Compass Diversified Holdings (CODI) Risk Analysis

As an owner of our shares, you may disagree with changes made to the terms of our shares, and you may disagree with the Board's 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.

The LLC Agreement of the LLC and the Trust Agreement of the Trust 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 LLC'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 to fill newly created directorships, for those directors who are elected by our shareholders, and allowing only Sostratus LLC, as Holder of our Allocation Interests (holders of Allocation Interests collectively the "Holders"), to fill vacancies with respect to the class of directors appointed by our Allocation Interest Holder;- requiring that directors elected by our shareholders be removed, with or without cause, only by a vote of 85% of our shareholders;- requiring advance notice for nominations of candidates for election to the Company's Board or for proposing matters that can be acted upon by our shareholders at a shareholders' meeting;- having a substantial number of additional authorized but unissued shares that may be issued without shareholder action;- providing the Company's Board with certain authority to amend the LLC Agreement and the Trust Agreement, subject to certain voting and consent rights of the holders of trust interests and Allocation Interests; and - limitations regarding calling special meetings and written consents of our shareholders. 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.

The boards of directors of our respective businesses have fiduciary duties to all their shareholders, including the Company and noncontrolling 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 or 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 appointed by the Company, and such decisions may be different from those that we would make.

The Trust Agreement authorizes the Company, acting through the Board and without further shareholder approval, to cause the Trust to be converted to a corporation (the "Conversion"). As a shareholder of the Trust, you may disagree with the terms of the Conversion that might be implemented by the Company's Board in the future, and you may disagree with the Board's determination that the terms of the Conversion are not materially adverse to you as a shareholder or that they are in the best interests of the Trust and its shareholders. Your recourse, if you disagree, will be limited because our Trust Agreement gives broad authority and discretion to the Board to implement the Conversion as long as the Board determines that it will be in the best interests of the Trust and its shareholders to do so.

The Company's Board 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, subject to U.S. federal income taxes and applicable state and local taxes, to our shareholders, as well as the amount and timing of any distribution. In addition, the management fee and profit allocation 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 our shareholders. The Board may, and in fiscal year 2025 has, based on their review of our financial condition and results of operations and pending acquisitions and our tax structure, determine to reduce or eliminate distributions, which may have a material adverse effect on the market price of our shares.

Distributions on the Series A Preferred Shares are discretionary and non-cumulative. Holders of the Series A Preferred Shares will only receive distributions of the Series A Preferred Shares when, as and if declared by the Board of the Company. Consequently, if the Board of the Company does not authorize and declare a distribution for a distribution period, holders of the Series A Preferred Shares would not be entitled to receive any distribution for such distribution period, and such unpaid distribution will not be payable in such distribution period or in later distribution periods. We will have no obligation to pay distributions for a distribution period if the Board of the Company does not declare such distribution before the scheduled record date for such period, whether or not distributions are declared or paid for any subsequent distribution period with respect to the Series A Preferred Shares, or any other preferred shares we may issue or our common shares. This may result in holders of the Series A Preferred Shares not receiving the full amount of distributions that they expect to receive, or any distributions, and may make it more difficult to resell Series A Preferred Shares or to do so at a price that the holder finds attractive. The Board of the Company may, in its sole discretion, determine to suspend distributions on the Series A Preferred Shares, which may have a material adverse effect on the market price of the Series A Preferred Shares. Our operations may not generate sufficient cash flows to enable us to pay distributions on the Series A Preferred Shares. Our financial and operating performance is subject to prevailing economic and industry conditions and to financial, business and other factors, some of which are beyond our control.

The Series A, Series B and Series C Preferred Shares are our equity interests and do not constitute indebtedness. This means that the Series A, Series B and Series C Preferred Shares rank junior to all of our indebtedness and to other non-equity claims on us and our assets available to satisfy claims on us, including claims in the event of our liquidation. In addition, the rights allocated to the Company's Allocation Interests may reduce the amount available for distribution by the Trust upon its liquidation, dissolution or winding up. Further, the Series A, Series B and Series C Preferred Shares place no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the limited voting rights.

Under the terms of the Management Services Agreement, our Manager cannot be removed solely as a result of under-performance without approval of our shareholders and at a significant cost. Instead, the Company's Board can only remove our Manager in certain limited circumstances or upon a vote by the majority of the Company's Board and the majority of our shareholders to terminate the Management Services Agreement. Termination of our Manager may also require the Company to incur significant payments and reimbursements to our Manager. In addition, in the event we terminated our Manager, we may not be able to contract with a new manager or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms, in which case our operations are likely to experience a disruption and our financial condition, business, and results of operations, as well as our ability to pay distributions, are likely to be adversely affected. This limitation could materially adversely affect the market price of our shares.