provide such required financial support.

Note B — Summary of Significant Accounting Policies

~~[1]~~ Basis of Presentation

The results of operations for the year ended December 31, 2006 represents the results of operations of the initial businesses from May 16, 2006 to December 31, 2006 and the results of operations of Anodyne from August 1, 2006 to December 31, 2006, and therefore are not indicative of the results to be expected for the full year.

F-8

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Principles of Consolidation

The consolidated financial statements include the accounts of ~~Compass Diversified~~the Trust and ~~Compass Group Diversified Holdings LLC.~~the Company, as well as the businesses acquired as of May 16, 2006, and Anodyne as of August 1, 2006, all of which are controlled by the Company. All ~~intercompany~~material inter-company balances and transactions have been eliminated in consolidation. The operations of the initial businesses are included in the Company’s consolidated results from May 16, 2006, and Anodyne from August 1, 2006, the dates of acquisition. On January 5, 2007, the Company sold its interest in Crosman. In accordance with SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets”, Crosman is reflected as discontinued operations in the Company’s results of operations and statements of financial position.

The acquisition of businesses that the Company ~~will own~~owns or ~~control~~controls more than a 50% share of the voting ~~shares will be~~interest are accounted for under the purchase method of accounting. The amount assigned to the identifiable assets acquired and the liabilities assumed ~~will be~~is based on the estimated fair values as of the date of acquisition, with the remainder, if any, is recorded as goodwill. ~~The operations of such businesses will be consolidated from the date of acquisition.~~

~~F-9~~

~~Compass Diversified Trust~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~[2] Cash and cash equivalents:~~Use of estimates

~~The Trust considers all highly liquid investments with original maturities of three months or less to be cash equivalents.~~

~~[3] Due to related party:~~

Pursuant to a Management Services Agreement, the Trust has agreed to reimburse the Manager or affiliates of the Manager for the cost and expenses incurred or to be incurred prior to and in connection with the closing of the offering. The offering costs incurred as of November 30, 2005 are reflected on the Balance Sheet as deferred offering costs with a corresponding liability for the obligation to the Manager recorded as due to related party. Should the equity offering not be consummated in future periods, the Company will write off the related deferred cost and recognize a charge; such charge could be material.

~~[4] Use of estimates:~~

The preparation of financial statements in conformity with generally accepted accounting principles generally ~~accepted in the United States of America~~ requires management to make estimates and assumptions that ~~effect~~affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

~~[5] Income taxes:~~Revenue recognition

In accordance with Staff Accounting Bulletin 104,Revenue Recognition, the Company recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sellers price to the buyer is fixed and determinable, and collection is reasonably assured. Shipping and handling costs are charged to operations when incurred and are classified as a component of cost of sales.

CBS Personnel

Revenue from temporary staffing services is recognized at the time services are provided by the Company employees and is reported based on gross billings to customers. Revenue from employee leasing services is recorded at the time services are provided and is reported on a net basis (gross billings to clients less worksite employee salaries and payroll-related taxes). Revenue is recognized for permanent placement services at the employee start date. Permanent placement services are fully guaranteed to the satisfaction of the customer for a specified period.

Advanced Circuits

Revenue is recognized upon shipment of product to the customer, net of sales returns and allowances. Appropriate reserves are established for anticipated returns and allowances based on past experience. Revenue is typically recorded at F.O.B. shipping point but for sales of certain custom products, revenue is recognized upon completion and customer acceptance.

Silvue

F-9

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

For certain UK customers, revenue is recognized after receipt by the customer as the terms are F.O.B. destination.

Anodyne

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Allowance for Doubtful Accounts

The Company uses estimates to determine the amount of the allowance for doubtful accounts in order to reduce accounts receivable to their net realizable value. The Company estimates the amount of the required allowance by reviewing the status of past-due receivables and analyzing historical bad debt trends. Accounts receivable balances are not collateralized.

Inventories

Inventories consist of manufactured goods and purchased goods acquired for resale. Manufactured inventory costs include raw materials, direct and indirect labor and factory overhead. Inventories are stated at lower of cost or market and are determined using thefirst-in, first-out method.

Property, plant and equipment

Property, plant and equipment, is recorded at cost. The cost of major additions or betterments is capitalized, while maintenance and repairs that do not improve or extend the useful lives of the related assets are expensed as incurred.

Depreciation is provided principally on the straight-line method over estimated useful lives. Leasehold improvements are amortized over the life of the lease or the life of the improvement, whichever is shorter.

The useful lives are as follows:


Machinery and Equipment		3 to 5 years
Office Furniture and Equipment		3 to 7 years
Buildings and Building Improvements		2 to 15 years
Vehicles		2 to 3 years
Leasehold Improvements		Shorter of useful life or lease term

Property, plant and equipment and other long-lived assets are evaluated for impairment when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Upon the occurrence of a triggering event, the asset is reviewed to assess whether the estimated undiscounted cash flows expected from the use of the asset plus residual value from the ultimate disposal exceeds the carrying value of the asset. If the carrying value exceeds the estimated recoverable amounts, the asset is written down to the estimated discounted present value of the expected future cash flows from using the asset.

F-10

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Goodwill and intangible assets

Goodwill represents the difference between purchase cost and the fair value of net assets acquired in business acquisitions. Goodwill is tested for impairment at least annually and impairments, if any, are charged directly to earnings. Assumptions used in the testing include, but are not limited to the use of an appropriate discount rate and estimated future cash flows. In estimating cash flows current market information as well as historical factors are considered. Intangible assets, which include customer relations, trade names, technology and licensing agreements that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable.

Deferred charges

Deferred charges representing the costs associated with the issuance of debt instruments are amortized over the life of the related debt instrument.

Insurance reserves

Insurance reserves represent estimated costs of self insurance associated with workers’ compensation at the Company’s subsidiary CBS Personnel. The reserves for workers’ compensation are based upon actuarial assumptions of individual case estimates and incurred but not reported (“IBNR”) losses. At December 31, 2006, the current portion of these reserves are included as a component of accounts payable and accrued liabilities and the non-current portion is included as a component of other non-current liabilities.

Supplemental Put

As distinct from its role as Manager of the Company, CGM is also the owner of 100% of the allocation interests in the Company. Concurrent with the IPO, CGM and the Company entered into a Supplemental Put Agreement, which may require the Company to acquire these allocation interests upon termination of the Management Services Agreement. Essentially, the put rights granted to CGM require the Company to acquire CGM’s allocation interests in the Company at a price based on a percentage of the increase in fair value in the Company’s businesses over its basis in those businesses. Each fiscal quarter the Company estimates the fair value of its businesses for the purpose of determining its potential liability associated with the Supplemental Put Agreement. Any change in the potential liability is accrued currently as a non-cash adjustment to earnings. For the year ended December 31, 2006, the Company recognized approximately $22.5 million in non-cash expense related to the Supplemental Put Agreement. Approximately $7.9 million of this liability is reflected in current liabilities as the Company anticipates paying CGM this amount in the first quarter of fiscal 2007.

Income taxes

Deferred income taxes are calculated under the liability method. Deferred income taxes are provided for the differences between the basis of assets and liabilities for financial reporting and income tax ~~purposes.~~purposes at the enacted tax rates. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Trust recorded a deferred income tax asset for the tax effect of net operating loss carryforwards and temporary differences, aggregating approximately $340. In recognition of the uncertainty regarding the ultimate amount of income tax benefits to be derived, the Trust has recorded a full valuation allowance at November 30, 2005.

The effective tax rate differs from the statutory rate of 34%, principally due to the pass through effect of passing the expenses of Compass Group Diversified Holdings, LLC onto the shareholders of the Trust and for state and foreign taxes.

F-11

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Earnings per share

Basic and diluted income per share is computed on a weighted average basis from the period January 1, 2006 through December 31, 2006. The weighted average number of Trust shares outstanding was computed based on 100 shares of allocation interests outstanding for the period January 1, 2006 through December 31, 2006, 19,500,000 Trust shares, for the period from May 16, 2006 through December 31, 2006 and 950,000 additional Trust shares (issued in connection with the acquisition of Anodyne) for the period from August 1, 2006 through December 31, 2006. The Company did not have any option plan or other potentially dilutive securities outstanding at December 31, 2006.

Minority Interest

Minority interest represents the portion of a subsidiary’s net income that is owned by minority shareholders. At December 31, 2006, the Company owned approximately 96.1% of the equity of CBS Personnel, 47.3% of the equity of Anodyne, 72.7% of the equity of Silvue and 70.2% of the equity of Advanced Circuits. The Company’s ownership percentage for CBS Personnel and Silvue would be 94.4% and 70.4%; respectively, if at December 31, 2006 all of the reporting outstanding options were exercised. The majority of the options were either non-exercisable or out of the money at December 31, 2006.

Advertising costs

All advertising costs are expensed in operations as incurred. Advertising costs were $2.5 million during the year ended December 31, 2006.

Research and development

Research and development costs are charged to operations when incurred. Research and development expense was approximately $1.8 million for the year ended December 31, 2006 which includes approximately $1.1 million of in-process research and development costs charged to expense in connection with the purchase asset allocation of the Company’s subsidiary, Silvue on May 16, 2006.

Loss on debt extinguishment

Loss on debt extinguishment consists of approximately $2.6 million incurred in prepayment fees and $5.7 million in unamortized debt issuance costs written off all in connection with terminating our Prior Financing Agreement on November 21, 2006.

Employee retirement plans

The Company and each of its subsidiaries sponsor defined contribution retirement plans, such as 401(k) or profit sharing plans. Employee contributions to the plan are subject to regulatory limitations and the specific plan provisions. The Company and its subsidiaries may match these contributions up to levels specified in the plans and may make additional discretionary contributions as determined by management. The total employer contributions to these plans were $0.6 million for the year ended December 31, 2006.

Foreign Currency Translation

The Company’s subsidiary, Silvue has foreign operations. These operations of Silvue’s have been translated into U.S. dollars in accordance with FASB Statement No. 52,“Foreign Currency Translation.” All assets and liabilities of Silvue’s foreign operations have been translated using the exchange rate in effect at the balance sheet date. Statement of operations amounts have been translated using the average exchange rate for the period.

F-12

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Recent accounting pronouncements

On July 13, 2006, the Financial Accounting Standards Board issued Interpretation No. (FIN) 48,“Accounting for Uncertainty in Income Taxes,”which is effective January 1, 2007. The purpose of FIN 48 is to clarify and set forth consistent rules for accounting for uncertain tax positions in accordance with FAS 109,“Accounting for Income Taxes.”The cumulative effect of applying the provisions of this interpretation is required to be reported separately as an adjustment to the opening balance of retained earnings in the year of adoption. The Company is in the process of reviewing and evaluating FIN 48, and therefore the ultimate impact of its adoption is not yet known, however, the Company does not expect the effect of the adoption to be significant.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157,“Fair Value Measurements” (SFAS No. 157). This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. We have not yet determined the impact that the implementation of SFAS No. 157 will have on our results of operations or financial condition. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS No. 158). This standard requires employers to recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income. Additionally, SFAS No. 158 requires employers to measure the funded status of a plan as of the date of its year-end statement of financial position. We are currently evaluating the impact that the implementation of SFAS No. 158 will have on our financial statements. The new reporting requirements and related new footnote disclosure rules of SFAS No. 158 are effective for fiscal years ending after December 15, 2006. The new measurement date requirement applies for fiscal years ending after December 15, 2008. We have determined that this statement is not applicable to the Company.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,“Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (SAB 108). SAB 108 was issued to provide interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying in a current year misstatement. The provisions of SAB 108 were effective for the Company for its December 31, 2006 year-end. The adoption of SAB 108 had no impact on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Liabilities” (SFAS No. 159). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value, and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new guidance is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the potential impact of the adoption of SFAS No. 159 on its financial position and results of operations.

Note C — Acquisition of Businesses

The Company used the proceeds from its initial public offering and private placements to acquire controlling interests in its initial businesses for cash from CGI and minority interest holders. On August 1,

F-13

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

2006, the Company purchased a controlling interest in Anodyne, which manufactures and distributes medical mattresses.

The acquisition of majority interests in all of the Company’s businesses have been accounted for under the purchase method of accounting. The preliminary purchase price allocation was based on estimates of the fair value of the assets acquired and liabilities assumed. The fair values assigned to the acquired assets were developed from information supplied by management and valuations supplied by independent appraisal experts.

Allocation of Purchase Price

The Company’s acquisitions in 2006 have been accounted for under the purchase method of accounting. The results of operations of each of the initial businesses and Anodyne are included in the condensed consolidated financial statements since May 16, 2006 and August 1, 2006, respectively. In accordance with SFAS No. 141 a deferred tax liability, aggregating $31.8 million, was recorded to reflect the net increase in the financial accounting basis of the assets acquired over their related income tax basis. The initial purchase price allocation may be adjusted within one year of the purchase date for changes in estimates of the fair value of assets acquired and liabilities assumed.

As part of the acquisition of the businesses the Company allocated approximately $107.4 million of the purchase price to customer relations in accordance with EITF02-17. “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination.” The Company will amortize the amount allocated to customer relationships over a period ranging from 9 to 16 years. In addition, the Company allocated approximately $38.1 million of the purchase price to trade names and technology. Trade names totaling approximately $28.3 million of the allocation have indefinite lives.

The estimated fair value of assets acquired and liabilities assumed that were accounted for as a business combination relating to the acquisitions of the initial businesses on May 16, 2006 are summarized below:

CBS Personnel Crosman⁽²⁾ ACI Silvue Total
(In thousands)

Assets:

Current assets⁽¹⁾
$ 65,033 $ 34,793 $ 5,737 $ 6,597 $ 112,160
Property, plant and equipment 2,617 9,983 3,158 2,137 17,895
Intangible assets 71,200 19,150 20,700 26,920 137,970
Goodwill 60,073 28,783 59,563 18,034 166,453
Other assets 1,927 3,500 592 517 6,536

Total assets 200,850 96,209 89,750 54,205 441,014

Liabilities:

Current liabilities 34,741 15,442 5,669 6,668 62,520
Other liabilities 108,149 48,944 46,396 21,891 225,380
Minority interests 3,401 5,703 2,259 2,427 13,790

Total liabilities and minority interests 146,291 70,089 54,324 30,986 301,690
Costs of net assets acquired 54,559 26,120 35,426 23,219 139,324
Loans to businesses 73,228 46,477 45,606 14,294 179,605

$ 127,787 $ 72,597 $ 81,032 $ 37,513 $ 318,929

F-14

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)


⁽¹⁾		Includes approximately $8.2 million in cash.

⁽²⁾		See Footnote D “Discontinued Operations”.

The estimated fair value of assets acquired and liabilities assumed, that were accounted for as a business combination relating to the acquisition of Anodyne on August 1, 2006 is summarized below:

Anodyne
(In thousands)

Assets:

Current assets $ 6,347
Property, plant and equipment 1,909
Intangible assets 10,890
Goodwill 21,507
Other assets 581

Total assets 41,234
Liabilities:

Current liabilities 2,991
Other liabilities 12,636
Minority interests 10,593

Total liabilities and minority interests 26,220
Cost of net assets acquired 15,014
Note purchase 5,286
Loans to Anodyne 10,750

$ 31,050

Unaudited Pro Forma Information
The following unaudited pro forma data for the years ended December 31, 2005 and 2006, respectively gives effect to the acquisition of the businesses as described above, as if the acquisitions had been completed as of January 1, 2005 The acquisition of Anodyne has been included in the pro forma data for 2006 only since Anodyne’s operations began in February 2006. The pro forma data gives effect to actual operating results and adjustments to interest expense, amortization and minority interests in the acquired businesses. The information is provided for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transactions had been consummated on the date indicated, nor is it necessarily indicative of future operating results of the consolidated companies, and should not be construed as representative of these results for any future period. In addition, a supplemental put expense was not calculated and made part of the proforma data for 2005.

F-15

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Year ended December 31, 2005

Total
(In thousands, except

per share data)

Net sales $ 602,074
Income from continuing operations before income taxes and minority interests $ 16,691
Net income $ 8,912
Basic and fully diluted income per share $ .44
Year ended December 31, 2006

Total
(In thousands, except

per share data)

Net sales $ 645,680
Loss from continuing operations before income taxes and minority interests $ (13,233 )
Net loss $ (16,639 )
Basic and fully diluted loss per share $ (0.81 )
Note D — Discontinued Operations
On January 5, 2007, the Company sold all of its interest in Crosman, an operating segment for approximately $143.0 million. Closing and other transactions costs totaled approximately $2.4 million. The Company’s share of the net proceeds, after accounting for the redemption of Crosman’s minority holders and the payment of CGM’s profit allocation was approximately $110.0 million. The Company will recognize a gain in fiscal 2007 on the sale of approximately $36 to $37 million. $85.0 million of the net proceeds were used to repay amounts outstanding under the Company’s Revolving Credit Facility. The remaining net proceeds were invested in short term investment securities pending future applications.
The components of discontinued operations of the Crosman operating segment for the period of May 16, 2006 to December 31, 2006, is as follows,(in thousands):

Net sales $ 72,316
Costs and expenses 59,039

Income from discontinued operations 13,277
Other income, net 182

Income from discontinued operations before taxes 13,459
Provision for taxes 3,367
Minority interests 1,705

Net income from discontinued operations⁽¹⁾
$ 8,387

(1) This amount does not include intercompany interest expense incurred totaling approximately $3.2 million.

F-16

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

The following reflects summarized financial information for the Crosman operating segment as of December 31, 2006:

December 31, 2006
(In thousands)

Assets:
Cash $ 2,706
Accounts receivable, net 23,550
Inventory 16,211
Other current assets 4,169

Current assets of discontinued operations 46,636

Property, plant and equipment, net 12,567
Investment in joint venture 3,526
Goodwill and other intangible assets, net 49,165

Non-current assets of discontinued operations 65,258

Total assets of discontinued operations $ 111,894

Liabilities:
Accounts payable $ 7,472
Other current liabilities 6,547

Current liabilities of discontinued operations $ 14,019

Non-current liabilities of discontinued operations $ 6,634

Note E — Business Segment Data
At December 31, 2006, the Company had four reportable operating business segments, which represent three of the initial businesses acquired on May 16, 2006 and Anodyne acquired on August 1, 2006. The Company had no reportable segments as of December 31, 2005. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. The Company’s fifth operating segment, Crosman was sold on January 5, 2007 and is being reported as discontinued operations, in accordance with SFAS 144.
A description of each of the reportable segments and the types of products and services from which each segment derives its revenues is as follows:
• CBS Personnel, a human resources outsourcing firm, is a provider of temporary staffing services in the United States. CBS Personnel serves over 4,000 corporate and small business clients. CBS Personnel also offers employee leasing services, permanent staffing andtemporary-to-permanent placement services.
• ACI, an electronic components manufacturing company, is a provider of prototype and quick-turn printed circuit boards. ACI manufactures and delivers custom printed circuit boards to over 8,000 customers in the United States.
• Silvue, a global hard-coatings company, is a developer and producer of proprietary, high performance liquid coating system used in the eye-ware, aerospace, automotive and industrial markets. Silvue has sales and distribution operations in the United States, Europe and Asia as well as manufacturing operations in the United States and Asia.

F-17

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)


	•	Anodyne, a medical support surfaces company, is a manufacturer of medical support services and patient positioning devices primarily used for the prevention and treatment of pressure wounds experienced by patients with limited or no mobility. Anodyne is headquartered in California and its product is sold primarily in North America.

On February 28, 2007, the Company purchased a majority interest in two additional businesses. (See Note P “Subsequent Events”.)

The tabular information that follows shows data of reportable segments reconciled to amounts reflected in the consolidated financial statements. The Company does not consider the purchase accounting adjustments associated with its purchase of its businesses in assessing the performance of individual reporting units. These adjustments are included as part of the reconciliations of segment amounts to consolidated amounts. The operations of each of the businesses are included in consolidated operating results as of their date of acquisition. There are no inter-segment transactions.

A disaggregation of the Company’s consolidated revenue, which are primarily from sales within the United States, and other financial data for the year ended December 31, 2006 is presented below,(in thousands):

Net sales of business segments

Year Ended

December 31, 2006

CBS Personnel $ 352,421
ACI 30,581
Silvue 15,700
Anodyne 12,171

Total 410,873
Reconciliation of segment revenues to consolidated net sales:
Corporate and other —

Total consolidated net sales $ 410,873

F-18

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Profit of business segments⁽¹⁾

Year Ended

December 31,

2006

CBS Personnel $ 17,079
ACI 7,483
Silvue 4,694
Anodyne (557 )

Total 28,699
Reconciliation of segment profit to consolidated income from continuing operations before income taxes and minority interests:
Interest expense, net (5,323 )
Loss on debt extinguishment (8,275 )
Other income 541
Corporate and other⁽²⁾
(36,735 )

Total consolidated loss from continuing operations before income taxes and minority interests $ (21,093 )

(1) Segment profit represents operating income
(2) Corporate and other consists of charges at the corporate level and purchase accounting adjustments

Accounts

Receivable
Allowances

December 31,
December 31,

2006 2006

CBS Personnel $ 68,133 $ (3,026 )
ACI 3,054 (219 )
Silvue 2,710 (19 )
Anodyne 4,329 (63 )

Total 78,226 (3,327 )
Reconciliation of segments to consolidated amount:
Corporate and other — —

Total 78,226 $ (3,327 )

Allowance for doubtful accounts and other (3,327 )

Total consolidated net accounts receivable $ 74,899

F-19

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Goodwill and identifiable assets of business segments

Depreciation and

Amortization Expense

Goodwill
For the Year Ended

December 31,
Identifiable Assets
December 31,

2006 December 31, 2006⁽³⁾ 2006

CBS Personnel $ 60,569 $ 23,395 $ 1,372
ACI 50,659 24,438 2,040
Silvue 11,255 15,269 690
Anodyne 18,418 21,990 763

Total 140,901 85,092 4,865
Reconciliation of segments to consolidated amount: —
Corporate and other identifiable assets — 206,455 4,379
Goodwill carried at Corporate level 18,250 — —

Total $ 159,151 $ 291,547 $ 9,244

(3) Not including accounts receivable scheduled above
Note F — Inventories
Inventories are stated at the lower of cost or market determined on thefirst-in, first-out method. Cost includes raw materials, direct labor and manufacturing overhead. Market value is based on current replacement cost for raw materials and supplies and on net realizable value for finished goods. Inventory consisted of the following (in thousands):

December 31, 2006

Raw materials and supplies $ 3,663
Finished goods 1,135
Less: obsolescence reserve (42 )

$ 4,756

Note G — Property, plant and equipment
Property, plant and equipment is comprised of the following (in thousands):

December 31, 2006

Machinery and equipment $ 4,489
Office furniture and equipment 5,190
Buildings and building improvements 886
Leasehold improvements 1,873

12,438
Less: Accumulated depreciation (1,580 )

$ 10,858

Depreciation expense was approximately $1.6 million for the year ended December 31, 2006.

F-20

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Note H — Commitments and Contingencies

Leases

The Company leases office facilities, computer equipment and software under operating arrangements. The future minimum rental commitments at December 31, 2006 under operating leases having an initial or remaining non-cancelable term of one year or more are as follows:

(In thousands)

2007 $ 7,080
2008 6,166
2009 4,837
2010 2,871
2011 1,769
Thereafter 5,289

$ 28,012

The Company’s rent expense for the fiscal year ended December 31, 2006 totaled $4.2 million.
In the normal course of business, the Company and its subsidiaries are involved in various claims and legal proceedings. While the ultimate resolution of these matters has yet to be determined, the Company does not believe that their outcome will have a material adverse effect on the Company’s consolidated financial position or results of operations.
Note I — Goodwill and other intangible assets
A reconciliation of the change in the carrying value of goodwill for the period ended December 31, 2006 is as follows(in thousands):

Balance at beginning of year $ —
Acquisition of initial businesses and SES 136,459
Anodyne and Anatomic Concepts, Inc. acquisition 22,692

Balance at December 31, 2006 $ 159,151

Approximately $128.4 million of goodwill is deductible for income tax purposes.
Other intangible assets subject to amortization are comprised of the following at December 31, 2006,(in thousands):

F-21

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Weighted Average

Life

Customer and distributor relations $ 110,876 12
Technology 9,660 11
Licensing agreements and anti-piracy covenants 1,157 5

121,693
Accumulated amortization customer and distributor relations (5,913 )
Accumulated amortization technology (694 )
Accumulated amortization licensing and anti-piracy covenants (166 )

114,920
Trade names, not subject to amortization 13,970

Balance at December 31, 2006 $ 128,890

Estimated charges to amortization expense of intangible assets over the next five years, is as follows,(in thousands):

2007 $ 11,261
2008 11,261
2009 11,136
2010 10,655
2011 10,409

$ 54,722

The Company’s amortization expense for the fiscal year ended December 31, 2006 totaled $6.8 million.
Note J — Debt
On May 16, 2006, the Company entered into a Financing Agreement, dated as of May 16, 2006 (the “Prior Financing Agreement”), which was a $225.0 million secured credit facility with Ableco Finance LLC, as collateral and administrative agent. Specifically, the Financing Agreement provided for a $60.0 million revolving line of credit commitment, a $50.0 million term loan and a $115.0 million delayed draw term loan commitment. This agreement was terminated on November 21, 2006.
On November 21, 2006, the Company obtained a $250.0 million Revolving Credit Facility (“Revolving Credit Facility”) with an optional $50.0 million increase from a group of lenders (“Lenders”) led by Madison Capital, LLC (“Madison”) as Agent for all lenders. The Revolving Credit Facility provides for a revolving line of credit. The Revolving Credit Facility was established under a credit agreement entered into among the Company, Madison and the lenders (the “Credit Agreement”). The initial proceeds of the Revolving Credit Facility were used to repay $89.2 million of existing indebtedness and accrued interest and $2.6 million in prepayment fees under our Prior Financing Agreement which the Company terminated on November 21, 2006. In addition, the company wrote off the balance of its deferred loan fees capitalized in connection with the prior financing agreement loan totaling approximately $5.7 million.
Indebtedness under the Revolving Credit Facility bears interest at the prime rate of interest, plus a spread ranging from 1.5% to 2.5% or at a rate equal to the London Interbank Offer Rate, or LIBOR, plus a spread ranging from 2.50% to 3.50%, depending on the Company’s total debt to EBITDA, as defined, at the time of borrowing. The interest rate will increase by 2.0% above the highest applicable rate during any period when an event of default under the Revolving Credit Facility has occurred and is continuing. In
F-22

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

addition, the Company pays commitment fees ranging between 0.75% and 1.25% per annum on the unused portion of the revolving line of credit. The lenders have agreed to issue letters of credit in an aggregate face amount of up to $50.0 million. The Company pays letter of credit fees at a rate of 3.0% on the aggregate amount of letters of credit outstanding at any of its subsidiaries. Letters of Credit outstanding at December 31, 2006 total approximately $21.0 million. These fees are reflected as a component of interest expense.

The Revolving Credit Facility is secured by a first priority lien on all the assets of the Company, including, but not limited to, the capital stock of the businesses, loan receivables from the Company’s businesses, cash and other assets. The Revolving Credit Facility also requires that the loan agreements between the Company and its businesses be secured by a first priority lien on the assets of the businesses subject to the letters of credit issued by third party lenders on behalf of such businesses.

The Company is subject to certain customary affirmative and restrictive covenants arising under the Revolving Credit Facility, in addition to financial covenants that require the Company:


	•	to maintain a minimum fixed charge coverage ratio of at least 1.5 to 1.0;

	•	to maintain a minimum interest coverage ratio of less than 3.0 to 1.0; and

	•	to maintain a total debt to EBITDA ratio not to exceed 3.0: 1.0.

A breach of any of these covenants will be an event of default under the Revolving Credit Facility. Upon the occurrence of an event of default, the lender will have the right to accelerate the maturity of any indebtedness outstanding under the Revolving Credit Facility and as a result the Company may be prohibited from making any distributions to its shareholders and will be subject to additional restrictions, prohibitions and limitations. As of December 31, 2006, the Company was in compliance with all of the covenants included in the Revolving Credit Agreement.

The Company incurred approximately $5.3 million in fees and costs for the arrangement of the Revolving Credit Facility. These costs were capitalized and are being amortized over the life of the loans.

As of December 31, 2006, the Company had $85.0 million in revolving credit commitments outstanding under the Revolving Credit Facility. On January 5, 2007, the Company paid down all the outstanding commitments under the Revolving Credit Facility with the proceeds from the sale of Crosman (See Note P “Subsequent Events”).

On June 6, 2006, our majority owned subsidiary, Silvue entered into an unsecured working capital credit facility for its operations in Japan with The Chiba Bank Ltd. This credit facility provides Silvue with the ability to borrow up to approximately $3.5 million (400,000,000 yen) for working capital needs. The facility expires in May 2007. Outstanding obligations under this facility bear interest at the rate of 1.875% per annum. As of December 31, 2006, the Company had approximately $2.6 million outstanding under this facility.

Note K — Income taxes

Compass Diversified Trust is classified as a grantor trust for U.S. Federal income tax purposes and is not subject to income taxes. Compass Diversified Holdings LLC is a partnership and is not subject to income taxes.

Each of the Company’s majority owned subsidiaries are subject to Federal and state income taxes.

F-23

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Components of the Company’s income tax expense (benefit) are as follows:

Year Ended

December 31,

2006
(In thousands)

Current taxes:
Federal $ 5,752
State 855
Foreign 665

Total current taxes 7,272

Deferred taxes:
Federal (1,673 )
State (267 )
Foreign (34 )

Total deferred taxes (1,974 )

Total tax expense $ 5,298

The tax effects of temporary difference that have resulted in the creation of deferred tax assets and deferred tax liabilities at December 31, 2006 are as follows:

(In thousands)

Deferred tax assets:
Tax credits $ 1,728
Accounts receivable and allowances 929
Workers’ compensation 6,547
Accrued expenses 2,134
Loan forgiveness 993
Other 1,116

Total deferred tax assets 13,447
Less:
Valuation allowance (1,728 )

Net deferred tax asset $ 11,719

Deferred tax liabilities:
Intangible assets $ (41,328 )
Property and equipment (346 )
Prepaid and other expenses (550 )

Total deferred tax liabilities $ (42,224 )

Total net deferred tax liability $ (30,505 )

At December 31, 2006, the Company recognized approximately $42.2 million in deferred tax liabilities. A significant portion of the balance in deferred tax liabilities reflects temporary differences in the basis of property and equipment and intangible assets related to the Company’s purchase accounting adjustments in connection with the acquisition of the businesses. For financial accounting purposes the Company recognized a significant increase in the fair values of the intangible assets and property and equipment. For

F-24

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

income tax purposes the existing tax basis of the intangible assets and property and equipment is utilized. In order to reflect the increase in the ~~valuation allowance.~~

~~[6] Deferred offering costs:~~financial accounting basis over the existing tax basis, a deferred tax liability was recorded. This liability will decrease in future periods as these temporary differences reverse.

~~Deferred offering costs consist principally of legal and underwriting fees incurred through the balance sheet date that are related~~

A valuation allowance relating to the ~~Proposed Offering and~~realization of foreign tax credits of approximately $1.8 million has been provided at December 31, 2006. A valuation allowance is provided whenever it is more likely than not that some or all of deferred assets recorded may not be realized. At December 31, 2006, the Company believes that a portion of deferred tax assets recorded will not be ~~charged to capital upon the receipt of the capital or charged to expense if not completed.~~

~~Note C — Proposed Offering~~

The Proposed Offering calls for the Trust to offer for public sale shares of the Trust that would raise approximately $250 million of gross proceeds (excluding shares pursuant to the underwriters over-allotment option and $96 million and $4 million of proceeds from the private placements to CGI and Pharos I LLC (an affiliate of the Manager), respectively). Each share of the Trust will represent an undivided beneficial interestrealized in the ~~Trust,~~future.

The reconciliation between the Federal Statutory Rate and ~~each share of~~ the ~~Trust corresponds to one underlying non-management interest in the Company. Unless the Trust~~effective income tax rate is ~~dissolved, it must remain the sole holder of 100% of the Company’s non-management interests, and at all times the Company will have outstanding the identical number of non-management interests~~ as ~~the number of outstanding shares of the Trust. Each outstanding share of the Trust is entitled to one vote on any matter with respect to which the Trust is entitled to vote.~~follows:

~~F-10~~

~~CBS Personnel Holdings, Inc.~~

~~Index to Consolidated Financial Statements~~

~~Financial Statements~~


	~~Page(s)~~2006
	(In thousands)

United States Federal Statutory Rate		(34.0	)%
Foreign and state income taxes (net of Federal benefits)		4.7
Expenses of Compass Group Diversified Holdings, LLC representing a pass through to shareholders		53.7
Loss on foreign debt refinancing not deductible		1.5
Credits and other		(0.8	)

~~Report of independent registered public accounting firm~~Effective income tax rate		~~F-12~~25.1	%
~~Consolidated balance sheets as of December 31, 2004 and 2003~~		~~F-13~~
~~Consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2004, 2003 and 2002~~		~~F-14~~
~~Consolidated statements of shareholders’ equity for the years ended December 31, 2004, 2003 and 2002~~		~~F-15~~
~~Consolidated statements of cash flows for the years ended December 31, 2004, 2003 and 2002~~		~~F-16~~
~~Notes to consolidated financial statements~~		~~F-17-F-31~~

Note L — Stockholder’s equity

The Trust is authorized to issue 500,000,000 Trust shares and the Company is authorized to issue a corresponding number of LLC interests. The Company will at all times have the identical number of LLC interests outstanding as Trust shares. Each Trust share represents an undivided beneficial interest in the Trust, and each Trust share is entitled to one vote per share on any matter with respect to which members of the Company are entitled to vote.

In connection with the purchase of Anodyne on July 31, 2006, the Company issued 950,000 shares of the Trust as part of the payment price. The shares were valued at $13.77 per share for a total of $13.1 million.

On July 18, 2006, the Trust paid a distribution of $0.1327 per share to all holders of record on July 11, 2006. This distribution represented a pro rata distribution for the quarter ended June 30, 2006. On October 19, 2006, the Company paid a distribution of $0.2625 per share to all holders of record as of October 13, 2006 for the quarter ended September 30, 2006.

On January 24, 2007, the Company paid a distribution of $0.30 per share to holders of record as of January 18, 2007.

~~F-11~~
F-25

~~Report~~Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Note M — Unaudited Quarterly Financial Data

2006 Quarter Ended
Mar. 31 Jun. 30 Sep. 30 Dec. 31 Total
(In thousands)

Net sales $ — $ 80,194 $ 159,073 $ 171,606 $ 410,873
Gross profit — $ 18,898 $ 38,158 $ 42,176 $ 99,232
Operating income (loss) — $ 2,101 $ (954 ) $ (8,404 ) $ (7,257 )
Income (loss) from continuing operations — $ 210 $ (7,288 ) $ (20,558 ) $ (27,636 )
Income from discontinued operations, net of taxes $ 1,902 $ 3,404 $ 3,081 $ 8,387
Net income (loss) — $ 2,112 $ (3,884 ) $ (17,477 ) $ (19,249 )
Basic and diluted net income (loss) per share from continuing operations — $ 0.02 $ (0.36 ) $ (1.00 ) $ (2.18 )
Basic and diluted net income per share from discontinued operations — $ 0.19 $ 0.17 $ 0.15 $ 0.66
Basic and diluted net income (loss) per share — $ 0.21 $ (0.19 ) $ (0.85 ) $ (1.52 )
Note N — Supplemental Data
Supplemental Balance Sheet Data (in thousands):

Summary of accrued expenses:
December 31, 2006

Accrued payroll and fringes $ 21,419
Current portion of workers compensation liability 7,664
Income taxes payable 1,680
Accrued interest 941
Other accrued expenses 6,882

$ 38,586

Summary of other non-current liabilities:
December 31, 2006

Workers compensation $ 13,198
Liabilities associated with stock purchase agreements at Advanced Circuits 3,961
Other non-current liabilities 177

$ 17,336

Supplemental Cash Flow Statement Data (in thousands):

Other cash flow data:
December 31, 2006

Interest paid $ 4,686
Taxes paid 7,821
Note O — Related party transactions
The Company has entered into the following agreements with Compass Group Management LLC:
• Management Services Agreement

F-26

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)


	•	LLC Agreement

	•	Supplemental Put Agreement

Management Services Agreement — The Company entered into a Management Services Agreement (“Agreement”) with CGM effective May 16, 2006. The Agreement provides for, among other things, CGM to perform services for the Company in exchange for a management fee paid quarterly and equal to 0.5% of ~~Independent Registered Public Accounting Firm~~

the Company’s adjusted net assets. The Company amended the Agreement on November 8, 2006, to clarify that adjusted net assets are not reduced by non-cash charges associated with the Supplemental Put Agreement, which amendment was unanimously approved by the Compensation Committee and the Board of ~~Directors~~Directors. The management fee is required to be paid prior to the payment of any distributions to shareholders. For the year ended December 31, 2006, the Company incurred the following management fees to CGM, by entity:

Year Ended

December 31,

2006
(In thousands)

CBS Personnel $ 674
ACI 315
Silvue 218
Anodyne 145
Corporate 3,024

Total $ 4,376

Approximately $0.4 million of the management fees incurred were unpaid as of December 31, 2006.
LLC Agreement — As distinguished from its provision of providing management services to the Company, pursuant to the Management Services Agreement, CGM is also an equity holder of the Company’s allocation interests. As such, CGM has the right to distributions pursuant to a profit allocation formula upon the occurrence of certain events. CGM paid $100,000 for the aforementioned allocation interests and ~~Shareholders~~
~~CBS Personnel Holdings, Inc.~~has the right to cause the Company to purchase the allocation interests it owns.

Supplemental Put Agreement — As distinct from its role as Manager of the Company, CGM is also the owner of 100% of the allocation interests in the Company. Concurrent with the IPO, CGM and the Company entered into a Supplemental Put Agreement, which may require the Company to acquire these allocation interests upon termination of the Management Services Agreement. Essentially, the put rights granted to CGM require the Company to acquire CGM’s allocation interests in the Company at a price based on a percentage of the increase in fair value in the Company’s businesses over its basis in those businesses. Each fiscal quarter the Company estimates the fair value of its businesses for the purpose of determining its potential liability associated with the Supplemental Put Agreement. Any change in the potential liability is accrued currently as a non-cash adjustment to earnings. For the year ended December 31, 2006, the Company recognized approximately $22.5 million in non-cash expense related to the Supplemental Put Agreement.
On January 5, 2007, the Company sold its majority owned subsidiary, Crosman (see Note D “Discontinued Operations”). As a result of the sale, the Company is obligated to pay CGM its profit allocation, per the management services agreement. The profit allocation related to Crosman totals approximately $7.9 million. The Company intends to pay CGM its profit allocation in the first fiscal quarter of 2007. This liability is recorded as part of the supplemental put liability.

F-27

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Anodyne Acquisition

On July 31, 2006, the Company acquired from CGI and its wholly-owned, indirect subsidiary, Compass Medical Mattress Partners, LP (the “Seller”) approximately 47.3% of the outstanding capital stock, on a fully-diluted basis, of Anodyne, representing approximately 69.8% of the voting power of all Anodyne stock. Pursuant to the same agreement, the Company also acquired from the Seller all of the Original Loans. On the same date, the Company entered into a Note Purchase and Sale Agreement with CGI and the Seller for the purchase from the Seller of a Promissory Note (“Note”) issued by a borrower controlled by Anodyne’s chief executive officer. The Note is secured by shares of Anodyne stock and guaranteed by Anodyne’s chief executive officer. The Note accrues interest at the rate of 13% per annum and is added to the Note’s principal balance. The balance of the Note plus accrued interest totaled approximately $5.6 million at December 31, 2006. The Note matures in August, 2008. The Company recorded interest income totaling $0.3 million in 2006 related to this note.

CGM acted as an advisor to the Company in the Anodyne transaction for which it received transaction services fees and expense payments totaling approximately $300,000. In addition, CGM acted as an advisor in two acquisitions that were consummated subsequent to December 31, 2006 for which it received transaction fees and expenses. See Note P “Subsequent Events.”

Advanced Circuits

In connection with the acquisition of Advanced Circuits by CGI in September 2005, Advanced Circuits loaned certain officers and members of management of Advanced Circuits $3,409,100 for the purchase of 136,364 shares of Advanced Circuit’s common stock. On January 1, 2006, Advanced Circuits loaned certain officers and members of management of Advanced Circuits $4,834,150 for the purchase of an additional 193,366 shares of Advanced Circuit’s common stock. The notes bear interest at 6% and interest is added to the notes. The notes are due in September 2010 and December 2010 and are subject to mandatory prepayment provisions if certain conditions are met.

Advanced Circuits granted the purchasers of the shares the right to put to Advanced Circuits a sufficient number of shares at the then fair market value of such shares, to cover the tax liability that each purchaser may have. Approximately $790 thousand of compensation expense calculated using the Black Scholes model related to these rights and is reflected in selling and general administrative expenses for the year ended December 31, 2006.

In connection with the issuance of the notes as described above, Advanced Circuits implemented a performance incentive program whereby the notes could either be partially or completely forgiven based upon the achievement of certain pre-defined financial performance targets. The measurement date for determination of any potential loan forgiveness is based on the financial performance of Advanced Circuits for the fiscal year ended December 31, 2010. The Company believes that the achievement of the loan forgiveness is probable and is accruing any potential forgiveness over a service period measured from the issuance of the notes until the actual measurement date of December 31, 2010. During fiscal 2006, the Company accrued approximately $1.6 million for this loan forgiveness. This expense has been classified as a component of general and administrative expense.

Approximately $4.0 million is reflected as a component of other non-current liabilities in the consolidated balance sheets in connection with these two agreements at Advanced Circuits

Cost Reimbursement

The Company reimbursed CGI, which owns 35.9% of the Trust shares, approximately $2.5 million for costs incurred by CGI in connection with the Company’s IPO. In addition, the Company reimbursed its

F-28

Compass Diversified Trust

Notes to Condensed Consolidated Financial Statements — (Continued)

Manager, CGM, approximately $0.7 million, principally for occupancy and staffing costs incurred by CGM on the Company’s behalf during the year ended December 31, 2006.

Note P — Subsequent Events

On January 5, 2007, the Company sold all of its interest in Crosman, an operating segment for approximately $143.0 million. Closing and other transactions costs totaled approximately $2.4 million. The Company’s share of the net proceeds, after accounting for the redemption of Crosman’s minority holders and the payment of CGM’s profit allocation was approximately $110.0 million. The Company will recognize a gain on the sale of approximately $36 to $37 million in fiscal 2007. Approximately $85.0 million of the net proceeds were used to repay amounts outstanding and accrued interest under the Company’s Revolving Credit Facility. The remaining net proceeds were invested in short term investment securities pending future application.

On February 28, 2007, the Company purchased a controlling interest in Aeroglide Corporation (“Aeroglide”). Aeroglide is a leading global designer and manufacturer of industrial drying and cooling equipment. Aeroglide provides specialized thermal processing equipment designed to remove moisture and heat as well as roasting, toasting and baking a variety of processed products. Its machinery includes conveyer driers and coolers, impingement driers, drum driers, rotary driers, toasters, spin cookers and coolers, truck and tray driers and related auxiliary equipment and is used in the production of a variety of human foods, animal and pet feeds and industrial products. Aeroglide utilizes an extensive engineering department to custom engineer each machine for a particular application.

A controlling interest in Aeroglide was purchased for approximately $57 million representing approximately 89% of the outstanding stock.

On February 28, 2007, the Company purchased a controlling interest in Halo Branded Solutions, Inc. (“Halo”). Operating under the brand names of Halo and Lee Wayne, Halo serves as a one-stop shop for over 30,000 customers providing design, sourcing, management and fulfillment services across all categories of its customer promotional product needs in effectively communicating a logo or marketing message to a target audience. Halo has established itself as a leader in the promotional products and marketing industry through its focus on servicing its group of approximately 700 account executives.

A controlling interest in Halo was purchased for approximately $61 million, representing approximately 73.6% of the outstanding equity.

CGM acted as an advisor in these transactions and received $1.2 million in fees.

F-29

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheets of ~~CBS Personnel Holdings, Inc. (the Company)~~Aeroglide Corporation and ~~subsidiaries~~Subsidiary(a North Carolina corporation) as of December 31, ~~2004~~2006 and ~~2003~~2005, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, ~~2004.~~2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the ~~standards~~United States of America as established by the American Institute of Certified Public ~~Company Accounting Oversight Board (United States).~~Accountants. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aeroglide Corporation and Subsidiary as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Raleigh, North Carolina
March 28, 2007

F-30

Aeroglide Corporation and Subsidiary

Consolidated Balance Sheets
December 31, 2006 and 2005

2006 2005
(Amounts in thousands)

ASSETS
Current assets:

Cash and cash equivalents $ 4,539 $ 122
Accounts receivable, net 8,184 7,722
Costs in excess of billings 3,156 292
Inventories, net 2,380 1,329
Prepaid expenses and other 181 572
Deferred tax asset 407 930

Total current assets 18,847 10,967

Property, plant and equipment:

Land and land improvements 283 283
Buildings 2,533 2,686
Machinery and equipment 7,717 7,361

10,533 10,330
Less — Accumulated depreciation (6,090 ) (5,528 )

Total property, plant and equipment 4,443 4,802

Other assets:

Investments 1,163 1,059
Goodwill 7,812 8,074
Other 51 104

Total other assets 9,026 9,237

$ 32,316 $ 25,006

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:

Line of credit $ 0 $ 1,429
Current portion of long-term debt 1,312 1,350
Notes payable 12 12
Accounts payable 3,980 3,347
Customer deposits 6,477 2,481
Accrued liabilities 7,297 3,603

Total current liabilities 19,078 12,222

Noncurrent liabilities:

Long-term debt 4,058 5,355
Accrued compensation 1,520 876
Deferred tax liability 71 71
Other noncurrent liabilities 183 183

Total noncurrent liabilities 5,832 6,485

Commitments and contingencies (Note J)

Shareholders’ equity:

Common stock, no par value; 100,000 shares authorized, 10,000 shares issued and outstanding 0 0
Additional paid-in capital 457 457
Accumulated other comprehensive income 448 344
Retained earnings 6,501 5,498

Total shareholders’ equity 7,406 6,299

$ 32,316 $ 25,006

The accompanying notes are an integral part of these consolidated financial statements.

F-31

Aeroglide Corporation and Subsidiary

Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Years Ended December 31, 2006, 2005 and 2004

2006 2005 2004
(Amounts in thousands)

Sales
$ 48,086 $ 43,930 $ 33,242
Cost of sales
27,699 28,905 22,459

Gross profit 20,387 15,025 10,783
Selling, general and administrative expenses
17,334 12,175 10,906

Income (loss) from operations 3,053 2,850 (123 )
Other expense:

Interest expense (594 ) (531 ) (349 )
Other income (expense), net 25 (297 ) (33 )

Income (loss) before income tax provision
2,484 2,022 (505 )
Income tax provision
(851 ) (154 ) 0

Net income (loss)
1,633 1,868 (505 )
Other comprehensive income — Unrealized gain (loss) on investments
104 26 (5 )

Comprehensive income (loss)
$ 1,737 $ 1,894 $ (510 )

The accompanying notes are an integral part of these consolidated financial statements.

F-32

Aeroglide Corporation and Subsidiary

Consolidated Statements of Shareholders’ Equity
For the Years Ended December 31, 2006, 2005 and 2004

Accumulated

Additional
Other

Common
Paid-In
Comprehensive
Retained

Stock Capital (Loss) Income Earnings Total
(Amounts in thousands)

Balance, December 31, 2003
$ 0 $ 457 $ 323 $ 4,315 $ 5,095
Net loss 0 0 0 (505 ) (505 )
Other comprehensive loss — Unrealized loss on investments 0 0 (5 ) 0 (5 )

Balance, December 31, 2004
0 457 318 3,810 4,585
Net income 0 0 0 1,868 1,868
Dividends 0 0 0 (180 ) (180 )
Other comprehensive income — Unrealized gain on investments 0 0 26 0 26

Balance, December 31, 2005
0 457 344 5,498 6,299
Net income 0 0 0 1,633 1,633
Dividends 0 0 0 (630 ) (630 )
Other comprehensive income — Unrealized gain on investments 0 0 104 0 104

Balance, December 31, 2006
$ 0 $ 457 $ 448 $ 6,501 $ 7,406

The accompanying notes are an integral part of these consolidated financial statements.

F-33

Aeroglide Corporation and Subsidiary

Consolidated Statements of Cash Flows
For the Years Ended December 31, 2006, 2005 and 2004

2006 2005 2004
(Amounts in thousands)

Cash flows from operating activities:

Net income (loss) $ 1,633 $ 1,868 $ (505 )
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation expense 575 547 417
Provision for accounts receivable and inventory reserves 75 10 20
Deferred income tax provision 785 107 0
Gain on sale of fixed assets (22 ) (8 ) (5 )
Deferred compensation expense 644 220 0
Change in current assets and liabilities:
(Increase) decrease in accounts receivable (477 ) (2,743 ) 737
(Increase) decrease in costs in excess of billings (2,864 ) 1,452 (688 )
Increase in inventories (1,111 ) (65 ) (240 )
(Increase) decrease in prepaid expenses 391 (153 ) (245 )
Increase (decrease) in accounts payable and accrued liabilities 8,323 1,361 (584 )
Other, net 53 0 28

Cash provided by (used in) operating activities 8,005 2,596 (1,065 )

Cash flows from investing activities:

Cash paid for acquisition, net of $261 cash acquired 0 0 (5,295 )
Proceeds from sales of investments 0 0 2,000
Purchases of property and equipment (355 ) (499 ) (822 )
Proceeds from sale of property and equipment 161 22 87
Purchases of investments 0 0 (160 )

Cash used in investing activities (194 ) (477 ) (4,190 )

Cash flows from financing activities:

Proceeds from line of credit, net 0 0 846
Payments on line of credit, net (1,429 ) (793 ) 0
Proceeds from issuance of long-term debt 0 0 5,200
Payment of dividends (630 ) (180 ) 0
Principal payments on long-term debt (1,335 ) (1,169 ) (788 )

Cash (used in) provided by financing activities (3,394 ) (2,142 ) 5,258

Net increase (decrease) in cash and cash equivalents
4,417 (23 ) 3
Cash and cash equivalents, beginning of year
122 145 142

Cash and cash equivalents, end of year
$ 4,539 $ 122 $ 145

Supplemental disclosures of cash flow information:

Cash paid during the year for interest $ 594 $ 531 $ 361
Cash paid during the year for income taxes 76 0 0

The accompanying notes are an integral part of these consolidated financial statements.

F-34

Aeroglide Corporation and Subsidiary

Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(Amounts in thousands)
Note A — Nature of Operations and Organization
Aeroglide Corporation (Aeroglide) and Subsidiary (the Company) is a major supplier of process driers and coolers, serving customers globally in the food processing, pet food, chemical, rubber, wood, minerals, beverage, agriculture, tobacco, charcoal, aquaculture and textile industries.
The Company is recognized worldwide as a leader in engineering, design, applications and solutions to process drying and moisture removal. The Company’s products include single- and multiple-pass conveyor driers and coolers for fragile products, rotary driers for more durable products with a high initial moisture content, tower driers for free-flowing materials and grains, and a line of feeders to control product flow to the process.
Note B — Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Aeroglide and its wholly owned subsidiary, National Drying Machinery Company (National). All significant intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
The Company classifies all highly liquid investments with original maturities of three months or less as cash and cash equivalents.
Major Customers and Concentration of Credit Risk
The Company’s products are sold to a broad range of customers for use in commercial operations. In the normal course of business, the Company extends credit to customers and manages its exposure to credit risk through credit approval, advance deposits and monitoring procedures. During 2006 and 2004, there were no customers whose sales were individually significant. During 2005, sales to one customer totaled 12% of total sales. Sales to foreign customers accounted for 49%, 30% and 47% of sales in 2006, 2005 and 2004, respectively. As of December 31, 2006 and 2005, the Company had established an allowance for doubtful accounts of $85 and $70, respectively.
Income Taxes
Effective January 1, 1998, Aeroglide elected S corporation status for income tax purposes. Accordingly, the taxable income and loss of Aeroglide will be included on the individual income tax returns of the shareholders of the Company.
National is a C corporation for income tax purposes. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred income taxes are classified as current or noncurrent, depending on the classification of the assets and liabilities to which they relate. Deferred income tax assets are reduced by a valuation allowance when, in management’s opinion, it is more likely than not that some or all of the deferred income tax asset will not be recognized.

F-35

Aeroglide Corporation and Subsidiary

Notes to Consolidated Financial Statements — (Continued)

Other Comprehensive Income (Loss)

Other comprehensive income (loss) consists of changes in unrealized gains or losses on securities classified asavailable-for-sale. Changes in accumulated other comprehensive income are reflected in the accompanying statements of shareholders’ equity.

Revenue Recognition

The Company enters into long-term contracts with customers to design and build specialized machinery for drying and cooling a wide range of natural and man-made products. Revenue under these long-term sales contracts is recognized using the percentage of completion method prescribed by Statement of PositionNo. 81-1 due to the length of time to manufacture and assemble the equipment. The Company measures revenue based on the ratio of actual labor hours incurred in relation to the total estimated labor hours to be incurred related to the contract. Provision for estimated losses on uncompleted contracts, if any, are made in the period in which losses are determined. Unanticipated changes in job performance, job conditions and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The percentage of completion method of accounting for these contracts most accurately reflects the status of these uncompleted contracts in the Company’s consolidated financial statements. The Company had costs in excess of billings of $3,156 and $292, and billings in excess of costs of $6,477 and $2,481 (included as customer deposits in the accompanying balance sheets) related to its application of thepercentage-of-completion method of revenue recognition as of December 31, 2006 and 2005, respectively.

The Company also sells spare and repair parts to its customers. Revenues on such sales are recognized when the parts are shipped.

Advertising Costs

Advertising costs are included in selling, general and administrative expenses in the accompanying statements of operations and comprehensive income (loss) and include costs of advertising, public relations, trade shows, direct mailings and other activities designed to enhance demand for the Company’s products. Advertising costs were approximately $52 in 2006, $135 in 2005 and $151 in 2004. There were no capitalized advertising costs in the accompanying balance sheets.

Inventories, Net

Inventories include materials, labor and manufacturing overhead and are valued at the lower of cost(first-in, first-out) or market and consist of the following at December 31, 2006 and 2005, respectively:

2006 2005

Raw materials $ 1,213 $ 1,197
Work-in-process 1,257 162
Inventory reserve (90 ) (30 )

$ 2,380 $ 1,329

Property, Plant and Equipment
Property, plant and equipment, including major renewals and improvements, are capitalized and stated at cost. Maintenance and repairs are charged to expense as incurred. Depreciation is provided on straight-line and accelerated depreciation methods. Buildings are depreciated over lives of 15 to 39 years and machinery and equipment are depreciated over lives of 3 to 20 years. Depreciation expense was $575, $547 and $417 in 2006, 2005 and 2004, respectively.

F-36

Aeroglide Corporation and Subsidiary

Notes to Consolidated Financial Statements — (Continued)

The Company evaluates the recoverability of its property and equipment and other long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to such assets or the business to which such long-lived assets relate. No such impairment was recognized for the years ended December 31, 2006, 2005 and 2004.

Goodwill

Goodwill consists of the excess of acquisition cost over the fair value of identifiable net assets acquired. In accordance with SFAS No. 142,“Goodwill and Other Intangible Assets,” the Company reviews its intangible assets for impairment whenever events or circumstances indicate that the carrying amounts of an asset may not be recoverable. Goodwill is reviewed for impairment on an annual basis. If a fair value-based test indicates that goodwill is impaired, an impairment loss is recognized and the asset’s carrying value is reduced. The Company did not recognize an impairment loss in 2006, 2005 or 2004. As indicated in Note I, in 2006 and 2005, the Company reduced the amount assigned to goodwill by $262 and $966, respectively, as a result of a reassessment of the realizability of certain deferred income tax assets acquired in the National acquisition.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, receivables and trade payables are considered to approximate fair value due to the short-term nature of these instruments. The carrying value of the Company’s long-term debt and line of credit are estimated to approximate fair value, as the underlying interest rates are variable.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

In June 2006, Emerging Issues Task Force (EITF)No. 06-03 was issued to address the treatment of taxes collected by various governmental authorities related to revenue transactions. EITF06-3 requires that all companies make an accounting policy decision as to whether such governmental taxes collected on revenue transactions are accounted for on a gross of net basis. For companies that elect to account for these taxes on a gross basis, then disclosure of the amount included in revenues for each period is required. EITF06-3 is effective for periods beginning after December 15, 2006. The Company will adopt this rule effective January 1, 2007, and intends to account for all governmental taxes associated with revenue transactions on a net basis.

On July 13, 2006, the FASB issued Interpretation FIN, No. 48,“Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” (FIN No. 48). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements. It also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions of FIN No. 48 are effective for the Company beginning January 1, 2007. The Company has not yet determined the impact of the recognition and measurement provisions of FIN No. 48 on its existing tax positions. Upon adoption,

F-37

Aeroglide Corporation and Subsidiary

Notes to Consolidated Financial Statements — (Continued)

the cumulative effect of applying the provisions of FIN No. 48, if any, shall be reported as an adjustment to the opening balance of retained earnings.

On September 20, 2006, the FASB issued SFAS No. 157,“Fair Value Measurements” (SFAS No. 157). This new standard provides guidance for using fair value to measure assets and liabilities as required by other accounting standards. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 must be adopted by the Company effective January 1, 2008, although early application is permitted. The Company is currently evaluating the effects of SFAS No. 157 upon adoption; however at this time it does not believe that adoption of this standard will have a material affect on its operating results or consolidated financial position.

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effects of SFAS No. 159 upon adoption; however at this time it does not believe that adoption of this standard will have a material affect on its operating results or consolidated financial position.

Note C — Acquisition

During April 2004, the Company acquired all of the outstanding stock of National. The acquisition was completed for a purchase price of $6,307, including acquisition-related costs of $185. The purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated fair value as summarized in the following table:

Current assets $ 2,824
Other assets 321

Total assets acquired 3,145

Current liabilities 3,831
Noncurrent liabilities 137

Total liabilities assumed 3,968

Net liabilities assumed (823 )
Add — Goodwill 7,130

Purchase price $ 6,307

The acquisition was funded through bank debt of $5,000 and cash received from the sale of a portion of the Company’s investments. Additionally, a $750 purchase price liability was established at the acquisition date related to the settlement of certain outstanding claims. These claims were settled in 2007 and the final payment to the selling shareholders of National was released upon settlement. Goodwill related to this acquisition is not deductible for income tax purposes.
Note D — Investments
The Company’s investments are in marketable securities, have been classified asavailable-for-sale and are recorded at their fair market value. Changes in unrealized gains or losses from the securities are recorded as other comprehensive income, which is a component of shareholders’ equity.

F-38

Aeroglide Corporation and Subsidiary

Notes to Consolidated Financial Statements — (Continued)

2006 2005
Fair
Fair

Market
Unrealized
Market
Unrealized

Cost Value Gain Cost Value Gain

Government bonds $ 550 $ 558 $ 8 $ 550 $ 559 $ 9
Common stock 165 605 440 165 500 335

$ 715 $ 1,163 $ 448 $ 715 $ 1,059 $ 344

Note E — Notes Payable

At December 31, 2006 and 2005, the Company had unsecured demand notes of $12 outstanding to certain related parties. The notes bear interest at an annual rate of 9% payable quarterly.

Note F — Long-term Debt

Long-term debt consisted of the following at December 31, 2006 and 2005:

2006 2005

Bank loan, collateralized by the Company’s business assets, variable rate of prime (8.25% at December 31, 2006) less 1/8%, monthly interest and principal payments totaling $51 are due through July 2008, when the loan is scheduled to be paid in full $ 553 $ 1,094
Industrial Development Revenue Bonds, collateralized by the Company’s land, building, machinery and equipment, principal and interest (variable rate of 4.26%at December 31, 2006), interest paid quarterly and annual principal payments of $75 are due through October 2017
825 900
Annuity payable to a former employee, annual payments of $7 for the remainder of the recipient’s life, discounted at 8.5% for estimated life expectancy of employee 86 86
Term loan, collateralized by the Company’s business assets, used to acquire National, variable rate of prime (8.25%at December 31, 2006) plus 1/8%, monthly interest payments from May 2004 through April 2005, followed by monthly interest and principal payments of $85 through April 2011
3,787 4,468
Promissory note, collateralized by the Company’s business assets, variable rate of prime (8.25%at December 31, 2006) plus .25%, monthly interest and principal payments of $3 from December 2004 through November 2009
119 157

Total debt 5,370 6,705
Less — Current portion (1,312 ) (1,350 )

Long-term debt $ 4,058 $ 5,355

F-39

Aeroglide Corporation and Subsidiary

Notes to Consolidated Financial Statements — (Continued)

The future maturities of the Company’s long-term debt are as follows:

2007 $ 1,312
2008 1,005
2009 977
2010 1016
2011 524
Thereafter 536

$ 5,370

The Company’s Industrial Development Revenue Bonds contain various covenants related to reporting requirements, project uses and certain covenants related to the economic life of the project, as defined in the agreement. The Company’s bank loans contain various covenants related to reporting requirements and financial ratios, as defined in the agreement. During 2007, all debt outstanding as of December 31, 2006, was paid off due to the sale of the Company described in Note L.
The Company also has available letters of credit with a bank totaling $1,772 as of December 31, 2006. These letters expire during 2007 and 2008.
Note G — Line of Credit
The Company has a line of credit with a bank for $2,500. At December 31, 2006, there was no outstanding balance under the line. The purpose of this line of credit is to finance short-term working capital needs. The line bears interest at prime (8.25%at December 31, 2006). Interest payments are due on a monthly basis, and the line of credit has historically been renewed on a monthly basis. If a violation of one or all of the covenants occurs at the unsecured level, and is not cured within 60 days of violation, the line of credit shall be secured by a first priority perfected security interest in the Company’s accounts receivable, inventory and general intangibles.
Note H — Retirement Plan
The Company has established the Aeroglide Retirement Investment Plan, a contributory thrift and profit-sharing plan, to cover all employees who qualify based on length of service. The Company makes a matching contribution to the plan equal to 50% of each employee’s tax-deferred contribution up to 2% of an employee’s pay. In addition, the Company makes a basic contribution to the plan equal to 2% of an employee’s compensation. The Company may designate an additional profit-sharing contribution to the plan.
The total company contributions to the plan were approximately $252, $315 and $253 in 2006, 2005 and 2004, respectively. Employee and employer matching contributions to the plan are funded monthly.
Note I — Income Taxes
Effective January 1, 1998, Aeroglide elected S corporation status for income tax purposes. Accordingly, the taxable income and loss of Aeroglide will be included on the individual income tax returns of the shareholders of the Company.

F-40

Aeroglide Corporation and Subsidiary

Notes to Consolidated Financial Statements — (Continued)

National is a C corporation for income tax purposes. Accordingly, the Company is subject to income taxes and will reflect a provision or benefit for income taxes. Also, deferred tax assets and liabilities are presented below for National.

The components of income tax expense for the years ended December 31, 2006, 2005 and 2004, are as follows:

2006 2005 2004

Current:
Federal $ 40 $ 25 $ 0
State 26 22 0

66 47 0

Deferred:
Federal 743 72 0
State 42 35 0

785 107 0

$ 851 $ 154 $ 0

Deferred income tax assets and liabilities for National consist of the following as of December 31, 2006 and 2005:

2006 2005

Deferred tax assets:
Compensation accruals $ 29 $ 29
Other accruals and reserves 55 86
Net operating loss carryforwards 584 1,378
Other 67 27

735 1,520
Valuation reserve (328 ) (590 )

407 930
Deferred tax liabilities — Fixed assets (71 ) (71 )

Net deferred tax asset $ 336 $ 859

The income tax expense differs from the amount of income tax determined by applying the U.S. federal income tax rate of 34% to pretax income for the years ended December 31, 2006 and 2005, due to state taxes, the change in valuation allowance, permanent differences and the amount of Aeroglide income (see above regarding Aeroglide’s S corporation status).
In connection with the acquisition of National, the Company recorded a full valuation allowance for the net deferred income tax assets (including net operating loss carryforwards) that existed at the time of the acquisition. During 2004, National incurred a taxable loss. As of December 31, 2004, the Company assessed the realizability of National’s net deferred income tax assets, including the deferred income tax assets generated subsequent to the acquisition. At that time, the Company retained a full valuation allowance on these net assets.

F-41

Aeroglide Corporation and Subsidiary

Notes to Consolidated Financial Statements — (Continued)

During 2005, National’s financial performance improved and generated taxable income of approximately $1,659. Accordingly, the Company utilized a portion of its net operating loss carryforwards during 2005. Further, as a result of the 2005 financial performance and projected financial results for 2006, the Company assessed, at December 31, 2005, that a portion of National’s remaining net deferred income tax assets was realizable. As a result of the utilization of net operating losses in 2005 and the assessment of partial realizability of the remaining assets, the Company reversed a portion of the valuation allowance during 2005. The portion of the valuation allowance that was reversed, which related to the acquired deferred income tax assets, totaled $966 and was recorded as a reduction to goodwill. The remainder, representing the recognition of deferred income tax assets generated subsequent to the acquisition, was recorded as a deferred income tax benefit.

During 2006, National generated taxable income of approximately $2,225. As a result of consecutive years of generating taxable income, the Company reversed an additional portion of the valuation allowance during 2006. The portion of the allowance that was reversed related to the acquired deferred income tax assets and was recorded as a reduction to goodwill of $262.

As of December 31, 2006, the Company has remaining net operating loss carryfowards totaling $1,400. Such amounts expire periodically through 2024.

The utilization of the remaining net operating loss carryforwards is subject to certain limitations of the Internal Revenue Code regarding change in ownership.

Note J — Commitments and Contingencies


	*Leases*

The Company has operating leases for a building through 2006, an automobile through 2008 and office space through 2010. The total amount charged to expense under these leases was approximately $160, $279 and $289 in 2006, 2005 and 2004, respectively.

The future minimum lease payments under the noncancelable operating leases as of December 31, 2006, are as follows:

2007 $ 105
2008 84
2009 38
2010 8

Total minimum payments $ 235

Litigation
The Company is involved as a defendant in various legal matters in the ordinary course of business. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial position or results of operations.
Note K — Phantom Stock Plan
The Company maintains a phantom stock compensation plan for certain key executives of the Company. Incentives awarded under the plan vest over five years and are primarily based on the future performance of the Company. The compensation expense associated with the phantom stock plan was $644

F-42

in 2006, $320 in 2005 and $34 in 2004. The accrued liability related to the phantom stock plan of approximately $1,520 and $876 at December 31, 2006 and 2005, respectively, is reflected in the accompanying balance sheets as accrued compensation, a noncurrent liability. In connection with the acquisition described in Note L below, the participants in the Phantom Stock Plan were paid a settlement amount in February 2007.

Note L — Sale of the Company

On February 28, 2007, the Company and the shareholders of the Company entered into a Stock Purchase Agreement with Aeroglide Holdings, Inc., a wholly owned subsidiary of Compass Group Diversified Holdings LLC, whereby the shareholders sold all of the outstanding stock of the Company. The purchase price was $57,000 and is subject to certain adjustments including a working capital adjustment.

F-43

Independent Auditor’s Report

Board of Directors
HALO Branded Solutions, Inc. and Subsidiary
Sterling, Illinois

We have audited the accompanying consolidated balance sheets of HALO Branded Solutions, Inc. and Subsidiary as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ~~CBS Personnel Holdings,~~HALO Branded Solutions, Inc. and ~~subsidiaries~~Subsidiary as of December 31, ~~2004~~2006 and ~~2003~~2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2004~~2006 in conformity with accounting principles generally accepted in the United States of America.

/s/ ~~Grant Thornton~~Clifton Gunderson LLP

~~Cincinnati, Ohio~~

~~November 4, 2005~~

Peoria, Illinois

March 31, 2007

F-44

~~F-12~~

~~CBS Personnel Holdings, Inc.~~HALO BRANDED SOLUTIONS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

~~(Formerly Compass CS, Inc. and Subsidiaries)~~

~~Consolidated Balance Sheets~~

December 31, ~~2004~~2006 and ~~2003~~2005

2006 2005
(Dollars in thousands)

ASSETS
CURRENT ASSETS

Cash $ 339 $ —
Accounts receivable, net of allowance of $401 for 2006 and $450 for 2005 22,769 18,582
Inventories 3,127 1,929
Prepaid expenses 537 654
Other current assets 2,301 1,780

Total current assets 29,073 22,945
Equipment, software, and leasehold improvements, net 959 506
Deferred financing costs, net — 28
Deferred income taxes — 260
Goodwill 7,388 4,765
Other assets 11 18
Due from affiliate 1,209 813

TOTAL ASSETS
$ 38,640 $ 29,335

LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES

Accounts payable $ 12,576 $ 9,570
Accrued expenses 4,506 3,807
Current installments of long-term debt 1,049 4,789
Current installments of obligations under capital lease 47 —
Income taxes payable 1,122 925
Deferred income taxes 516 361

Total current liabilities 19,816 19,452

LONG-TERM LIABILITIES

Long-term debt, excluding current installments 8,057 2,549
Obligations under capital lease, excluding current installments 148 —
Deferred income taxes 170 —

Total long-term liabilities 8,375 2,549

Total liabilities 28,191 22,001

STOCKHOLDER’S EQUITY

Common stock, $.01 par value, 2,000 shares authorized, issued and outstanding 2 2
Additional paid-in capital 2,008 2,008
Retained earnings 8,439 5,324

Total stockholder’s equity 10,449 7,334

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY
$ 38,640 $ 29,335

2004 2003

Assets

Current assets:
Cash $ 921,070 $ 266,231
Accounts receivable:
Trade, net of allowance for doubtful accounts of $3,415,595 and $1,192,000 at December 31, 2004 and 2003, respectively 54,126,110 24,310,245
Unbilled revenue 6,966,431 1,164,373
Prepaid expenses and other current assets 2,971,406 1,483,145
Deferred tax assets 1,774,536 —

Total current assets 66,759,553 27,223,994
Property and equipment — net 3,080,613 3,989,000
Other assets:
Goodwill 59,307,301 49,200,419
Other intangibles — net 10,559,217 782,589
Other 669,127 100,971

Total assets $ 140,375,811 $ 81,296,973

Liabilities and shareholders’ equity

Current liabilities:
Current portion of long-term debt $ 2,037,300 $ 2,855,001
Swing-line and revolving line-of-credit — 4,361,000
Accounts payable 5,335,757 3,592,120
Accrued expenses:
Accrued payroll, bonuses and commissions 11,335,902 2,750,158
Payroll taxes and other withholdings 7,862,404 3,545,449
Current portion of workers’ compensation obligation 6,965,050 2,893,393
Other 8,351,255 2,010,992

Total current liabilities 41,887,668 22,008,113
Long-term debt 43,893,282 19,506,666
Workers’ compensation obligation 10,586,981 4,517,333
Deferred tax liabilities 96,951 —
Accrued interest and management fees — 2,438,593

Total liabilities 96,464,882 48,470,705

Commitments and contingencies
Shareholders’ equity:
Common stock:
Class A, $0.001 par value, 5,000,000 shares authorized; issued and outstanding 2,830,909 and 644,320 shares at December 31, 2004 and 2003, respectively 2,831 644
Class B, $0.001 par value, 5,000,000 shares authorized; issued and outstanding 3,548,384 and 487,160 shares at December 31, 2004 and 2003, respectively 3,548 488
Class C, $0.001 par value, 2,000,000 shares authorized; issued and outstanding 94,799 and 0 shares at December 31, 2004 and 2003, respectively 95 —
Additional paid-in capital 47,111,544 39,749,345
Accumulated other comprehensive income 60,932 —
Accumulated deficit (3,268,021 ) (6,924,209 )

Total shareholders’ equity 43,910,929 32,826,268

Total liabilities and shareholders’ equity $ 140,375,811 $ 81,296,973

~~See~~These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.

F-45

~~F-13~~


~~Delaware~~	~~7363~~	~~57-6218917~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(Primary Standard Industrial~~ ~~Classification Code Number)~~	~~(I.R.S. Employer~~ ~~Identification Number)~~


~~Delaware~~	~~7363~~	~~20-3812051~~

~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(Primary Standard Industrial~~ ~~Classification Code Number)~~	~~(I.R.S. Employer~~ ~~Identification Number)~~


~~(1)~~	~~Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.~~
~~(2)~~	The number of non-management interests of Compass Group Diversified Holdings LLC registered hereunder is equal to the number of shares representing beneficial interests in Compass Diversified Trust that are registered hereby. Each share representing one beneficial interest in Compass Diversified Trust corresponds to one underlying non-management interest of Compass Group Diversified Holdings LLC. If the trust is dissolved, each share representing a beneficial interest in Compass Diversified Trust will be exchanged for a non-management interest of Compass Group Diversified Holdings LLC.
~~(3)~~	Pursuant to Rule 457(i) under the Securities Act, no registration fee is payable with respect to the non-management interests of Compass Group Diversified Holdings LLC because no additional consideration will be received by Compass Diversified Trust upon exchange of the shares representing beneficial interests in Compass Diversified Trust.


Delaware	7363	57-6218917
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)


Delaware	7363	20-3812051
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)


~~Steven B. Boehm~~ ~~Cynthia M. Krus~~ ~~Sutherland Asbill & Brennan LLP~~ ~~1275 Pennsylvania Avenue, N.W.~~ ~~Washington, DC 20004~~ ~~(202) 383-0100~~ ~~(202) 637-3593 — Facsimile~~		~~Ralph F. MacDonald, III~~ ~~Michael P. Reed~~ ~~Alston & Bird LLP~~ ~~One Atlantic Center~~ ~~1201 West Peachtree Street~~ ~~Atlanta, GA 30309~~ ~~(404) 881-7000~~ ~~(404) 253-8272 — Facsimile~~


Stephen C. Mahon Fred A. Summer Squire, Sanders & Dempsey L.L.P. 312 Walnut Street Cincinnati, OH 45202 (513) 361-1200 (513) 361-1201 — Facsimile		Michael P. Reed Alston & Bird LLP The Atlantic Building 950 F Street N.W. Washington, D.C. 20004 (202) 756-3300 (202) 756-3333 — Facsimile


(1)		Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)		Each share representing one beneficial interest in Compass Diversified Trust corresponds to one underlying non-management interest of Compass Group Diversified Holdings LLC. If the trust is dissolved, each share representing a beneficial interest in Compass Diversified Trust will be exchanged for a non-management interest of Compass Group Diversified Holdings LLC.

(3)		Pursuant to Rule 457(i) under the Securities Act, no registration fee is payable with respect to the non-management interests of Compass Group Diversified Holdings LLC because no additional consideration will be received by Compass Diversified Trust upon exchange of the shares representing beneficial interests in Compass Diversified Trust.


	Per Share		Total

Public offering price	$	$
Underwriting discount and commissions	$	$
Proceeds, before expenses, to us	$	$


	Page

Summary		1
Risk Factors		11
Forward-Looking Statements		32
Use of Proceeds		34
Price Range of Shares		34
Dividend and Distribution Policy		35
Pro Forma Capitalization		37
Pro Forma Condensed Combined Financial Statements		38
Selected Financial Data		49
Management’s Discussion and Analysis of Financial Condition and Results of Operations		50
Quantitative and Qualitative Disclosures About Market Risk		72
Business		73
Our Manager		115
Management		129
Executive Compensation		130
Principal Shareholders/Security Ownership of Directors and Executive Officers		136
Certain Relationships and Related Party Transactions		137
Description of Shares		142
Material U.S. Federal Income Tax Considerations		149
Underwriting		164
Legal Matters		168
Experts		168
Where You Can Find Additional Information		168
Index to Financial Statements		F-1
EX-5.1: FORM OF OPINION OF RICHARDS, LAYTON & FINGER, P.A.
EX-5.2: FORM OF OPINION OF RICHARDS, LAYTON & FINGER, P.A.
EX-8.1: FORM OF TAX OPINION
EX-10.13: AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT
EX-23.1: CONSENT OF GRANT THORNTON LLP
EX-23.2: CONSENT OF GRANT THORNTON LLP
EX-23.3: CONSENT OF CLIFTON GUNDERSON LLP


	•	~~provide ongoing strategic and financial support for their businesses;~~produce stable cash flows;

	•	have strong management teams largely in place;

	•	maintain adefensible positions in industries with forecasted long-term ~~outlook as to the ownership of those businesses where such an outlook is required for maximization of our shareholders’ return on investment;~~macroeconomic growth; and

	•	~~consummate transactions efficiently without being dependent on third-party financing on a transaction-by-transaction basis.~~face minimal threat of technological or competitive obsolescence.


	•	~~CBS Personnel Holdings, Inc. and its consolidated subsidiaries, which we refer to as CBS Personnel, a human resources outsourcing firm;~~


	•	~~Crosman Acquisition Corporation and its consolidated subsidiaries, which we refer to as Crosman, a recreational products company;~~

	•	~~Compass AC Holdings, Inc. and its consolidated subsidiary, which we refer to as Advanced Circuits, an electronic components manufacturing company; and~~

	•	~~Silvue Technologies Group, Inc. and its consolidated subsidiaries, which we refer to as Silvue, a global hardcoatings company.~~


	•	~~there are fewer potential acquirers for these businesses;~~

	•	~~third-party financing generally is less available for these acquisitions;~~

	•	~~sellers of these businesses frequently consider non-economic factors, such as continuing board membership or the effect of the sale on their employees; and~~


	•	~~these businesses are less frequently sold pursuant to an auction process.~~


Citigroup		Ferris, Baker Watts
		Incorporated


	~~Oppenheimer & Co.~~


	*~~Strategic Advantages~~*


	*~~Human Resources Outsourcing Firm~~*


	•	~~recruiting and retaining talented managers to operate our businesses by using structured incentive compensation programs, including minority equity ownership, tailored to each business;~~

	•	~~regularly monitoring financial and operational performance;~~

	•	~~instilling consistent financial discipline;~~

	•	~~assisting management in their analysis and pursuit of prudent organic growth strategies; and~~

	•	~~working with management to identify possible external growth strategies and acquisition opportunities.~~


	•	~~making selective capital investments to expand geographic reach, increase capacity or reduce manufacturing costs of our businesses;~~

	•	~~investing in product research and development for new products, processes or services for customers;~~

	•	~~improving and expanding existing sales and marketing programs;~~

	•	~~pursuing reductions in operating costs through improved operational efficiency or outsourcing of certain processes and products; and~~


	•	~~consolidating or improving management of certain overhead functions.~~


	•	~~leverage manufacturing and distribution operations;~~

	•	~~leverage branding and marketing programs, as well as customer relationships;~~

	•	~~add experienced management or management expertise;~~

	•	~~increase market share and penetrate new markets; and~~

	•	~~realize cost synergies by allocating the corporate overhead expenses of our businesses across a larger number of businesses and by implementing and coordinating improved management practices.~~


	•	~~engage in a substantial level of internal and third-party due diligence;~~

	•	~~critically evaluate the management team;~~

	•	~~identify and assess any financial and operational strengths and weaknesses of any target business;~~

	•	~~analyze comparable businesses to assess financial and operational performances relative to industry competitors;~~

	•	~~actively research and evaluate information on the relevant industry; and~~

	•	~~thoroughly negotiate appropriate terms and conditions of any acquisition.~~


	•	approximately 98.1% of CBS Personnel on a primary basis, without giving effect to conversion of any convertible securities, and approximately 95.6% after giving effect to the exercise of vested and in-the-money options and vested non-contingent warrants (as applicable), which we refer to as on a fully diluted basis;

	•	~~approximately 75.4% of Crosman on a primary and fully diluted basis;~~

	•	~~approximately 85.7% of Advanced Circuits on a primary basis and approximately 73.2% on a fully diluted basis; and~~

	•	~~approximately 73.0% of Silvue on a primary and fully diluted basis, after giving effect to the conversion of preferred stock of Silvue that we will acquire.~~


	•	Approximately $70.2 million to CBS Personnel. The $70.2 million is comprised of approximately $64.0 million in term loans, approximately $31.2 million of which will be used to pay down third party debt and approximately $32.8 million of which represents a capitalization loan and, therefore, considered part of the purchase price of equity interests in CBS Personnel, and an approximately $42.5 million revolving loan commitment, approximately $6.2 million of which will be funded to CBS Personnel in conjunction with the closing of this offering.

	•	Approximately $50.1 million to Crosman. The $50.1 million is comprised of approximately $47.8 million in term loans and an approximately $15.0 million revolving loan commitment, approximately $2.3 million of which will be funded to Crosman in conjunction with the closing of this offering.

	•	~~Approximately $51.3 million to Advanced Circuits. The $51.3 million is comprised of approximately $50.5 million in term loans and an approximately $4.0 million revolving loan commitment,~~


		~~approximately $0.8 million of which will be funded to Advanced Circuits in conjunction with the closing of this offering.~~

	•	Approximately $14.7 million to Silvue. The 14.7 million is comprised of approximately $14.3 million in term loans and an approximately $4.0 million revolving loan commitment, approximately $0.4 million of which will be funded to Silvue in conjunction with the closing of this offering.


Shares offered by us in this ~~offering~~offering.		shares

Shares outstanding after this offering and the separate private placement ~~transactions~~transaction		shares

Use of proceeds		We estimate that our net proceeds from the sale of the shares in this offering will be approximately ~~$231.9~~$ million (or approximately $ million if the underwriters’ overallotment option is exercised in full), based on the initial public offering price of $ per share (which is the midpoint of the estimated initial public offering price range set forth on the cover page on this prospectus) and after deducting underwriting discounts and commissions. In addition, CGI and Pharos have each agreed to purchase in separate private placement transactions to close in conjunction with the closing of this offering a number of shares in the trust having an aggregate purchase price of approximately $96 million and $4 million, respectively, at a per share price equal to the initial public offering price.. We intend to use the net proceeds from this offering and the $30 million of proceeds from the separate private placement ~~transactions to:~~

		~~• Pay the purchase price~~transaction to repay borrowings under our revolving credit facility and ~~related costs of the acquisition of our initial businesses of approximately $161.6 million;~~

		~~• Make loans to each of the initial businesses to refinance outstanding debt in an aggregate principal amount of approximately $153.5 million;~~

		~~• Pay the transaction costs related to this offering of approximately $4.5 million; and~~

		~~• Provide funds~~any remaining amounts for general corporate ~~purposes of approximately $12.3 million.~~

		purposes. See the section entitled “Use of Proceeds” for more information about the use of the proceeds of this offering.

~~Nasdaq National~~NASDAQ Global Select Market symbol		CODI

Dividend and distribution policy		We intend to ~~pursue a policy of paying~~declare and pay regular quarterly cash distributions ~~which will correspond to dividends,~~ on all outstanding ~~shares.~~shares, based on distributions received by the trust on the trust interests in the company. The declaration and amount of any distributions will be subject to the approval of the company’s board of directors, which will include a majority of ~~the company~~independent directors, and will ~~review our financial condition and~~be based on the results of operations ~~on a quarterly basis~~of our businesses and ~~determine whether or not a cash distribution will be declared and paid~~the desire to provide sustainable levels of distributions to our ~~shareholders and the amount of that distribution.~~shareholders. Any cash distribution paid by the company to the trust will, in turn, be paid by the trust to its shareholders.

		See the ~~section~~sections entitled “Dividend and Distribution Policy” for a discussion of our intended distribution rate and “Material U.S. Federal Income Tax Considerations” for more information about the tax treatment of distributions by the ~~trust.~~

~~Management fee~~		~~The company will pay our manager a management fee of 2% per annum (payable quarterly in arrears), which will be calculated on the basis of our adjusted net assets. “Adjusted net assets” will~~


		~~be defined generally as total assets~~~~plus~~ ~~the aggregate amount of accumulated amortization~~~~minus~~ the aggregate amount of adjusted total liabilities. “Adjusted total liabilities” will be defined generally as total liabilities excluding the effect of any third party debt. Additionally, any management fee due from the company to our manager will be reduced by any management fees received by our manager from any of our businesses. See the section entitled “Management Services Agreement — Management Fee” for more information about the calculation and payment of the management feetrust and the ~~specific definitions of the terms used in such calculation.~~

~~Profit allocation~~		The company will pay a profit allocation to our manager, as holder of management interests, upon the occurrence of certain events if the company’s profits exceed certain hurdles. In calculating the company’s profits for determination of our manager’s profit allocation, we will take into consideration both:

		~~• A business’ contribution-based profit, which will be equal to a business’ aggregate contribution to the company’s cash flow during the period a business is owned by the company; and~~

		~~• The company’s cumulative gains and losses to date.~~

		~~Specifically, profit allocation will be calculated and paid subject to the following hurdles:~~

		~~• No profit allocation will be paid in the event that the company’s profits do not exceed an annualized hurdle rate of 7% with respect to our equity in a business; and~~

		• Profit allocation will be paid in the event that the company’s profits do exceed an annualized hurdle rate of 7% in the following manner: (i) 100% of the company’s profits for that amount in excess of the hurdle rate of 7% but that is less than the hurdle rate of 8.75%, which amount is intended to provide our manager with an overall profit allocation of 20% once the hurdle rate of 7% has been surpassed; and (ii) 20% of the company’s profits in excess of the hurdle rate of 8.75%.

		Additionally, our manager has agreed not to take a profit allocation until the sale of one of our businesses or, at our manager’s option, the fifth anniversary of our ownership of one of our businesses. We believe this timing of the profit allocation more accurately reflects the long-term performance of each of our businesses than a method which provides for annual allocations, and is consistent with our intent to manage and grow our businesses over the long-term. See the section entitled “Description of Shares — Distributions — Manager’s Profit Allocation” for more information about calculation and payment of profit allocation.company.

Shares of the trust		Each share of the trust represents an undivided beneficial interest in the trust property, and each share of the trust corresponds to one underlying ~~non-management~~trust interest of the company owned by the trust. Unless the trust is dissolved, it must remain the sole holder of 100% of the ~~non-management~~trust interests, and at all


		times the company will have outstanding the identical number of ~~non-management~~trust interests as the number of outstanding shares of the trust. If the trust is dissolved, each share of the trust will be exchanged for one trust interest in the company. Each outstanding share of the trust is entitled to one vote on any matter with respect to which the trust, as a ~~member~~holder of trust interests in the company, is entitled to vote. The company, as the sponsor of the trust, will provide to our shareholders proxy materials to enable our shareholders to exercise, in proportion to their percentage ownership of outstanding shares, the voting rights of the trust, and the trust will vote its ~~non-management~~trust interests in the same proportion as the vote of holders of shares. The allocation interests do not grant to our manager voting rights with respect to the company except in certain limited circumstances.


		See the section entitled “Description of Shares” for information about the material terms of the ~~shares.~~

~~Anti-takeover provisions~~		~~Certain provisions of the management services agreement,~~shares, the trust ~~agreement~~interests and the LLC agreement, which will become effective upon the closing of this offering, may make it more difficult for third parties to acquire control of the trust and the company by various means. These provisions could deprive the shareholders of the trust of opportunities to realize a premium on the shares owned by them. In addition, these provisions may adversely affect the prevailing market price of the shares. See the section entitled “Description of Shares — Anti-Takeover Provisions” for more information about these anti-takeover provisions.allocation interests.

U.S. federal income tax considerations		Subject to the discussion in “Material U.S. Federal Income Tax Considerations,” neither the trust will be classified as a grantor trust for U.S. federal income tax purposes. As a result, for U.S. federal income tax purposes, each holder of shares generally will be treated as the beneficial owner of a pro rata portion of the non-management interests in the company held by the trust. Subject to the discussion in “Material U.S. Federal Income Tax Considerations,” the company will be classified as a partnership for U.S. federal income tax purposes. Accordingly, neither the company nor the ~~trust~~company will incur U.S. federal income tax liability; rather, each holder of trust shares will be required to take into account his or her allocable share of company income, gain, loss, deduction, and other items. The trust is currently seeking approval from the shareholders of record as of April 10, 2007, to authorize the board to amend the trust agreement to provide that the trust be taxed as a partnership. Assuming that approval is granted, the trust will report tax information to the shareholders for the 2007 taxable year and all future taxable years thereafter onSchedule K-1. If that approval is not granted, the trustees intend to dissolve the trust and each shareholder would receive a direct interest in the company in exchange for their shares in the trust. If that occurs, the company will continue to treat the trust as a grantor trust for the initial portion of the 2007 tax year and the trust will report the same tax information as found on theSchedule K-1 to the shareholders on Form 1041.

		See the section entitled “Material U.S. Federal Income Tax Considerations” ~~section~~ for information about the potential U.S. federal income tax consequences of the purchase, ownership and disposition of ~~shares.~~shares and for a discussion of recent developments concerning treatment of the trust as a grantor trust for federal income tax purposes.

Risk factors		Investing in our shares involves risks. See the section entitled “Risk Factors” ~~among other information set forth in~~and read this prospectus ~~that you should consider~~ carefully before ~~deciding~~making an investment decision with the respect to ~~invest in our shares.~~the shares or the company.


	Fiscal Year Ended December 31,
	2006			2005
	($ in thousands, except per share data)

Statements of Operations Data:
Net sales	$	410,873		$	—
Cost of sales		311,641			—

Gross profit		99,232			—
Operating expenses:
Staffing		34,345			—
Selling, general and administrative		36,732			1
Management fee		4,376			—
Supplemental put expense		22,456			—
Research and development expense		1,806			—
Amortization expense		6,774			—

Operating loss	$	(7,257	)	$	(1	)

Loss from continuing operations	$	(27,636	)	$	(1	)

Income from discontinued operations, net of income tax	$	8,387		$
Net loss	$	(19,249	)	$	(1	)

Cash Flow Data:
Cash provided by operating activities	$	20,563		$	—
Cash (used in) investing activities		(362,286	)		—
Cash provided by financing activities		351,073			100

Net increase in cash	$	9,350		$	100

Per Share Data:
Basic and fully diluted loss from continuing operations per share	$	(2.18	)	$	—

Basic and fully diluted loss per share	$	(1.52	)	$	—


	At December 31,
	2006		2005
	($ in thousands)

Balance Sheet Data:
Total current assets	$	140,356	$	3,408
Total assets		525,597		3,408
Current liabilities		162,872		3,309
Long-term debt		—		—
		—		—
Total liabilities		242,755		3,309
Minority interests		27,131		100
Shareholders’ equity (deficit)		255,711		(1	)


						(Unaudited)
		Year Ended				Nine Months Ended
		December 31,				September 30,

CBS Personnel		2003		2004		2004		2005

		($ in thousands)
Statement of Operations Data:
	Revenues	$	194,717	$	315,258	$	179,256	$	405,486
	Income from operations		3,645		9,450		5,734		11,157
	Net income		823		7,413		4,714		4,927


	Predecessor		Successor				(Unaudited)
	July 1, 2003		February 10,				Quarter Ended
	to		2004 to		Year Ended
	February 9,		June 30,		June 30,		September 26,		October 2,
Crosman	2004		2004		2005		2004		2005

	($ in thousands)
Statement of Operations Data:
Net sales	$	38,770	$	24,856	$	70,060	$	15,511	$	20,468
Operating income		6,924		3,142		8,031		1,531		2,358
Net income		3,138		810		489		347		644


	Some of our businesses are and may be operated pursuant to government permits, licenses, leases, concessions or contracts that are generally complex and may result in a dispute over interpretation or enforceability. Our failure to comply with regulations or concessions could subject us to monetary penalties or result in a revocation of our rights to operate the affected business.


	•	our ability to successfully operate our ~~initial~~current businesses on a combined basis, and to effectively integrate and improve any future acquisitions;

	•	our ability to remove our manager ~~for underperformance~~ and our manager’s right to resign;

	•	our trust and ~~holding company~~organizational structure, which may limit our ability to meet our dividend and distribution policy;

	•	our ability to service and comply with the terms of our indebtedness;

	•	our cash flow available for distribution after the ~~acquisition price~~closing of ~~each initial business~~this offering and our ability to make distributions in the ~~loan amounts~~future to ~~each initial business;~~our shareholders;

	•	~~decisions made by persons who control~~ our ~~initial businesses, including decisions regarding dividend policies;~~ability to pay the management fee, profit allocation and put price when due;

	•	our ability to make and finance future ~~acquisitions, including, but not limited to, the acquisitions described in this prospectus;~~acquisitions;

	•	our ability to implement our acquisition and management strategies;

	•	the regulatory environment in which our ~~initial~~ businesses operate;

	•	trends in the industries in which our ~~initial~~ businesses operate;


	•	~~Pay the purchase price and related costs of the acquisition of our initial business of approximately $161.6 million;~~

	•	~~Make loans to each of our initial businesses to refinance outstanding debt in an aggregate principal amount of $153.5 million;~~

	•	~~Pay the transaction costs related to this offering of approximately $4.5 million; and~~

	•	~~Provide funds for general corporate purposes of approximately of $12.3~~transaction to repay borrowings under our revolving credit facility and any remaining amounts for general corporate purposes, including to fund acquisitions, if and when identified and consummated. Our revolving credit facility has been used to provide funding for our acquisitions and loans to our businesses. Our revolving credit facility permits borrowings up to $255 million with an option to increase the facility by $45 million.


		Sources of Funds

		($ in millions)
Net proceeds from initial public offering		$	231.9
Investment of Pharos			4.0
Investment of CGI			96.0

	Total Sources	$	331.9