Table of Contents

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

---

Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

		Per Share				Total
Public offering price		$				$
Underwriting discount		$				$
Proceeds, before expenses, to us		$				$

	BB&T Capital Markets

	J.J.B. Hilliard, W.L. Lyons, Inc.

	Oppenheimer & Co.

	Sanders Morris Harris

---

Table of Contents

---

Table of Contents

1

---

Table of Contents

2

---

Table of Contents

3

---

Table of Contents

4

---

Table of Contents

5

---

Table of Contents

6

---

Table of Contents

7

---

Table of Contents

8

---

Table of Contents

9

---

Table of Contents

10

---

Table of Contents

11

---

Table of Contents

12

---

Table of Contents

13

---

Table of Contents

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

	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.

	Our future success is dependent on the employees of our manager and the executive management teams of our businesses, the loss of any of whom could adversely affect our financial condition, business and results of operations.

14

---

Table of Contents

	We face risks with respect to the evaluation and management of future acquisitions.

	We face competition for acquisitions of businesses that fit our acquisition strategy.

	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.

15

---

Table of Contents

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

	We will rely entirely on distributions from our businesses to make distributions to our shareholders.

	The company’s board of directors will have the power to change the terms of our shares in its sole discretion in ways with which you may disagree.

16

---

Table of Contents

	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.

	•	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 until the election of directors at the second annual meeting of shareholders (and thereafter allowing the company’s board of directors to fill such vacancies) following the closing of this offering;
	•	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 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 greater advance notice for a director or group of directors to call a special meeting of our board of directors other than if called by our Chief Executive Officer or chairman;
	•	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 of trust interests and allocation 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.

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

17

---

Table of Contents

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

	•	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 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.

	CGI may exercise significant influence over the company.

	The terms and conditions of the stock purchase agreement, the management services agreement, the loan agreements and other agreements discussed in this prospectus were negotiated among entities affiliated with or related to CGI and our manager in the overall context of this offering, and these terms may be less advantageous to us than if they had been the subject of arm’s-length negotiations.

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

18

---

Table of Contents

	Changes in interest rates could adversely affect us.

	If in the future we cease to control and operate our businesses, we may be deemed to be an investment company under the Investment Company Act of 1940, as amended.

	Risks Relating to Our Manager

	Our Chief Executive Officer, directors, manager and management team may allocate some of their time to other businesses, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs, which may adversely affect our operations.

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

19

---

Table of Contents

	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.

	If we terminate the management services agreement, we will need to change our name, which may adversely affect our financial condition, business and results of operations.

	We cannot remove our manager solely for poor performance, which could limit our ability to improve our performance and could adversely affect the market price of our shares.

	We may have difficulty severing ties with our Chief Executive Officer, Mr. Massoud.

	If the management services agreement is terminated, our manager, as holder of the allocation interests in the company, has the right to cause the company to purchase such allocation interests, which may adversely affect our liquidity and ability to grow.

20

---

Table of Contents

	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.

	Future financial performance of our businesses and sale valuations drive the computation of the management fee and profit allocation and, as a result, we are not able to quantify the future amounts of management fee and profit allocation, as well as the put price, if any, that will ultimately be due and payable to our manager.

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

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

21

---

Table of Contents

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

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

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

22

---

Table of Contents

	Fees paid by our businesses pursuant to offsetting management services agreements may exceed the management fee payable by the company under the management services agreement. In addition, fees paid pursuant to transactions services agreements do not offset fees payable under the management services agreement.

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

23

---

Table of Contents

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

	All of the company’s income could be subject to an entity-level tax in the United States, which could result in a material reduction in cash flow available for distribution to holders of shares of the trust and thus could result in a substantial reduction in the value of the shares.

	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.

24

---

Table of Contents

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

	Because we may incur debt, our shareholders may recognize a greater taxable gain on a disposition of shares than anticipated.

	•	the general economic conditions including employment levels, of the industry and regions in which each of our businesses operate;
	•	seasonal shifts in demand for the products and services offered by certain of our businesses;
	•	the general economic conditions of the customers and clients of our businesses;
	•	the timing and market acceptance of new products and services introduced by our businesses; and
	•	the timing of our acquisitions of other businesses.

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

25

---

Table of Contents

	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 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 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.

26

---

Table of Contents

	•	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 operations and research and development of some of our businesses’ services and technology depend on the collective experience of their technical employees. If these employees were to leave our businesses and take this knowledge, our businesses’ operations and their ability to compete effectively could be materially adversely impacted.

	If our businesses are unable to continue the technological innovation and successful commercial introduction of new products and services, their financial condition, business and results of operations could be materially adversely affected.

27

---

Table of Contents

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 businesses could experience fluctuations in the costs of raw materials as a result of inflation and other economic conditions, which fluctuations could have a material adverse effect on their financial condition, business and results of operations.

28

---

Table of Contents

	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.

	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 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.

29

---

Table of Contents

Our businesses are and may be subject to a variety of federal, state and foreign laws and regulations concerning employment, health, safety and products liability. Failure to comply with governmental laws and regulations could subject them to, among other things, potential financial liability, penalties and legal expenses which could have a material adverse effect on our financial condition, business and results of 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 disputes 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 businesses are subject to certain risks associated with their foreign operations or business they conduct in foreign jurisdictions.

	•	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;

30

---

Table of Contents

	•	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.

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

	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.

	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 control over financial reporting.

31

---

Table of Contents

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

	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.

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

32

---

Table of Contents

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

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

33

---

Table of Contents

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

	Crosman may be required to pay remediation costs pursuant to DEC consent orders if the third-party indemnitor is unable or unwilling to pay such costs.

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

34

---

Table of Contents

	The airgun and paintball industries are seasonal, which could materially adversely affect Crosman’s 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.

35

---

Table of Contents

	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 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.

36

---

Table of Contents

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

	•	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.

	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.

	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.

37

---

Table of Contents

	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.

	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.

	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.

38

---

Table of Contents

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

	Changes in foreign currency exchange rates could 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.

39

---

Table of Contents

	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.

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

	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.

	Our earnings and cash distributions may affect the market price of our shares.

40

---

Table of Contents

	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.

	•	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.

41

---

Table of Contents

	•	our ability to successfully operate our initial businesses on a combined basis, and to effectively integrate and improve any future acquisitions;
	•	our ability to remove our manager and our manager’s right to resign;
	•	our trust and 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 distributable cash flow after the closing of this offering;
	•	our ability to pay the management fee, profit allocation and put price when due;
	•	the acquisition price of each initial business and the loan amounts to each initial business;
	•	decisions made by persons who control our initial businesses, including decisions regarding dividend policies;
	•	our ability to make and finance future acquisitions, including, but not limited to, the acquisitions described in this prospectus;
	•	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;
	•	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 our initial businesses;
	•	our ability to retain or replace qualified employees;
	•	costs and effects of legal and administrative proceedings, settlements, investigations and claims; and
	•	extraordinary or force majeure events affecting the facilities of our initial businesses.

42

---

Table of Contents

	•	pay the purchase price and related costs of the acquisition of our initial business of approximately $138.6 million;
	•	make loans to each of our initial businesses to repay outstanding debt and to provide capitalization in an aggregate principal amount of $176.4 million;
	•	pay the transaction costs related to this offering of approximately $6.0 million; and
	•	provide funds for general corporate purposes of approximately of $10.9 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

43

---

Table of Contents

				Uses of Funds
				($ in millions)
Purchase of Equity:
	CBS Personnel			$	54.9
	Crosman				25.4
	Advanced Circuits				34.1
	Silvue				24.2
Loans to initial businesses:(1)
	CBS Personnel				68.6	(2)
	Crosman				45.2
	Advanced Circuits				48.6
	Silvue				14.0
Transactional costs related to this offering(3)					6.0
General corporate purposes					10.9
		Total Uses		$	331.9

(1)	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 repaid in connection with this offering. See the section entitled “The Acquisition of and Loans to Our Initial Businesses” for more information about the loans to each of our initial businesses.
(2)	The $68.6 million will be comprised of approximately $50.0 million in term loans, approximately $17.2 million of which will be used to pay down third party debt and approximately $32.8 million of which represents a capitalization loan and approximately $18.6 million of a $42.5 million revolving loan commitment which will be made to CBS Personnel in conjunction with the closing of this offering. CBS Personnel will use a portion of the loans to redeem shares of its Class B and Class C common stock from certain holders thereof and to make payments to certain of its option holders as consideration for the termination of a portion of their options to acquire Class C common stock. See the section entitled “The Acquisition of and Loans to Our Initial Businesses” for more information about the loans to CBS Personnel.
(3)	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.

44

---

Table of Contents

45

---

Table of Contents

					Year Ended
					December 31,
Estimated Cash Available for Distributions					2005
					($ in thousands)
Net income per pro forma					$	17,263
	add:
		Pro forma depreciation				5,398
		Pro forma amortization				10,433
		Pro forma other loss(1)				2,303
		Pro forma adjustment to add back in-process R&D expensed at acquisition date				1,240
		Pro forma minority interest				3,211
		Pro forma income tax expense(2)				11,050
	less:
		Estimated incremental general and administrative expense (3)				5,000
		Estimated pro forma cash income tax expense(2)				12,926
		Capital expenditures for year ended December 31, 2005: (4)
			CBS Personnel			1,018
			Crosman			1,747
			Advanced Circuits			1,184
			Silvue			178
Estimated pro forma cash available for distribution					$	28,845

(1)	Relates primarily to Crosman’s foregone offering costs associated with its intended public offering in the Canadian Income Trust market that was ultimately not consummated.
(2)	Represents the reversal of our pro forma income tax expense and the subtraction of our estimated pro forma cash income tax expense.
(3)	Represents ongoing incremental administrative expenses, professional fees and management fees we expect to incur annually as a public company such as accounting, legal and other consultant fees, SEC and listing fees, directors’ fees and directors’ and officers’ insurance. We currently estimate these public company costs to be approximately $5.0 million.
(4)	Represents capital expenditures that were funded from operating cash flow.

46

---

Table of Contents

	•	The operating results of our initial businesses which are impacted by factors outside of our control including competition, inflation and general economic conditions;
	•	The ability of our businesses to make distributions to us may be subject to limitations under laws of the jurisdictions in which they are incorporated or organized;
	•	Insufficient cash to pay distributions due to increases in our general and administrative expenses, including our quarterly management fee, principal and interest payments on our outstanding debt, tax expenses or working capital requirements;
	•	The obligation to pay our manager a profit allocation upon the occurrence of a trigger event;
	•	The obligation to pay our manager the put price pursuant to the supplemental put agreement;
	•	The company’s board of directors’ election to keep a portion of the operating cash flow in the initial businesses or to use such funds for the acquisition of new businesses;
	•	Restrictions on distributions under the credit facility or debt we will incur as part of this transaction, which may contain financial tests and covenants that we will have to satisfy in order to make quarterly or annual distributions;
	•	Any dividends or distributions paid by our businesses pro rata to the minority shareholders of our businesses, which portion will not be available to us for any purpose, including for the purpose of making distributions to our shareholders;
	•	Possible future issuances of debt or debt-like financing arrangements that are secured by all or substantially 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, which obligations will have priority over our cash flow; and
	•	In the future, the company may issue preferred securities and holders of such preferred securities may have a preference with respect to distributions, which could limit our ability to make distributions to our shareholders.

47

---

Table of Contents

	•	approximately 97.9% of CBS Personnel on a primary basis, without giving effect to conversion of any convertible securities, and approximately 95.0% on a fully diluted basis, after giving effect to the exercise of vested and in the money options and vested non-contingent warrants (as applicable);
	•	approximately 75.4% of Crosman on a primary and fully diluted basis;
	•	approximately 70.2% of Advanced Circuits on a primary and 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.

	•	approximately $50.0 million in term loans and approximately $42.5 million in a financing commitment pursuant to a revolving loan to CBS Personnel. The full amount of the term loans, of which approximately $32.8 million represents a capitalization loan, and approximately $18.6 million of the revolving loan commitment will be funded to CBS Personnel in conjunction with the closing of this offering. At the closing of this offering, an aggregate amount of approximately $68.6 million will be funded to CBS Personnel pursuant to these loans and financing commitments.
	•	approximately $38.6 million in term loans and approximately $20.0 million in a financing commitment pursuant to a revolving loan to Crosman. The full amount of the term loans and approximately $6.8 million of the revolving loan commitment will be funded to Crosman in conjunction with the closing of this offering. At the closing of this offering, an aggregate amount of

48

---

Table of Contents

		approximately $45.2 million will be funded to Crosman pursuant to these loans and financing commitments.
	•	approximately $48.6 million in term loans and approximately $4.0 million in a financing commitment pursuant to a revolving loan to Advanced Circuits. The full amount of the term loans and none of the revolving loan commitment will be funded to Advanced Circuits in conjunction with the closing of this offering. At the closing of this offering, an aggregate amount of approximately $48.6 million will be funded to Advanced Circuits pursuant to these loans and financing commitments.
	•	approximately $14.0 million in term loans and approximately $4.0 million in a financing commitment pursuant to a revolving loan to Silvue. The full amount of the term loans and none of the revolving loan commitment will be funded to Silvue in conjunction with the closing of this offering. At the closing of this offering, an aggregate amount of approximately $14.0 million will be funded to Silvue pursuant to these loans and financing commitments.

49

---

Table of Contents

	•	retire approximately $31.9 million of existing CBS Personnel debt, plus pay an early redemption premium of approximately $0.4 million;
	•	purchase, in the aggregate, approximately $54.9 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;
	•	redeem approximately $36.0 million of equity from Compass CS Partners and certain unaffiliated minority stockholders; and
	•	make option termination payments aggregating approximately $0.3 million to members of CBS Personnel’s management team.

	Acquisition

	•	2,830,909 shares of Class A common stock, all of which were held by Compass CS Partners;
	•	3,548,384 shares of Class B common stock, 2,274,052 of which were held by Compass CS Partners and 1,274,332 of which were held by Mr. Brown;
	•	249,833 shares of Class C common stock, all of which were held by members of CBS Personnel’s management team and certain other investors in CBS Personnel;
	•	warrants to acquire 23,457.15 shares of Class B common stock, all of which were held by Compass CS Partners and are expected to be exercised prior to 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; and
	•	options to purchase 486,917 shares of Series C commons stock, all of which were held by members of CBS Personnel’s management team and certain other investors.

50

---

Table of Contents

	Term Loans

	Revolving Loan

51

---

Table of Contents

	Acquisition

	•	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 was held by members of Crosman’s management team and certain other stockholders of 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.

	Term Loans

52

---

Table of Contents

	Revolving Loan

	Acquisition

53

---

Table of Contents

	•	425,729 shares of Series A common stock, all of which were held by members of Advanced Circuits’ management team and certain other stockholders of Advanced Circuits; and
	•	904,000 shares of Series B common stock, 882,120 of which were held by Compass Advanced Partners, and the balance of which were held by certain other investors.

	Term Loans

	Revolving Loan

54

---

Table of Contents

	Acquisition

	•	14,036.72 shares of Series A common stock, all of which were held by members of Silvue’s management team and other stockholders of 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 stockholders of 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 stockholders of Silvue; and

55

---

Table of Contents

	•	4,500 shares of Series B redeemable preferred stock, all of which were held by members of Silvue’s management team.

	Term Loans

	Revolving Loan

56

---

Table of Contents

57

---

Table of Contents

	•	the company 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 Advanced Partners will indemnify the company against any damages resulting from a breach of any representation, warranty, covenant or obligation of Compass Advanced 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 Compass Silvue Partners will indemnify the company against any damages resulting from a breach of any representation, warranty, covenant or obligation of Compass Silvue Partners 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.

58

---

Table of Contents

59

---

Table of Contents

	•	the management services agreement relating to the services our manager will perform for us and the businesses we own;
	•	the company’s LLC agreement relating to our manager’s rights with respect to the 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.

	Our Manager as a Service Provider

60

---

Table of Contents

			(In
			thousands)
Total Management fee:
	1. Total assets		$	454,950
	2. Accumulated amortization			0
	3. Adjusted total liabilities			113,979
	4. Adjusted net assets (1 – 2 – 3)			340,971
	5. Quarterly management fee (0.5% * 4)			1,705
Offsetting management fees:
	6. CBS Personnel			250
	7. Crosman			145
	8. Advanced Circuits			125
	9. Silvue			88
10. Total offsetting management fees (6 + 7 + 8 + 9)				608
11. Management fee payable by the company (5 – 10)			$	1,097

61

---

Table of Contents

	•	“Adjusted net assets” will be equal to, with respect to the company as of any calculation date, the sum of (i) consolidated total assets (as determined in accordance with GAAP) of the company as of such calculation date, plus (ii) the absolute amount of accumulated amortization (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.
	•	“Adjusted total liabilities” will be equal to, 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.
	•	The “management fee” will be equal to, as of any calculation date, the product of (i) management fee percentage, multiplied by (ii) the company’s adjusted net assets as of such calculation date; provided, however, that, with respect to the fiscal quarter in which the closing of this offering occurs, the company will pay our manager a management fee with respect to such fiscal quarter equal to the product of (i)(x) management fee percentage, 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 day of such fiscal quarter and the denominator of which is the number of days in such fiscal quarter; provided, further, however, that, with respect to any fiscal quarter in which the management services agreement is terminated, the company will pay our manager a management fee with respect to such fiscal quarter equal to the product of (i)(x) the management fee percentage, 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 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.
	•	The “management fee percentage” will be equal to 0.5% (2.0% annualized) of adjusted net assets.
	•	The company’s “third party indebtedness” means any indebtedness of the company owed to third party lenders that are not affiliated with the company.

	Our Manager as an Equity Holder

	•	the sale of a material amount, as determined by our manager in its reasonable discretion and approved by 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

62

---

Table of Contents

	•	at the option of our manager, for the 30-day period following the fifth anniversary of the date upon which we 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, then our manager may only declare a holding event with respect to such business on the 30–day period following each anniversary of the holding event with respect to such business. Once declared, our manager may only declare another holding event with respect to a business following the fifth anniversary of the date upon which the manager previously declared a holding event to have occurred with respect to such business.

	•	the contribution-based profit of such business as of such calculation date, which will be calculated upon the occurrence of any trigger event with respect to such business; plus
	•	the cumulative gains and losses of the company as of such calculation date, which will only be calculated upon the occurrence of a sale event with respect to such business. We generally expect this component to be the most significant component in calculating total profit allocation amount.

	•	manager’s profit allocation will not be paid with respect to a trigger event relating to any business if the total profit allocation amount, as of any calculation date, does not exceed such business’ level 1 hurdle amount (7% annualized), as of such calculation date; and
	•	manager’s profit allocation will be paid with respect to a trigger event relating to any business if the total profit allocation amount, as of any calculation date, exceeds such business’ level 1 hurdle amount (7% annualized), as of such calculation date. Our manager’s profit allocation to be paid with respect to such calculation date will be equal to the sum of 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.” The “catch-up” is intended to provide our manager with an overall profit allocation of 20% once the level 1 hurdle 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 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.

63

---

Table of Contents

64

---

Table of Contents

	Example of Calculation of Manager’s Profit Allocation

	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
	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

		With Respect to Relevant Business		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

65

---

Table of Contents

	Definitions

	•	An entity’s “adjusted net assets” will be equal to, as of any date, the sum of (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 accumulated amortization (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” will be 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 third party indebtedness of such entity.
	•	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’ “average allocated share of our consolidated equity” will be equal to, with respect to any measurement period, 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.
	•	“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) will be 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) will be 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 the absolute amount thereof shall not be less than zero.
	•	A business’ “contribution-based profits” will be equal to, for any measurement period as of any calculation date, the sum of (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 any capital gains or capital losses of 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 to the extent included in the calculation of 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 “consolidated net equity” will be equal to, as of any date, the sum of (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, minus (iii) the company’s consolidated total liabilities (as determined in accordance with GAAP), as of such date.

66

---

Table of Contents

	•	The company’s “cumulative capital gains” will be 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” will be 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” will be equal to, as of any calculation date, the sum of (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” will be 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.
	•	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%.
	•	A business’ “level 1 hurdle amount” will be equal to, as of any calculation date, the product of (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 for each fiscal quarter ending during such measurement period, as of such calculation date.
	•	A business’ “level 2 hurdle amount” will be equal to, as of any calculation date, the product of (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, 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 with respect to such measurement period.
	•	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 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 by the company up to and including such calculation date.
	•	The company’s “overhead” will be equal to, with respect to any fiscal quarter, the sum of (i) that portion of the company’s operating expenses (as determined in accordance with GAAP), 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.
	•	An entity’s “third party indebtedness” means any indebtedness of such entity owed to third party lenders that are not affiliated with such entity.
	•	A “qualifying trigger event” will mean, 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

67

---

Table of Contents

		(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’ “quarterly allocated share of our consolidated equity” will be equal to, with respect to any fiscal quarter, the product of (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 sum of (x) the company’s adjusted net assets as of the last day of such fiscal quarter, minus (y) the aggregate amount of any cash on hand at the company that is not taken into account in the calculation of any business’ adjusted net assets as of the last day of such fiscal quarter.
	•	A business’ “quarterly share of the company’s overhead” will be equal to, with respect to any fiscal quarter, the product of (i) the absolute amount of the company’s overhead 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 adjusted net assets as of the last day of such fiscal quarter.

	•	subject to the company’s right to issue a note in the circumstances described above, the company must use commercially reasonable efforts to raise sufficient debt or equity financing to permit the

68

---

Table of Contents

		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;
	•	the manager will have the right to have a representative observe meetings of the company’s board of directors and have the right to receive copies of all documents and other information furnished to the board of directors;
	•	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 first priority lien on the proceeds therefrom to the manager, which lien will secure the company’s obligations under the supplemental put agreement or note;
	•	the company will be restricted in its ability to (i) engage in certain mergers or consolidations, (ii) sell, transfer or otherwise dispose of all or a substantial part of its business, property or assets or all or a substantial portion of the 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.

69

---

Table of Contents

	•	loans retiring;
	•	debt issuances;
	•	minority interests; and
	•	acquisitions.

				(Unaudited)
				Pro Forma As of
				December 31, 2005
				($ in thousands)
Cash and cash equivalents				$	15,731
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		$	324,635
		Total capitalization		$	324,635

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

70

---

Table of Contents

	•	approximately 95.0% of CBS Personnel;
	•	approximately 75.4% of Crosman;
	•	approximately 70.2% of Advanced Circuits; and
	•	approximately 73.0% of Silvue,

71

---

Table of Contents

72

---

Table of Contents

																															Pro Forma
			Compass								CBS								Advanced												Combined
			Diversified								Personnel				Crosman				Circuits				Silvue								Compass
			Trust								As				As				As				As				Pro Forma				Diversified
			As Reported				Offering*				Reported				Reported**				Reported				Reported				Adjustments				Trust
			($ in thousands)
Assets
Current Assets:
	Cash and cash equivalents		$	100			$	331,875			$	992			$	796			$	1,602			$	1,516			$	(321,150	) (1)		$	15,731
	Accounts receivable, net											62,840				19,794				2,847				2,240								87,721
	Inventories											—				12,316				328				627								13,271
	Prepaid expenses and other current assets											3,472				2,302				132				343								6,249
	Deferred offering cost			3,308								—				—				—				—				(3,308	) (2)			—
	Deferred tax assets											1,525				1,262				111				398								3,296
	Current assets of discontinued operations			—				—				—				—				—				901								901
	Total current assets			3,408				331,875				68,829				36,470				5,020				6,025				(324,458	)			127,169
Property and equipment, net												2,876				10,069				3,185				1,257				722	(3)			18,109
Investment in subsidiary												—				520				—				—				2,803	(4)			3,323
Goodwill												59,295				30,951				50,659				11,266				15,816	(5)			167,987
Intangible and other assets, net												9,525				13,585				21,106				12,697				80,222	(6)			137,135
Deferred tax assets												1,227				—				—				—								1,227
Total assets			$	3,408			$	331,875			$	141,752			$	91,595			$	79,970			$	31,245			$	(224,895	)		$	454,950
Liabilities and shareholders’ equity
Current liabilities:
	Current portion of long-term debt		$				$				$	2,037			$	4,100			$	3,875			$	1,621			$	(11,633	) (7)		$	—
	Accounts payable											8,777				5,863				848				465								15,953
	Accrued expenses			3,309								33,700				4,635				2,551				3,596				(3,308	) (8)			44,483
	Current liabilities of discontinued operations			—				—				—				—				—				291								291
	Total current liabilities			3,309				—				44,514				14,598				7,274				5,973				(14,941	)			60,727
Long-term debt												31,154				47,605				45,688				11,591				(136,038	) (9)			—
Workers’ compensation												12,949				—				—				—								12,949
Deferred taxes												—				3,522				249				4,489				30,967	(10)			39,227
Other liabilities												—				692				131				253								1,076
	Total liabilities			3,309				—				88,617				66,417				53,342				22,306				(120,012	)			113,979
Minority interest				99								—				—				—				—				16,237	(11)			16,336
Redeemable preferred stock												—				—				—				90				(90	)(12)			—
Total shareholders’ equity								331,875				53,135				25,178				26,628				8,849				(121,030	) (13)			324,635
Total liabilities and shareholders’ equity			$	3,408			$	331,875			$	141,752			$	91,595			$	79,970			$	31,245			$	(224,895	)		$	454,950

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

**	Information is as of January 1, 2006.

73

---

Table of Contents

																								Pro Forma
				CBS								Advanced												Combined
				Personnel				Crosman				Circuits				Silvue								Compass
				As				As				As				As				Pro Forma				Diversified
				Reported				Reported*				Reported				Reported				Adjustments				Trust
				($ in thousands)
Net Sales				$	543,012			$	77,049			$	41,969			$	17,093			$				$	679,274
Cost of Sales					441,685				57,319				18,102				3,816				481	(2)			521,554
Gross profit					101,327				19,730				23,867				13,277				(481	)			157,720
Operating expenses:
	Staffing Expense				54,249				—				—				—								54,249
	Selling, general and administrative expense				26,723				10,029				8,283				7,491				(2,080	) (4)			57,265
																					6,819	(5)
	Research and development expense				—				—				—				1,072				1,240	(6)			2,312
	Amortization expense				1,902				686				717				709				6,419	(1)			10,433
Operating income (loss)					18,453				9,015				14,867				4,005				(12,879	)			33,461
Other income (expense):
	Interest income				—				—				233				—								233
	Interest expense				(4,453	)			(5,097	)			(1,491	)			(1,439	)			12,480	(3)			—
	Other income (expense), net				138				(2,531	)			—				90								(2,303	)
Income (loss) before provision for income taxes and minority interest					14,138				1,387				13,609				2,656				(399	)			31,391
Provision for income taxes					5,150				426				1,001				1,258				3,215	(7)			11,050
Income (loss) from discontinued operations					—				—				—				133								133
Minority interest in income of subsidiary					—				—				—				—				3,211	(8)			3,211
		Net income (loss)		$	8,988			$	961			$	12,608			$	1,531			$	(6,825	)		$	17,263
Pro forma net income per share																								$	0.74
Pro forma weighted average number of shares outstanding																									23,333
Supplemental Information:
	Depreciation Expense			$	1,426			$	2,203			$	884			$	404			$	481			$	5,398
	Capital Expenditures			$	1,018			$	1,747			$	1,184			$	178			$	—			$	4,127

*	Reflects the combination of the unaudited financial information for the period from July 1, 2005 to January 1, 2006 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.

74

---

Table of Contents

Note 1.	Pro Forma Adjustments

	Balance Sheet:

1. Cash and cash equivalents
	Net proceeds from offering and private placement transactions to finance acquisitions		$	(315,150	)a
	Compass Diversified Trust			(6,000	)f
			$	(321,150	)
2. Deferred Offering Costs
	Compass Diversified Trust		$	(3,308	)f
3. Property, plant and equipment, net
	Crosman		$	(141	)c(1)
	Silvue			863	e(1)
			$	722
4. Investment in subsidiary
	Crosman		$	2,803	c(1)
5. Goodwill
	CBS Personnel		$	500	b(1)
	Crosman			(6,256	) c(1)
	Advanced Circuits			12,471	d(1)
	Silvue			9,101	e(1)
			$	15,816
6. Intangible and other assets, net
	CBS Personnel		$	63,941	b(1)
	Crosman			4,495	c(1)
	Advanced Circuits			(406	)d(1)
	Silvue			13,432	e(1)
	Silvue			(1,240	)g(1)
			$	80,222
7. Current portion of long-term debt
	CBS Personnel		$	(2,037	)b(1)
	Crosman			(4,100	)c(1)
	Advanced Circuits			(3,875	)d(1)
	Silvue			(1,621	)e(1)
			$	(11,633	)

75

---

Table of Contents

	8. Accrued Expenses
		Compass Diversified Trust		$	(3,308	)f
	9. Long-term debt
		CBS Personnel		$	(31,154	)b(1)
		Crosman			(47,605	)c(1)
		Advanced Circuits			(45,688	)d(1)
		Silvue			(11,591	)e(1)
				$	(136,038	)
10. Deferred tax liability
		CBS Personnel		$	24,298	b(1)
		Crosman			1,708	c(1)
		Silvue			4,961	e(1)
				$	30,967
11. Minority interest
		CBS Personnel		$	2,983	b(1)
		Crosman			5,275	c(1)
		Advanced Circuits			5,502	d(1)
		Silvue			2,477	e(1)
				$	16,237
12. Redeemable preferred stock
		Silvue		$	(90	)e(1)
13. Total shareholders’ equity
		CBS Personnel		$	(53,135	)b(1)
		Crosman			(25,178	)c(1)
		Advanced Circuits			(26,628	)d(1)
		Silvue			(8,849	)(1)
		Compass Diversified Trust			(6,000	)f
		Silvue			(1,240	)g(1)
				$	(121,030	)

76

---

Table of Contents

	Statement of Operations:

			Year Ended
			December 31,
			2005
1.   Amortization expense
	CBS Personnel		$	3,898	a(1)
	Crosman			(168	)b(1)
	Advanced Circuits			1,944	c(1)
	Silvue			745	d(1)
			$	6,419
2.   Depreciation expense
	Crosman		$	116	b(3)
	Silvue			365	d(3)
			$	481
3.   Interest expense
	CBS Personnel		$	4,453	a(2)
	Crosman			5,097	b(2)
	Advanced Circuits			1,491	c(2)
	Silvue			1,439	d(2)
			$	12,480
4.   Elimination of prior management fee
	CBS Personnel		$	(1,011	)a(3)
	Crosman			(580	)b(4)
	Advanced Circuits			(139	)c(3)
	Silvue			(350	)d(4)
			$	(2,080	)
5.   New management fee
	Compass Diversified Trust		$	6,819	e
6.   Research and development expense
	Silvue		$	1,240	f
7.   Provision for income taxes
	Compass Diversified Trust		$	3,215	g
8.   Minority interest in income of subsidiaries
	Compass Diversified Trust		$	3,211	h

Note 2.	Pro Forma Adjustments by Acquisition

77

---

Table of Contents

a.	Balance Sheet

Reflects the use of net proceeds from the offering to finance acquisitions, including equity redemptions, and debt repayments:
	CBS Personnel		$	123,486
	Crosman			70,801
	Advanced Circuits			82,754
	Silvue			38,109
			$	315,150

b.	CBS Personnel Acquisition

78

---

Table of Contents

	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		$	500
Intangible and other assets			63,941
Current portion of long-term debt			2,037
Long-term debt			31,154
Deferred tax liability			(24,298	)
Establishment of minority interest			(2,983	)
Elimination of historical shareholders’ equity			53,135
		$	123,486

c.	Crosman Acquisition

79

---

Table of Contents

	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			(6,256	)
Intangible and other assets			4,495
Current portion of long-term debt			4,100
Long-term debt			47,605
Deferred tax liability			(1,708	)
Establishment of minority interest			(5,275	)
Elimination of historical shareholders’ equity			25,178
		$	70,801

d.	Advanced Circuits Acquisition

80

---

Table of Contents

	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:

Goodwill		$	12,471
Intangible and other assets			(406	)
Current portion of long-term debt			3,875
Long-term debt			45,688
Establishment of minority interest			(5,502	)
Elimination of historical shareholders’ equity			26,628
		$	82,754

e.	Silvue Acquisition

81

---

Table of Contents

	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			9,101
Intangible and other assets			13,432
Current portion of long-term debt			1,621
Long-term debt			11,591
Deferred tax liability			(4,961	)
Repayment of mandatorily redeemable preferred stock			90
Establishment of minority interest			(2,477	)
Elimination of historical shareholders’ equity			8,849
		$	38,109

f.	Purchase Accounting Adjustment

Cash		$	(6,000	)
Accrued Expenses			3,308
Deferred Offering Cost			(3,308	)
Shareholders’ Equity			6,000
		$	—

g.	In-Process Research & Development

82

---

Table of Contents

		Shareholders’ Equity		$	1,240
		Intangible and Other Assets			(1,240	)
				$	—

	Statements of Operations:

				Year Ended
				December 31,
				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, 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
		Non-piracy covenants of $600 which will be amortized over 3 years			200
		Subtotal			5,800
		Amortization included in historical financial statements			(1,902	)
				$	3,898
		2.   Reduction of interest expense with respect to the $33.2 million long-term debt redeemed in connection with the acquisition of CBS Personnel		$	(4,453	)
		3.   Elimination of management fees paid to prior owner of CBS Personnel in connection with management service contract		$	(1,011	)
B.		The following entries represent the pro forma adjustments 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, 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		$	71
		License agreement of $1,100 which will be amortized over 6 years			183
		Distributor relationships of $2,900 which will be amortized over 11 years			264
		Subtotal			518
		Amortization included in historical financial statements			(686	)
				$	(168	)
		2.   Reduction of interest expense with respect to $51.7 million debt redeemed in connection with acquisition of Crosman		$	(5,097	)
		3.   Additional depreciation expense resulting from the acquisition of Crosman		$	116
		4.   Elimination of management fees paid to prior owner of Crosman in connection with prior management services contract		$	(580	)

83

---

Table of Contents

				Year Ended
				December 31,
				2005
C.		The following entries represent the pro forma adjustments 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, 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		$	2,011
		Technology of $2,600 which will be amortized over 4 years			650
		Subtotal		$	2,661
		Amortization included in historical financial statements			(717	)
				$	1,944
		2.   Reduction of interest expense with respect to $49.6 million of debt redeemed in connection with the acquisition of Advanced Circuits		$	(1,491	)
		3.   Elimination of management fee paid to prior owner of Advanced Circuits in connection with prior management service contract		$	(139	)
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, 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
		Core technology of $3,700 which will be amortized over 13 years			285
		Subtotal			1,454
		Amortization included in historical financial statements			(709	)
				$	745
		2.   Reduction of interest expense with respect to $13.2 million of debt redeemed in connection with the acquisition of Silvue		$	(1,439	)
		3.   Additional depreciation expense resulting from the acquisition of Silvue		$	365
		4.   Elimination of management fees paid to prior owner of Silvue in connection with management service contract not assumed by us		$	(350	)

84

---

Table of Contents

				Year Ended
				December 31,
				2005
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. This amount will represent the total management fee to be paid to the manager.
		The amounts were determined by using the combined pro forma balance sheet at December 31, 2005 and was calculated as follows:
		Total Assets		$	454,950
		Less: Total Liabilities			113,979
		Adjusted Net Assets			340,971
		Management Fee %			2.0%
				$	6,819

F.		Adjustment to record expensing of the IPR&D acquired in connection with the acquisition of Silvue on January 1, 2005 since the IPR&D had no alternative use.		$	1,240
G.		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. The amounts were calculated as follows:
		Advanced Circuits income before provision for income taxes		$	13,609
		Pro Forma Amortization Applicable to Advanced Circuits			(1,944	)
		Pro Forma Management Fee Applicable to Advanced Circuits			(362	)
		Adjusted Pre-Tax Income			11,303
		Provision for income taxes			4,216
		Historical Provision for income taxes			(1,001	)
				$	3,215
H.		Adjustment to record the minority interest in net income. The adjustment for minority interest was calculated by applying the minority ownership percentage for each business to the net income applicable to the minority interest holders.		$	3,211

Note 3.	Pro Forma Income from Continuing Operations per Share

		Net Income		$	17,263
		Pro Forma Weighted Average
		Number of Shares Outstanding(1)			23,333
		Pro Forma Net Income Per Share		$	0.74

	(1)	Pro Forma weighted average number of shares outstanding was derived by dividing the estimated gross proceeds from the offering and private placement of $350 million by the assumed initial price per share of $15.

Note 4.	Other Estimates

85

---

Table of Contents

86

---

Table of Contents

		Fiscal Year Ended December 31,
CBS Personnel		2003				2004				2005
		($ in thousands)
Statements of Operations Data:
Revenues		$	194,717			$	315,258			$	543,012
Direct cost of revenues			155,368				254,987				441,685
Gross Profit			39,349				60,271				101,327
Operating expenses:
Staffing			23,081				31,974				54,249
Selling, general and Administrative			12,132				17,796				26,723
Amortization			491				1,051				1,902
Income from operations			3,645				9,450				18,453
Other income (expense):
Interest expense			(2,929	)			(2,100	)			(4,453	)
Other Income			224				148				138
Income before provision for income taxes			940				7,498				14,138
Provision for income taxes			(117	)			(85	)			(5,150	)
Net income		$	823			$	7,413			$	8,988
Cash Flow Data:
Cash provided by operating activities		$	3,944				6,581				14,654
Cash (used in) investing activities			(302	)			(30,059	)			(1,018	)
Cash (used in) provided by financing activities			(3,736	)			23,970				(13,176	)
Net (decrease) increase in cash		$	(94	)		$	492			$	460
Supplemental Information:
Depreciation Expense		$	1,431			$	1,344			$	1,426

		At December 31,
		2004				2005
		($ in thousands)
Balance Sheet Data:
Total current assets		$	66,371			$	68,829
Property and equipment, net			3,081				2,876
Goodwill			59,307				59,295
Other intangibles, net and other assets			11,228				10,752
Total assets			139,987				141,752
Current liabilities			41,499				44,514
Long-term debt			43,893				31,154
Workers’ Compensation and other liabilities			10,684				12,949
Total liabilities			96,076				88,617
Shareholders’ equity			43,911				53,135

87

---

Table of Contents

																		(Unaudited)
						Predecessor				Successor
		Year				July 1, 2003				February 10,				Year				Six Months Ended
		Ended				to				2004 to				Ended
		June 30,				February 9,				June 30				June 30,				December 26,				January 1,
Crosman		2003				2004				2004				2005				2004				2006
		($ in thousands)
Statements of Operations Data:
Net sales		$	53,333			$	38,770			$	24,856			$	70,060			$	38,234			$	45,223
Cost of sales			37,382				26,382				17,337				50,874				26,471				32,916
Gross Profit			15,951				12,388				7,519				19,186				11,763				12,307
Operating expenses:
Selling, general and administrative			8,749				5,394				4,119				10,526				5,393				4,896
Amortization			132				70				258				629				310				367
Operating income			7,070				6,924				3,142				8,031				6,060				7,044
Other income (expense):
Interest expense			(1,978	)			(402	)			(1,588	)			(4,638	)			(2,236	)			(2,695	)
Other income (expense)			424				(1,560	)			(281	)			(2,792	)			(68	)			193
Income before provision for income taxes			5,516				4,962				1,273				601				3,756				4,542
Provision for income taxes			(2,122	)			(1,824	)			(463	)			(112	)			(1,407	)			(1,721	)
Net income		$	3,394			$	3,138			$	810			$	489			$	2,349			$	2,821
Cash Flow Data:
Cash provided by (used in) operating activities		$	4,360			$	8,551			$	89			$	3,110			$	(6,133	)		$	647
Cash (used in) investing activities			(572	)			(1,181	)			(65,809	)			(2,014	)			(944	)			(677	)
Cash (used in) provided by financing activities			(3,865	)			(7,146	)			65,905				(527	)			7,346				53
Net (decrease) increase in cash		$	(77	)		$	224			$	185			$	569			$	269			$	23
Supplemental Information:
Depreciation Expense		$	2,295			$	1,205			$	847			$	2,146			$	1,069			$	1,121

										(Unaudited)
		At June 30,								At
										January 1,
		2004				2005				2006
		($ in thousands)
Balance Sheet Data:
Total current assets		$	25,497			$	28,622			$	36,470
Property, plant and equipment, net			10,583				10,513				10,069
Goodwill			30,951				30,951				30,951
Intangible and other assets			14,900				14,097				14,105
Total assets			81,931				84,183				91,595
Current liabilities			10,072				11,001				14,598
Notes payable under revolving line of credit			7,138				10,385				11,329
Long-term debt			37,917				35,334				35,033
Capitalized lease obligations and other liabilities			4,878				5,117				5,457
Total liabilities			60,005				61,837				66,417
Shareholders’ equity			21,926				22,346				25,178

88

---

Table of Contents

										Predecessor				Successor
		Predecessor				Predecessor				January 1,				September 20,
		Year Ended				Year Ended				2005 to				2005 to
		December 31,				December 31,				September 19,				December 31,
Advanced Circuits		2003				2004				2005				2005
		($ in thousands)
Statements of Operations Data:
Net sales		$	27,796			$	36,642			$	29,726			$	12,243
Cost of sales			14,568				17,867				12,960				5,143
Gross Profit			13,228				18,775				16,766				7,100
Operating expenses:
General and administrative			5,521				6,564				5,835				2,448
Amortization of intangibles			—				—				—				717
Income from operations			7,707				12,211				10,931				3,935
Other income (expense):
Interest Expense			(204	)			(242	)			(173	)			(1,318	)
Interest income			16				42				164				70
Other income			15				82				—				—
Income before provision for income taxes			7,534				12,093				10,922				2,687
Provision for income taxes			—				—				—				(1,001	)
Net income		$	7,534			$	12,093			$	10,922			$	1,686
Cash Flow Data:
Cash provided by operating activities		$	8,021			$	12,689			$	11,503			$	3,170
Cash (used in) investing activities			(2,167	)			(1,310	)			(502	)			(74,724	)
Cash (used in) provided financing activities			(4,458	)			(8,830	)			(17,453	)			73,156
Net increase (decrease) in cash		$	1,396			$	2,549			$	(6,452	)		$	1,602
Supplemental Information:
Depreciation Expense		$	729			$	869			$	715			$	169

		At December 31,
		2004				2005
		($ in thousands)
Balance Sheet Data:
Total current assets		$	9,564			$	5,020
Property and equipment, net			6,669				3,185
Goodwill and other assets			556				71,765
Total assets			16,789				79,970
Current liabilities			3,422				7,274
Long-term debt			2,787				45,688
Other liabilities			131				380
Total liabilities			6,340				53,342
Shareholders’ equity			10,449				26,628

89

---

Table of Contents

						Predecessor				Successor
		Predecessor				January 1,				September 3,				Successor
		Year Ended				2004 to				2004 to				Year Ended
		December 31,				September 2,				December 31,				December 31,
Silvue		2003				2004				2004				2005
		($ in thousands)
Statements of Operations Data:
Net sales		$	10,446			$	7,604			$	4,532			$	17,093
Cost of sales			1,555				1,094				611				3,816
Gross Profit			8,891				6,510				3,921				13,277
Operating expenses:
Selling, general and administrative			5,276				4,006				2,320				7,491
Research and Development costs			550				448				637				1,072
Amortization of intangibles			—				—				209				709
Operating income			3,065				2,056				756				4,005
Other income (expense):
Interest income			8				5				—				—
Interest expense			(31	)			(5	)			(366	)			(1,439	)
Other income			377				175				136				90
Income before provision for income taxes			3,419				2,231				525				2,656
Provision for income taxes			1,062				735				472				1,257
Income from continuing operations			2,357				1,496				53				1,399
Income (loss) from discontinued operations			(843	)			(225	)			59				132
Net income		$	1,514			$	1,271			$	112			$	1,531
Cash Flow Data:
Cash provided by operating activities		$	1,853			$	1,378			$	867			$	2,338
Cash provided by (used in) investing activities			(859	)			(210	)			(8,460	)			24
Cash (used in) provided by financing activities			(228	)			(3,045	)			7,264				(1,692	)
Net increase (decrease) in cash		$	766			$	(1,876	)		$	(329	)		$	670
Supplemental Information:
Depreciation Expense		$	196			$	219			$	104			$	404

		At December 31,
		2004				2005
		($ in thousands)
Balance Sheet Data:
Total current assets		$	4,743			$	6,025
Property, plant and equipment, net			750				1,257
Goodwill			9,109				11,266
Other Intangibles, net and other assets			13,899				12,697
Total assets			28,501				31,245
Current liabilities			4,679				5,973
Long-term debt			11,788				11,591
Deferred income tax liability and other liabilities			4,458				4,742
Total liabilities			20,925				22,306
Cumulative redeemable preferred stock			90				90
Shareholders’ equity			7,486				8,849

90

---

Table of Contents

	•	first, to meet capital expenditure requirements, management fees and corporate overhead expenses of the businesses that we own, the company and the trust;
	•	second, to fund distributions by the company to the trust; and
	•	third, to be distributed by the trust to shareholders.

	•	CBS Personnel;
	•	Crosman;
	•	Advanced Circuits; and
	•	Silvue.

	•	an aggregate amount of approximately $68.6 million will be funded to CBS Personnel.
	•	an aggregate amount of approximately $45.2 million will be funded to Crosman.
	•	an aggregate amount of approximately $48.6 million will be funded to Advanced Circuits.
	•	an aggregate amount of approximately $14.0 million will be funded to Silvue.

91

---

Table of Contents

	Business Combinations

92

---

Table of Contents

	Goodwill, Intangible Asset and Property and Equipment

93

---

Table of Contents

	Allowance for Doubtful Accounts

														Year Ended
		Year Ended December 31, 2005												June 30, 2005
		CBS Personnel				Advanced Circuits(2)				Silvue				Crosman(1)
		($ in thousands)
Net Sales		$	543,012			$	41,969			$	17,093			$	70,060
Allowance for doubtful accounts		$	2,646			$	105			$	5			$	998
% of Revenue			0.48	%			0.25	%			0.03	%			1.42	%
Accounts Receivable		$	65,969			$	2,952			$	2,245			$	14,745
Allowance for doubtful accounts		$	2,646			$	105			$	5			$	998
% of Accounts Receivable			4.01	%			3.56	%			0.22	%			6.77	%

(1)	For presentation of annualized amounts, it was necessary to reflect amounts as of June 30, 2005 due to Crosman having a June 30th fiscal year end.
(2)	Computed as net sales for predecessor combined January 1, 2005 through September 19, 2005 plus consolidated successor September 20, 2005 through December 31, 2005.

	Workers’ Compensation Liability

	Deferred Tax Assets

94

---

Table of Contents

	Revenues

95

---

Table of Contents

	Expenses

	Financial Condition, Liquidity and Capital Resources

	•	CBS Personnel — Approximately $68.6 million;
	•	Crosman — Approximately $45.2 million;
	•	Advanced Circuits — Approximately $48.6 million; and
	•	Silvue — Approximately $14.0 million.

96

---

Table of Contents

97

---

Table of Contents

	•	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 allocation interests it owns, including the right to receive profit allocations from the company.

	Overview

98

---

Table of Contents

	Fiscal Year Ended December 31, 2005 as Compared to Fiscal Year Ended December 31, 2004

			Fiscal Year Ended
			December 31,
			2004				2005
			($ in thousands)
Revenues			$	315,258			$	543,012
Direct cost of revenues				254,987				441,685
	Gross profit			60,271				101,327
Staffing expense				31,974				54,249
Selling, general and administrative expenses				17,796				26,723
Amortization expense				1,051				1,902
	Income from operations			9,450				18,453
Interest expense				(2,100	)			(4,453	)
Other income				148				138
	Income before provision for income taxes			7,498				14,138
Provision for income taxes				85				5,150
	Net income		$	7,413			$	8,988

	Revenues

99

---

Table of Contents

	Direct cost of revenues

	Staffing expense

	Selling, general and administrative expenses

	Amortization expense

	Income from operations

100

---

Table of Contents

	Interest expense

	Provision for income taxes

	Net income

	Fiscal Year Ended December 31, 2004 as Compared to Fiscal Year Ended 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

101

---

Table of Contents

	Direct cost of revenues

	Staffing expense

	Selling, general and administrative expenses

	Amortization expense

	Income from operations

102

---

Table of Contents

	Interest expense

	Other income

	Provision for income taxes

	Net income

	Liquidity and Capital Resources

	Impact of proposed acquisition by the company

	Sources of and uses for Cash

	•	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

103

---

Table of Contents

	•	third-party long-term debt will be repaid with long-term debt with similar terms.

	Cash and Equivalents

	Operating Activities

	•	An increase in net income of approximately $1.6 million principally due to higher operating income as a result of the acquisition of VSP partially offset by increases in interest expense and taxes.
	•	An increase in non-cash charges included in net income of approximately $2.0 million. Significant components of this increase are an increase of approximately $0.9 million in depreciation and amortization primarily due to the amortization of intangibles acquired in connection with the acquisition of VSP, approximately $0.6 million of deferred interest charge in the year ended December 31, 2005, associated with the loan incurred in connection with the acquisition of VSP, and a decrease in deferred taxes of approximately $0.5 million.
	•	An increase of approximately $1.6 million in accounts receivable for the year ended December 31, 2005, as compared to an increase of approximately $6.9 million in the year ended December 31, 2004. The greater increase in the year ended December 31, 2004, was primarily related to a large increase in revenue and number of customers served as a result of the VSP acquisition. Accounts receivables totaled approximately $62.8 million at December 31, 2005.
	•	An increase of approximately $0.6 million in prepaid expenses and other assets for the year ended December 31, 2005, as compared to an increase of approximately $1.1 million in the year ended December 31, 2004. The greater increase in the year ended December 31, 2004, was primarily related to assets acquired as part of the VSP acquisition.
	•	An increase in accounts payable and accrued liabilities of approximately $3.7 million for the year ended December 31, 2005, as compared to a decrease in accounts payable of approximately $1.6 million in the year ended December 31, 2004. The increase in accounts payable is primarily due to CBS Personnel’s purchase of goods and services in the year ended December 31, 2005 at more favorable terms. Accounts payable totaled approximately $8.8 million at December 31, 2005.

	Investing Activities

104

---

Table of Contents

	Financing Activities

	Commitments and Contingencies

		Payments Due by Period
						Less than												More than
		Total				1 Year				2-3 Years				4-5 Years				5 Years
		($ in thousands)
Long-term debt		$	33,191			$	2,037			$	3,757			$	27,397			$	—
Operating lease obligations		$	13,977			$	4,709			$	6,216			$	2,321			$	731
Compensation due under employment agreements		$	408			$	350			$	58			$	—			$	—
Total contractual cash obligations		$	47,576			$	7,096			$	10,031			$	29,718			$	731

105

---

Table of Contents

	Quantitative and Qualitative Disclosures about Market Risk

	Overview

106

---

Table of Contents

			Q1				Q2				Q3				Q4
2005
	Net sales			15,511				22,723				12,897				18,929
	Operating Income			1,533				4,527				820				1,151
	Net Income			347				2,002				(471	)			(1,389	)
2004
	Net sales			13,315				20,056				13,112				17,143
	Operating Income			1,766				4,803				1,059				2,438
	Net Income			1,036				3,145				(1,311	)			1,078
2003
	Net sales			13,397				16,048				9,201				14,687
	Operating Income			1,312				3,473				324				1,961
	Net Income			502				1,602				58				1,232

	Results of Operations

	Six Months Ended January 1, 2006 Compared to Six Months Ended December 26, 2004

			(Unaudited)
			Six Months Ended
			December 26,				January 1,
			2004				2006
			($ in thousands)
Net sales			$	38,234			$	45,223
Cost of sales				26,471				32,916
	Gross profit			11,763				12,307
Selling, general and administrative expenses				5,393				4,896
Amortization expense				310				367
	Operating income			6,060				7,044
Interest expense				2,236				2,695
Foregone offering costs				161				—
Equity in losses of joint venture				132				24
Other income				(225	)			(217	)
	Income before provision for income taxes			3,756				4,542
Provision for income taxes				1,407				1,721
	Net income		$	2,349			$	2,821

107

---

Table of Contents

	Net sales

	Cost of sales

	Selling, general and administrative expenses

	Amortization expense

	Operating income

	Interest expense

108

---

Table of Contents

	Equity in losses of joint venture

	Other income

	Provision for income taxes

	Net income

	Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended 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 joint venture				(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.

109

---

Table of Contents

	Net sales

	Cost of sales

	Selling, general and administrative expenses

	Amortization expense

	Operating income

	Interest expense

	Equity in (income) loss of joint venture

110

---

Table of Contents

	Recapitalization and foregone offering costs

	Other (income)

	Provision for income taxes

	Net income

	Fiscal Year Ended June 30, 2004 Compared to Fiscal Year Ended 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 joint venture				(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.

111

---

Table of Contents

	Net sales

	Cost of sales

	Selling, general and administrative expenses

	Amortization expense

	Operating income

	Interest expense

112

---

Table of Contents

	Equity in (income) of joint venture

	Recapitalization and foregone offering costs

	Other (income)

	Provision for income taxes

	Net income

	Liquidity and Capital Resources

	Impact of proposed acquisition by the company

	Sources of and uses for Cash

113

---

Table of Contents

	•	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 repaid with long-term debt with similar terms.

	Six Months Ended January 1, 2006 Compared to Six Months Ended December 26, 2004

	Cash and Equivalents

	Operating Activities

	•	An increase in net income of approximately $0.5 million principally due to increased sales of Soft Air products.
	•	An increase in inventory of approximately $1.3 million for the six months ended January 1, 2006 as compared to an increase of approximately $6.2 million for the six months ended December 26, 2004. The current year increase in inventory is consistent with the increase in sales. The prior year increase in inventory resulted from purchasing certain products to support Crosman’s sales growth objectives. The inventory growth in the first half of the fiscal year 2005 was offset by a reduction of approximately $4.9 million in the second half of the year.
	•	An increase in accounts payable and accrued expenses of approximately $2.6 million for the six months ended January 1, 2006 as compared to an increase of approximately $1.9 million for the six months ended December 26, 2004. Accounts payable and accrued expenses provided more cash in the first half of fiscal year 2006 than fiscal year 2005 due primarily to a large bonus that was paid in the first half of fiscal year 2005 that was accrued for at June 30, 2004. There was no such bonus paid for fiscal year 2005 in the first half of fiscal year 2006. Accounts payable and accrued expenses totaled $9.2 million at the end of the six months ended January 1, 2006.

114

---

Table of Contents

	Investing Activities

	Financing Activities

	Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004

	Operating Activities

	•	A decrease in net income of approximately $3.5 million due principally to lower gross margin on sales and higher interest expense associated with the acquisition of Crosman by a subsidiary of CGI.
	•	An increase in inventory of approximately $1.4 million for the year ended June 30, 2005 as compared to an increase of approximately $2.9 million for the year ended June 30, 2004. Inventory increased at a lower rate in fiscal year 2005 because the sales increase for the year ended June 30, 2005 was less than the increase for the year ended June 30, 2004.

115

---

Table of Contents

	•	A decrease in accounts payable and accrued expenses of approximately $1.0 million for the year ended June 30, 2005 as compared to an increase of approximately $3.9 million for the year ended June 30, 2004. The change in accounts payable and accrued expenses is primarily due to two items. First, bonuses accrued at June 30, 2004 were paid in fiscal year 2005. There was only a de minimus bonus accrual at June 30, 2005. Second, accounts payable and accrued expenses declined due to the timing of Crosman’s payments to its suppliers. As described above, in 2005 Crosman purchased a significant portion of its inventory requirements for the second half of its fiscal year during the first half of its fiscal year. Therefore, a greater percentage of the inventory on hand had already been paid for on June 30, 2005 than on June 30, 2004.

	Investing Activities

	Financing Activities

	Commitments and Contingencies

116

---

Table of Contents

		Payments Due by Period
						Less than												More than
		Total				1 Year				1-3 Years				3-5 Years				5 Years
		($ in thousands)
Long-term debt		$	39,133			$	4,100			$	21,033			$	14,000			$	—
Revolving line of credit			11,239				—				11,239				—				—
Deferred interest			1,243				—				—				1,243				—
Capital lease obligations			171				64				82				25				—
Operating lease obligations			608				221				366				21				—
Total contractual cash obligations		$	52,394			$	4,385			$	32,720			$	15,289			$	—

	Quantitative and Qualitative Discussion about Market Risk

	Overview

117

---

Table of Contents

	Results of Operations

	Fiscal Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31, 2004

			Fiscal Year Ended
			December 31,
			2004				2005
			($ in thousands)
Net sales			$	36,642			$	41,969
Cost of sales				17,867				18,102
	Gross profit			18,775				23,867
Selling, general and administrative expenses				6,564				8,283
Amortization of Intangibles				—				717
	Income from operations			12,211				14,867
Interest expense				(242	)			(1,491	)
Interest income				42				233
Other income				82				—
	Income before provision for income taxes			12,093				13,609
Provision for income taxes				—				1,001
	Net income		$	12,093			$	12,608

	Net sales

118

---

Table of Contents

	Cost of sales

	Selling, general and administrative expenses

	Amortization of intangible

	Income from operations

	Interest expense

	Interest income

	Provision for income taxes

119

---

Table of Contents

	Net income

	Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended 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
	Income from operations			7,707				12,211
Interest expense				(204	)			(242	)
Interest income				16				42
Other income				15				82
	Net income		$	7,534			$	12,093

	Net sales

	Cost of sales

120

---

Table of Contents

	Selling, general and administrative expenses

	Income from operations

	Interest expense

	Interest income

	Net income

	Liquidity and Capital Resources

	Impact of proposed acquisition by the company

	Sources of and uses for Cash

121

---

Table of Contents

	•	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 repaid with long-term debt with similar terms.

	Cash and Equivalents

	Operating Activities

	•	An increase in net income of approximately $0.5 million principally due to increased sales in prototype and quick-turn PCBs partially offset by higher operating expenses, greater interest expense and increased tax expenses.
	•	An increase in non-cash charges included in net income of approximately $1.0 million. This increase was comprised primarily of an increase of approximately $0.7 million in amortization expense related to the amortization of intangibles acquired in connection with the acquisition of Advanced Circuits in September 2005, an increase of approximately $0.1 million in deferred tax benefit and an increase of approximately $0.1 million in compensation cost for options granted to management.
	•	An increase of approximately $0.3 million in accounts receivable for the year ended December 31, 2005, as compared to an increase of approximately $0.7 million in the year ended December 31, 2004. The larger increase in the year ended December 31, 2004, was primarily related to greater sales growth in the year ended December 31, 2004, as compared to the year ended December 31, 2005. Accounts receivables totaled approximately $2.8 million at December 31, 2005.
	•	A decrease of approximately $0.4 million in accounts payable for the year ended December 31, 2005, as compared to an increase in accounts payable of approximately $0.2 million for the year ended December 31, 2004. The decrease in accounts payable is primarily due to slightly stricter payment terms received from vendors in the year ended December 31, 2005. Accounts payable totaled $0.8 million at December 31, 2005.
	•	An increase of approximately $0.9 million in income taxes payable for the year ended December 31, 2005. The increase in income tax is primarily due to Advanced Circuits’ conversion to a C-corporation on September 20, 2005, as part of the acquisition.

122

---

Table of Contents

	Investing Activities

	Financing Activities

	Commitments and Contingencies

123

---

Table of Contents

		Payments Due by Period
						Less than				1-3				3-5				More than
		Total				1 Year				Years				Years				5 Years
		($ in thousands)
Long-term debt		$	49,563			$	3,875			$	9,563			$	12,750			$	23,375
Operating lease obligations			7,101				482				965				965				4,689
Total contractual cash obligations		$	56,664			$	4,357			$	10,528			$	13,715			$	28,064

	Quantitative and Qualitative Discussion about Market Risk

	Overview

124

---

Table of Contents

	Results of Operations

	Fiscal Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

				Fiscal Year Ended
				December 31,
				2004				2005
				($ in thousands)
Net sales				$	12,137			$	17,093
Cost of sales					1,707				3,816
	Gross profit				10,430				13,277
Selling, general and administrative expenses					6,325				7,491
Research and development costs					1,085				1,072
Amortization of intangibles					208				709
	Operating income				2,812				4,005
Other income (expense):
	Interest income				6				—
	Other income				41				20
	Equity in net income of joint venture				269				70
	Interest expense				(372	)			(1,439	)
		Total other expense			(56	)			(1,349	)
Income from continuing operations before provision for income taxes					2,756				2,656
Provision for income taxes					(1,207	)			(1,257	)
Income from continuing operations					1,549				1,399
Income (loss) from discontinued operations					(166	)			132
Net income				$	1,383			$	1,531

	Net sales

125

---

Table of Contents

	Cost of sales

	Selling, general and administrative expense

	Research and development costs

	Amortization of intangibles

	Operating income

	Equity in net income of joint venture

126

---

Table of Contents

	Interest expense

	Provision for income taxes

	Income from continuing operations

	Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended December 31, 2003

				Fiscal Year Ended
				December 31,
				2003				2004
				($ in thousands)
Net sales				$	10,446			$	12,137
Cost of sales					1,555				1,707
	Gross profit				8,891				10,430
Selling, general and administrative expenses					5,276				6,325
Research and development costs					549				1,085
Amortization of intangibles					—				208
	Operating income				3,065				2,812
Other income (expense):
	Interest income				8				6
	Other income				—				41
	Equity in net income of joint venture				377				269
	Interest expense				(31	)			(372	)
		Total other (expense) income			354				(56	)
Income before provision for income taxes					3,419				2,756
Provision for income taxes					(1,062	)			(1,207	)
Income from continuing operations					2,357				1,549
Loss from discontinued operations					(843	)			(166	)
		Net income		$	1,514			$	1,383

127

---

Table of Contents

	Net sales

	Cost of sales

	Selling, general and administrative expenses

	Research and development costs

	Operating income

	Equity in net income of joint venture

	Interest expense

128

---

Table of Contents

	Provision for income taxes

	Income from continuing operations

	Loss from discontinued operations

	Liquidity and Capital Resources

	Impact of proposed acquisition by the company

	Sources of and uses for Cash

	•	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 repaid with long-term debt with similar terms.

129

---

Table of Contents

	Cash and Equivalents

	Operating Activities

	•	An increase in net income of approximately $0.1 million principally due to the acquisition of Nippon ARC.
	•	An increase in non-cash charges included in net income of approximately $0.2 million. Depreciation and amortization increased in the year ended December 31, 2005, by approximately $0.6 million primarily due to the amortization of intangibles acquired in connection with the Nippon ARC acquisition and due to a full year of amortization in 2005 for the acquisition of the company. This increase in depreciation and amortization expense in year ended December 31, 2005, was offset by a charge of approximately $0.5 million in in-process research and development expenses in the year ended December 31, 2004, related to the acquisition of Silvue. This amount was expensed as of the date of acquisition since the IPR&D had no alternative use. No such charge was included for the year ended December 31, 2005.
	•	A decrease in accounts receivable of approximately $32 thousand for year ended December 31, 2005, as compared to an increase of approximately $1.0 million in the year ended December 31, 2004. The larger increase in year ended December 31, 2004, was primarily related to the timing of cash receipts. Accounts receivables totaled approximately $2.2 million at December 31, 2005.
	•	A decrease of approximately $0.4 million in accounts payable for the year ended December 31, 2005, as compared to an increase in accounts payable of approximately $0.1 million for the year ended December 31, 2004. The decrease in accounts payable is primarily due to the timing of cash payments. Accounts payable totaled $0.5 million at December 31, 2005.
	•	A decrease of approximately $0.1 million in income taxes payable for the year ended December 31, 2005, as compared to an increase of $0.9 million for the year ended December 31, 2004, as income tax expense remained relatively flat as opposed to the significant increase in 2004 over 2003 income tax expense.

	Investing Activities

130

---

Table of Contents

	Financing Activities

	Commitments and Contingencies

		Payments Due by Period
						Less than												More than
		Total				1 Year				1-3 Years				3-5 Years				5 Years
		($ in thousands)
Long-term debt		$	13,338			$	1,621			$	3,499			$	8,218			$	—
Operating lease obligations		$	1,034			$	210			$	435			$	249			$	140
Total contractual cash obligations		$	14,372			$	1,831			$	3,934			$	8,467			$	140

131

---

Table of Contents

	Quantitative and Qualitative Disclosures about Market Risk

	Currency Risk Exposure

	Interest Rate Exposure

132

---

Table of Contents

	•	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.

	•	CBS Personnel, a human resources outsourcing firm;
	•	Crosman, a recreational products company;
	•	Advanced Circuits, an electronic components manufacturing company; and
	•	Silvue, a global hardcoatings company.

133

---

Table of Contents

	•	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

134

---

Table of Contents

	•	these businesses are less frequently sold pursuant to an auction process.

	Management Strategy

	•	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;

135

---

Table of Contents

	•	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.

	Acquisition Strategy

	•	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.

136

---

Table of Contents

	Strategic Advantages

137

---

Table of Contents

	Valuation and Due Diligence

	•	discounted cash flow analyses;
	•	evaluation of trading values of comparable companies;
	•	expected value matrices;
	•	assessment of competitor, supplier and customer environments; and
	•	examination of recent transactions.

	Financing

138

---

Table of Contents

139

---

Table of Contents

	•	CBS Personnel;
	•	Crosman;
	•	Advanced Circuits; and
	•	Silvue.

140

---

Table of Contents

	Overview

	History of CBS Personnel

141

---

Table of Contents

	Industry

142

---

Table of Contents

	Services

	•	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.

	•	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

	•	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 46% of CBS Personnel’s temporary staffing revenues were derived from light industrial for the fiscal year ended December 31, 2005.
	•	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 40% of CBS Personnel’s temporary staffing revenues were derived from clerical for the fiscal year ended December 31, 2005.
	•	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 the fiscal year ended December 31, 2005.

143

---

Table of Contents

	•	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, 2005.
	•	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 it to meet a broad range of client needs. Moreover, these niche services typically generate higher margins for CBS Personnel. Approximately 8% of CBS Personnel’s temporary staffing revenues were derived from niche/other for the fiscal year ended December 31, 2005.

	Employee Leasing Services

	Temporary-to-Permanent and Permanent Staffing Services

144

---

Table of Contents

	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 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 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.
	•	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

	•	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.

145

---

Table of Contents

	•	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 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

	Competition

146

---

Table of Contents

	•	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.

	Tradenames

147

---

Table of Contents

	Facilities

		Number of				Employee
State		Branch Offices				Hours Billed
						(In thousands)
Ohio			25				10,034
California			20				4,002
Kentucky			14				4,446
Texas			13				4,533
South Carolina			12				2,598
North Carolina			9				1,894
Illinois			8				1,087
Indiana			6				2,218
Pennsylvania			6				991
Massachusetts			5				436
Georgia			4				573
Virginia			3				1,163
New York			2				743
Alabama			2				418
New Jersey			2				160
Washington			1				130
Florida			1				109
Rhode Island			1				56

	Regulatory Environment

148

---

Table of Contents

	Workers’ Compensation Program

	Legal Proceedings

	Capital Structure

	Employees

149

---

Table of Contents

	Overview

	History of Crosman

	Industry

	Recreational Airgun Market

150

---

Table of Contents

	•	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, increased from 2000 to 2003 according to the Sporting Goods Manufacturers Association, or 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 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

	Products

	Recreational Airgun Products

151

---

Table of Contents

	•	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: Crosmantm, Benjamin Sheridantm, and, through licensing agreements, Loguntm, Remingtontm and Walthertm. 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 six months ended December 26, 2004 and January 1, 2006, air rifles accounted for approximately $14.0 million, or 37%, and $14.3 million, or 32% 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: Crosmantm and, through licensing agreements, Berettatm, Colt tm, Smith & Wessontm, and Walthertm. 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 six months ended December 26, 2004 and January 1, 2006, air pistols accounted for approximately $6.4 million, or 17%, and $6.7 million, or 15% 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 Airtm 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 six months ended December 26, 2004 and January 1, 2006, Soft Air accounted for approximately $8.4 million, or 22%, and $15.4 million, or 34% of net sales, respectively.
	•	Consumables — Crosman is a manufacturer of airgun consumables, including CO2 cartridges and ammunition (BBs and pellets). Crosman markets its consumables under the Crosmantm and Copperhead tm brands and markets its CO2 cartridges product families under the Powerletstm and AirSourcetm 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 six months ended December 26, 2004 and January 1, 2006, consumables accounted for approximately $8.6 million, or 22%, and $8.2 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 Crosmantm 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 six months ended December 26, 2004 and January 1, 2006, accessories and other products accounted for approximately $0.8 million, or 2%, and $0.6 million, or 1% of net sales, respectively.

	Paintball Products

152

---

Table of Contents

	Competitive Strengths

	•	Leading Market Position — Management believes Crosman has achieved a strong 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 Significant 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 significant 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 AirSourcetm CO2 cartridges, the Benjamin Sheridantm and Crosmantm break-barrel spring air rifles, an innovative blow-back semi-automatic air rifle, and soft air airguns marketed under the Crosman Soft Airtm brand name. GFP also introduced a new 88-gram AirSourcetm disposable CO2 tank in January 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.

153

---

Table of Contents

	Business Strategies

	•	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

	Customers

154

---

Table of Contents

	Sales and Marketing

	Competition

	Suppliers

	Intellectual Property

155

---

Table of Contents

	Facilities

	Regulatory Environment

	Legal Proceedings

156

---

Table of Contents

	Capital Structure

	Employees

157

---

Table of Contents

	Overview

	History of Advanced Circuits

158

---

Table of Contents

	Industry

	•	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 5 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.
	•	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.

159

---

Table of Contents

	•	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, ranging between 15 days to 10 weeks or more.

	•	Increasing customer demand for 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 of 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 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 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 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

160

---

Table of Contents

		Fiscal Year Ended				Fiscal Year Ended				Fiscal Year Ended
		December 31, 2003				December 31, 2004				December 31, 2005
Prototype Production			41.8%				36.2%				34.0%
Quick-Turn Production			27.7%				29.6%				32.0%
Volume Production			17.0%				19.0%				20.1%
Third Party			13.5%				15.2%				13.9%
Total			100.0%				100.0%				100.0%

(1)	As a percentage of gross sales, exclusive of sale discounts.

	Competitive Strengths

	•	Numerous unique orders per day — For the year ended December 31, 2005, Advanced Circuits received an average of over 270 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 equipment set-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 panel set-up typically accommodates 1 to 12 orders. Further, as a “critical mass” of like

161

---

Table of Contents

		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.
	•	Diverse customer base — Advanced Circuits possesses a customer base with little industry or customer concentration exposure. Each month during fiscal year ended December 31, 2005, Advanced Circuits did business with approximately 4,000 customers and added over 200 new customers. Advanced Circuits’ website receives thousands of hits per day and, each month, it receives approximately 600 requests to establish new web accounts. For the year ended December 31, 2005, no customer represented over 2% of net sales.
	•	Highly responsive culture and 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 — Advanced Circuits offers its customers unique design verification services through its online FreeDFM.com 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 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.
	•	Established partner network — Advanced Circuits has established 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 and focus internal capacity on higher margin, short lead time, production and quick-turn manufacturing.

	Business Strategies

	•	Increase portion of revenue from prototype and 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 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 from local and 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, 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

162

---

Table of Contents

		prototype and quick-turn manufacturing relationships with several subscale local and regional PCB manufacturers. According to Fabfile online, in 2004 there were over 400 small PCB manufacturers with annual sales of under $10 million. Management believes that while many of these manufacturers maintain strong, longstanding customer relationships, they are unable to produce PCBs with short 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 to customers and employees — Over its history, Advanced Circuits has remained focused on providing the highest quality product and service to its customers. Management believes this focus has allowed Advanced Circuits to achieve its outstanding delivery and quality 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.

	Research and Development

	Customers

		2005 Customer
Industry Sector		Distribution
Electrical Equipment and Components			35%
Measuring Instruments			20%
Electronics Manufacturing Services			9%
Engineer Services			9%
Industrial and Commercial Machinery			5%
Business Services			5%
Wholesale Trade-Durable Goods			4%
Educational Institutions			3%
Transportation Equipment			2%
All Other Sectors Combined			8%
Total			100%

163

---

Table of Contents

	Sales and Marketing

	Competition

164

---

Table of Contents

	Suppliers

	Intellectual Property

	Facilities

	Regulatory Environment

165

---

Table of Contents

	Legal Proceedings

	Capital Structure

	Employees

	Overview

166

---

Table of Contents

	History of Silvue

	Industry

167

---

Table of Contents

	Products

	•	Silvue and CrystalCoat — 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.

	•	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

168

---

Table of Contents

		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 protection 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

	•	improving existing products and processes to lower costs, improving product quality, and reducing potential environmental impact;
	•	developing new product platforms and processes; and
	•	developing new product lines and markets through applications research.

	•	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.

169

---

Table of Contents

	Competitive Strengths

	•	Extensive patent portfolio — Silvue owns 11 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 eyewear manufacturers worldwide. Silvue aggressively 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 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.
	•	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, has approximately 80 years of experience in the global hardcoatings and closely related industries.

	Business Strategies

	•	Develop New Products and Expand into New Markets — Silvue’s management believes that Silvue is 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 the state-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

170

---

Table of Contents

		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

		2005 Customer
Industry		Distribution
Performance eyewear and sunglasses			75%
Plastic Sheet			8%
Automotive			7%
Specialty Applications			5%
Metal Applications			5%
Total			100%

	Sales and Marketing

171

---

Table of Contents

	Competition

	Suppliers

	Intellectual Property

172

---

Table of Contents

	Facilities

	Regulatory Environment

	Legal Proceedings

	Capital Structure

173

---

Table of Contents

	Employees

	Discontinued Operations

174

---

Table of Contents

Directors and Named Executive Officers		Age				Position
C. Sean Day(3)			56			Chairman of the Board
I. Joseph Massoud(4)			38			Chief Executive Officer and Director
James J. Bottiglieri(2)			50			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.

175

---

Table of Contents

176

---

Table of Contents

	Audit Committee

	•	retaining and overseeing our independent accountants;
	•	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 calculation of profit allocation when it becomes due and payable;
	•	reviewing conflicts of interest that may arise between the company and our manager;
	•	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 public filings with the SEC; and
	•	reviewing and assessing annually the audit committee’s performance and the adequacy of its charter.

	Compensation Committee

177

---

Table of Contents

	Nominating and Corporate Governance Committee

	•	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;
	•	recommending to the company’s board of directors 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.

178

---

Table of Contents

179

---

Table of Contents

																			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				12/31/2005				—(1	)			—(1	)			—(1	)			—(1	)			—(1	)
	Chief Executive Officer
James J. Bottiglieri				12/31/2005			$	—(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, in part, to pay compensation to Mr. Massoud. Therefore, no compensation information for Mr. Massoud is provided in the above compensation table.
(2)	As of December 31, 2005, Mr. Bottiglieri, our Chief Financial Officer was not an employee of our manager. Accordingly, no compensation was paid or accrued by our manager from November 18, 2005 to December 31, 2005. See section entitled “— Employment Agreement” below.

180

---

Table of Contents

181

---

Table of Contents

182

---

Table of Contents

	•	manage our day-to-day business and operations of the company, including our liquidity and capital resources and compliance with applicable law;
	•	identify and oversee acquisitions of target businesses and any other investments;
	•	oversee the performance of any of our businesses, including monitoring the business and operations of such businesses, and any other investments that we make;
	•	provide, on our behalf, managerial assistance to our businesses;
	•	evaluate, negotiate and oversee dispositions of all or any part of any of our businesses or any other investments that we may have;
	•	provide, as necessary, employees of the manager 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.

183

---

Table of Contents

	•	CBS Personnel and an affiliate of The Compass Group are a party to a five year, automatically renewable management services agreement, dated October 13, 2000. Such management services agreement is currently in its renewal period. Under such management services agreement, CBS Personnel is obligated to pay an annual fee equal to 0.15% of its annual gross revenues, which is payable quarterly in arrears. In addition, CBS Personnel is obligated to provide reimbursement for certain expenses in connection with the services performed under such management services agreement. Such management services agreement may be terminated upon the occurrence of an event of default, as set forth. For the year ended December 31, 2005, CBS Personnel paid approximately $1.0 million to The Compass Group under such management services agreement.
	•	Crosman and an affiliate of The Compass Group are a party to a one year, automatically renewable management services agreement, dated February 10, 2004. Such management services agreement is currently in its renewal period. Under such management services agreement, Crosman is obligated to pay an annual fee equal to $580,000, which is payable quarterly in advance. In addition, Crosman is obligated to provide reimbursement for certain expenses in connection with the services performed under such management services agreement. Such management services agreement may be terminated upon the occurrence of an event of default, as set forth in such agreement. For the year ended June 30, 2005, Crosman paid approximately $580 thousand to The Compass Group under such management services agreement.
	•	Advanced Circuits and an affiliate of The Compass Group are a party to a five year, automatically renewable management services agreement, dated September 20, 2005. Under such management services agreement, Advanced Circuits is obligated to pay an annual fee equal to $500,000, which is payable quarterly in arrears. In addition, Advanced Circuits is obligated to provide reimbursement for certain expenses in connection with the services performed under such management services agreement. Such management services agreement may be terminated upon the occurrence of an event of default, as set forth in such agreement. For the period from September 2005 to December 31, 2005, Advanced Circuits paid approximately $139 thousand to The Compass Group under such management services agreement.
	•	Silvue and an affiliate of The Compass Group are a party to a three year, automatically renewable management services agreement, dated September 2, 2004 as amended September 30, 2004. Under such management services agreement, Silvue is obligated to pay an annual fee equal to $350,000, which is payable quarterly in arrears. In addition, Silvue is obligated to provide reimbursement for certain expenses in connection with the services performed under such management services agreement. Such management services agreement may be terminated upon the occurrence of an event of default, as set forth in such agreement. For the year ended December 31, 2005, Silvue

184

---

Table of Contents

		paid approximately $88 thousand to The Compass Group under such management services agreement.

185

---

Table of Contents

	•	Mr. Massoud or any affiliate of the manager ceases to be the managing member of our manager, which change occurs without the company’s board of directors’ prior written consent;
	•	there is a finding by a court of competent jurisdiction in a final, non-appealable order that (i) 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 (ii) our manager (x) acted with gross negligence, willful misconduct, bad faith or reckless disregard in performing its duties and obligations under the management services agreement or (y) engaged in fraudulent or dishonest acts in connection with the business or operations of the company;
	•	(i) the manager has been convicted of a felony under Federal or State law, (ii) the company’s board of directors finds that our manager is demonstrably and materially incapable of performing its duties and obligations under the management services agreement, and (iii) the holders of a majority of the then outstanding shares vote to terminate the management services agreement; and
	•	(i) there is a finding by a court of competent jurisdiction that our manager has (x) engaged in fraudulent or dishonest acts in connection with the business or operations of the company or (y) acted with gross negligence, willful misconduct, bad faith or reckless disregard in performing its duties and obligations under the management services agreement, and (ii) the holders of a majority of the then outstanding shares vote to terminate the management services agreement.

186

---

Table of Contents

	•	all costs and expenses of the company that are incurred by our manager or its affiliates on behalf of the company, including any out-of-pocket costs and expenses incurred in connection with the performance of services under the management services agreement, and all costs and expenses the reimbursement of which are specifically approved by the company’s board of directors; and
	•	the compensation and other related costs and expenses of the Chief Financial Officer and his staff as approved by the company’s compensation committee.

187

---

Table of Contents

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

CGI(4)

—

—

%

Pharos(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 trust 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 allocation 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, as discussed in more detail in footnote 5, below.
(4)	CGI, through its wholly owned subsidiary, CGI Diversified Holdings, LP, 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. CGI is the sole limited partner of CGI Diversified Holdings, LP. Navco Management, Inc., an affiliate of CGI, is the general partner of CGI Diversified Holdings, LP, and, as a result, Navco Management, Inc. may be deemed to beneficially own the shares held by CGI Diversified Holdings, LP. Navco Management, Inc. is also the general partner of each of the entities selling its controlling interests in the initial businesses to the company. Arthur Coady is a director of Navco Management, Inc. and, as a result, may be deemed to beneficially own the shares held by CGI Diversified Holdings, LP. See the section entitled “Certain Relationships and Related Party Transactions” for more information about this transaction and the relationship of CGI and its affiliated entities.
(5)	Pharos 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 exercising sole voting and investment power with respect to Pharos, will beneficially own Pharos before and after the closing of this offering and will be deemed to beneficially own the shares held by Pharos.

188

---

Table of Contents

			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)
	Allocation interests			100				100	%			100				100	%
	Trust interests			—				—				—				—
Compass Diversified Trust(3)
	Allocation interests			—				—				—				—
	Trust interests			—				—								100	%

(1)	Compass Group Diversified Holdings LLC has two classes of interests: allocation interests and trust interests.
(2)	Compass Group Management LLC, our manager, as sole holder of the allocation 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 our 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 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 result of corresponding interest between shares and trust 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.

			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 (1)			10,000				0.8	%			10,000				0.8	%
I. Joseph Massoud
	Crosman, Common Stock			2,077				0.4	%			—				—
Silvue Coinvestment Partners, LLC(2)
	Silvue, Series B Common Stock			98.6				0.2	%			—				—
	Silvue, Series A Preferred Stock			433.1				1.0	%			—				—
ACI Coinvestment Partners, LLC(3)
	Advanced Circuits, Series B Common Stock			11,880				1.0	%			—				—

(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.
(2)	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.
(3)	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.

189

---

Table of Contents

190

---

Table of Contents

	•	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 allocation interests it owns, including the right to receive profit allocations from the company.

191

---

Table of Contents

192

---

Table of Contents

	Stock Purchase Agreement with Sellers, including CGI and its Subsidiaries

	Loan Agreements with each Initial Business

	Management Services Agreement

	Offsetting Management Services Agreements

193

---

Table of Contents

	LLC Agreement

	Supplemental Put Agreement

	Private Placement Agreements

	Registration Rights Agreements

194

---

Table of Contents

	•	the shares representing beneficial interests in the trust;
	•	the trust interests of the company, which we refer to as trust interests, to be issued to the trust; and
	•	the allocation interests of the company, which we refer to as allocation interests, to be issued to our manager.

195

---

Table of Contents

	General

	Manager’s Profit Allocation

	General

196

---

Table of Contents

	•	voting or consent rights in connection with the anti-takeover provisions 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 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 allocation interests to appoint a director who will serve on the board of directors of the company;
	•	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 allocation interests.

	Board of Directors Appointee

197

---

Table of Contents

	•	The “offer price” will be equal to, as of any exchange date, the average closing price (as described below) per share on the 20 trading days immediately prior to, but not including, such exchange date.
	•	The “closing price” of the shares, on any day, means:

	•	the closing price, or if no closing price is reported, the last reported price of the shares on the Nasdaq Global Market on such day;
	•	if the shares are not so quoted on the Nasdaq Global Market, the price as reported by another recognized securities exchange on which the shares are listed on such 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 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 on such day.

	•	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,

198

---

Table of Contents

	•	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 trust interests entitled to vote thereon;
	•	the unanimous vote of the outstanding 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 with Section 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.

	•	an acquisition exchange or a voluntary exchange;
	•	the dissolution of the company or its failure to revive its charter within 10 days following revocation of the company’s charter;
	•	the entry of a decree of judicial dissolution by a court of competent jurisdiction over the company or the trust; and
	•	the written election of the company.

	•	protect 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;

199

---

Table of Contents

	•	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;
	•	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 Provisions in the Trust Agreement and the LLC Agreement

200

---

Table of Contents

	•	any merger or consolidation 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;
	•	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 (as defined in the trust agreement and the LLC Agreement), as of such date, of not less than ten percent of the net investment value (as defined in the trust agreement and the LLC Agreement), as of such date, of the company;
	•	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;
	•	any spin-off 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;
	•	any reclassification of the shares of the trust or trust interests (including any reverse split of shares or trust 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 trust interests in the company or the equity securities of 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, trust 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.

	•	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 trust interests, as the case may be, and who did not become the beneficial owner of such amount of shares or trust 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 trust 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.

201

---

Table of Contents

202

---

Table of Contents

	•	the purpose or powers of the company;
	•	the authorization of an increase in trust interests;
	•	the distribution rights of the trust interests;
	•	the voting rights of the trust interests;
	•	the provisions regarding the right to acquire trust interests after an acquisition exchange described above;
	•	the right of a holder of shares to enforce the LLC agreement;
	•	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 of the company; and
	•	the provision of the LLC agreement governing amendments thereof.

	•	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;
	•	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;
	•	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;

203

---

Table of Contents

	•	amend the distribution rights of the shares;
	•	increase the number of authorized shares; or
	•	amend the provision of the trust agreement governing the amendment thereof.

204

---

Table of Contents

205

---

Table of Contents

	•	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 Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

206

---

Table of Contents

	•	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 a mark-to-market method of accounting for their securities holdings; or
	•	persons liable for alternative minimum tax.

	•	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.

207

---

Table of Contents

208

---

Table of Contents

	Tax Treatment of the Company

	Tax Treatment of Company Income to Holders

209

---

Table of Contents

	Allocation of Company Profits and Losses

210

---

Table of Contents

	Treatment of Distributions

	Disposition of Shares

211

---

Table of Contents

	Tax Basis in Trust Interests

	Treatment of Securities Loans

	Limitations on Interest Deductions

	Management Fees and Other Expenses

212

---

Table of Contents

	•	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.

	Section 754 Election

	Limitations on Deductibility of Losses

213

---

Table of Contents

	Passive Activity Income and Loss

	Allocations Among Holders

	Constructive Termination

214

---

Table of Contents

	Tax Reporting by the Trust and the Company

	Audits and Adjustments to Tax Liability

215

---

Table of Contents

	Foreign Tax Credits

	Taxation of Certain Foreign Earnings

	Tax Shelter Disclosure Rules

216

---

Table of Contents

217

---

Table of Contents

218

---

Table of Contents

219

---

Table of Contents

			Number of
			Offered
Name of Underwriter			Shares
Ferris, Baker Watts, Incorporated
BB&T Capital Markets, a division of Scott & Stringfellow, Inc.
J.J.B. Hilliard, W.L. Lyons, Inc.
Oppenheimer & Co. Inc.
Sanders Morris Harris Inc.
	Total

	•	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.

	•	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.

220

---

Table of Contents

Total Without

Total With

Over-Allotment

Over-Allotment

Per Share

Exercise

Exercise

Public offering price

$

$

$

Underwriting discount payable by us

Financial advisory fee payable by us

Proceeds before expenses

221

---

Table of Contents

	•	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.

222

---

Table of Contents

223

---

Table of Contents

224

---

Table of Contents

225

---

Table of Contents

226

---

Table of Contents

		Page
		Number(s)
Compass Group Diversified Trust
Report of independent registered public accounting firm			F-4
Consolidated balance sheet as of December 31, 2005			F-5
Consolidated statement of operations for the period November 18, 2005 (date of inception) through December 31, 2005			F-6
Consolidated statement of stockholder’s equity for the period November 18, 2005 (date of inception) through December 31, 2005			F-7
Consolidated statement of cash flows for the period November 18, 2005 (date of inception) through December 31, 2005			F-8
Notes to financial statements			F-9
CBS Personnel Holdings, Inc.
Report of independent registered public accounting firm			F-12
Consolidated balance sheets as of December 31, 2005 and 2004			F-13
Consolidated statements of operations and comprehensive income for the years ended December 31, 2005, 2004 and 2003			F-14
Consolidated statements of shareholders’ equity for the years ended December 31, 2005, 2004 and 2003			F-15
Consolidated statements of cash flows for the years ended December 31, 2005, 2004 and 2003			F-16
Notes to consolidated financial statements			F-17
Crosman Acquisition Corporation
Reports of independent auditors			F-31
Consolidated balance sheets as of June 30, 2005 and 2004			F-33
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-34
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-35
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-36
Notes to consolidated financial statements			F-37
Consolidated balance sheet as of January 1, 2006 (unaudited)			F-54
Consolidated statements of income for the six month periods ended January 1, 2006 and December 26, 2004 (unaudited)			F-55
Consolidated statements of shareholders’ equity for the six month period ended January 1, 2006 (unaudited)			F-56
Consolidated statements of cash flows for the six month periods ended January 1, 2006 and December 26, 2004 (unaudited)			F-57
Notes to consolidated financial statements			F-58

F-1

---

Table of Contents

		Page
		Number(s)
Compass AC Holdings, Inc.
Report of independent registered public accounting firm			F-71
Independent auditors’ report			F-72
Consolidated and combined balance sheets as of December 31, 2005 and 2004			F-73
Consolidated and combined statements of operations for the periods ended December 31, 2005 and September 19, 2005 and for the years ended December 31, 2004 and 2003			F-74
Consolidated statement of stockholders’ equity for the period ended December 31, 2005			F-75
Combined statements of stockholders’ equity and members’ capital for the period ended September 19, 2005 and the years ended December 31, 2004 and 2003			F-76
Consolidated and combined statements of cash flows for the periods ended December 31, 2005 and September 19, 2005 and for the years ended December 31, 2004 and 2003			F-77
Notes to consolidated and combined financial statements			F-78
Silvue Technologies Group, Inc.
Report of independent registered public accounting firm			F-89
Independent auditors’ report			F-90
Consolidated balance sheets as of December 31, 2005 and 2004 (restated)			F-91
Consolidated statements of operations and comprehensive income for the years ended December 31, 2005, 2004 and 2003			F-92
Consolidated statements of stockholders’ equity for the years ended December 31, 2005, 2004 and 2003			F-93
Consolidated statements of cash flows for the years ended December 31, 2005, 2004 and 2003			F-94
Notes to consolidated financial statements			F-96

F-2

---

Table of Contents

		Page(s)
Report of independent registered public accounting firm			F-4
Consolidated balance sheet as of December 31, 2005			F-5
Consolidated statement of operations for the period November 18, 2005 (date of inception) through December 31, 2005			F-6
Consolidated statement of stockholders’ equity for the period November 18, 2005 (date of inception) through December 31, 2005			F-7
Consolidated statement of cash flows for the period November 18, 2005 (date of inception) through December 31, 2005			F-8
Notes to financial statements			F-9–F-10

F-3

---

Table of Contents

F-4

---

Table of Contents

Assets
Current assets:
	Cash			$	100,000
	Deferred public offering costs				3,307,535
		Total assets		$	3,407,535
Liabilities and Stockholders’ Equity
Current liabilities:
	Accrued expenses			$	1,000
	Due to related party				3,307,535
		Total current liabilities			3,308,535
Stockholders’ Equity
Member interest					100,000
Accumulated deficit					(1,000	)
Total stockholders’ equity					99,000
Total liabilities and stockholders’ equity				$	3,407,535

F-5

---

Table of Contents

		November 18, 2005
		(Date of Inception)
		Through
		December 31, 2005
Formation and operating costs		$	1,000
Net loss for the period		$	(1,000	)

F-6

---

Table of Contents

		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 — December 31, 2005		$	100,000			$	(1,000	)		$	99,000

F-7

---

Table of Contents

						November 18, 2005
						(Date of Inception)
						Through
						December 31, 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					$	3,307,535

F-8

---

Table of Contents

	•	CBS Personnel Holdings, Inc. and its consolidated subsidiaries, a human resources outsourcing firm;
	•	Crosman Acquisition Corporation and its consolidated subsidiaries, a recreational products company;
	•	Compass AC Holdings, Inc. and its consolidated subsidiary, an electronic components manufacturing company; and
	•	Silvue Technologies Group, Inc. and its consolidated subsidiaries, a global hardcoatings company.

F-9

---

Table of Contents

F-10

---

Table of Contents

		Page(s)
Report of independent registered public accounting firm			F-12
Consolidated balance sheets as of December 31, 2005 and 2004			F-13
Consolidated statements of operations and comprehensive income for the years ended December 31, 2005, 2004 and 2003			F-14
Consolidated statements of shareholders’ equity for the years ended December 31, 2005, 2004 and 2003			F-15
Consolidated statements of cash flows for the years ended December 31, 2005, 2004 and 2003			F-16
Notes to consolidated financial statements			F-17-F-29

F-11

---

Table of Contents

F-12

---

Table of Contents

					2005				2004
Assets
Current assets:
	Cash				$	992,132			$	532,540
	Accounts receivable:
		Trade, net of allowance for doubtful accounts and reserves of $3,128,763 and $3,415,595 at December 31, 2005 and 2004, respectively				56,193,627				54,126,110
		Unbilled revenue				6,646,556				6,966,431
	Prepaid expenses and other current assets					3,471,665				2,971,406
	Deferred tax assets					1,525,486				1,774,536
			Total current assets			68,829,466				66,371,023
Property and equipment — net						2,876,353				3,080,613
Other assets:
	Goodwill					59,294,763				59,307,301
	Other intangibles — net					8,658,587				10,559,217
	Deferred tax assets — long-term					1,227,195				—
	Other					865,679				669,127
			Total assets		$	141,752,043			$	139,987,281
Liabilities and shareholders’ equity
Current liabilities:
	Current portion of long-term debt				$	2,037,300			$	2,037,300
	Accounts payable					8,776,785				4,947,227
	Accrued expenses:
		Accrued payroll, bonuses and commissions				11,277,083				11,335,902
		Payroll taxes and other withholdings				7,398,293				7,862,404
		Current portion of workers’ compensation obligation				7,867,094				6,965,050
		Other				7,157,341				8,351,255
			Total current liabilities			44,513,896				41,499,138
	Long-term debt					31,154,121				43,893,282
	Workers’ compensation obligation					12,948,822				10,586,981
	Deferred tax liabilities					—				96,951
			Total liabilities			88,616,839				96,076,352
Commitments and contingencies
Shareholders’ equity:
	Common stock:
		Class A, $0.001 par value, 5,000,000 shares authorized; issued and outstanding 2,830,909 at December 31, 2005 and 2004				2,831				2,831
		Class B, $0.001 par value, 5,000,000 shares authorized; issued and outstanding 3,548,384 at December 31, 2005 and 2004				3,548				3,548
		Class C, $0.001 par value, 2,000,000 shares authorized; issued and outstanding 185,299 and 94,799 shares at December 31, 2005 and 2004, respectively				186				95
Additional paid-in capital						47,292,454				47,111,544
Accumulated other comprehensive income						132,015				60,932
Accumulated earnings (deficit)						5,704,170				(3,268,021	)
			Total shareholders’ equity			53,135,204				43,910,929
			Total liabilities and shareholders’ equity		$	141,752,043			$	139,987,281

F-13

---

Table of Contents

				2005				2004				2003
Revenues				$	543,012,261			$	315,258,481			$	194,716,531
Direct costs of revenues					441,685,300				254,987,042				155,367,752
		Gross profit			101,326,961				60,271,439				39,348,779
Operating expenses:
	Staffing expense				54,249,140				31,974,144				23,081,487
	Selling, general and administrative expense				26,723,233				17,796,997				12,131,533
	Amortization				1,901,821				1,050,762				491,087
		Income from operations			18,452,767				9,449,536				3,644,672
Other income (expense):
	Interest expense				(4,452,739	)			(2,099,989	)			(2,928,727	)
	Other income				138,382				148,650				223,589
		Income before provision for income taxes			14,138,410				7,498,197				939,534
Provision for income taxes					5,150,426				84,730				116,816
		Net income			8,987,984				7,413,467				822,718
Other comprehensive income:
	Unrealized gain and change in unrealized loss on interest rate swap				71,083				60,932				763,689
	Comprehensive income			$	9,059,067			$	7,474,399			$	1,586,407

F-14

---

Table of Contents

		Common Stock
																														Accumulated
																														Other
		Class A								Class B								Class C								Additional				Comprehensive				Accumulated
																										Paid in				Income				Earnings
		Shares				Value				Shares				Value				Shares				Value				Capital				(Loss)				(Deficit)				Total
Balance — December 31, 2002			644,320			$	644				487,160			$	488				—			$	—			$	39,749,345			$	(763,689	)		$	(7,746,927	)		$	31,239,861
Net income			—				—				—				—				—				—				—				—				822,718				822,718
Change in unrealized loss on interest rate swap			—				—				—				—				—				—				—				763,689				—				763,689
Balance — December 31, 2003			644,320				644				487,160				488				—				—				39,749,345				—				(6,924,209	)			32,826,268
Net income			—				—				—				—				—				—				—				—				7,413,467				7,413,467
Conversion of debt to Common Stock			2,186,589				2,187				3,061,224				3,060				—				—				7,194,753				—				—				7,200,000
Stock Options Exercised			—				—				—				—				94,799				95				167,446				—				—				167,541
Change in unrealized gain on interest rate swap			—				—				—				—				—				—				—				60,932				—				60,932
Deemed distribution to shareholder			—				—				—				—				—				—				—				—				(3,757,279	)			(3,757,279	)
Balance — December 31, 2004			2,830,909				2,831				3,548,384				3,548				94,799				95				47,111,544				60,932				(3,268,021	)			43,910,929
Net income			—				—				—				—				—				—				—				—				8,987,984				8,987,984
Stock Options Exercised			—				—				—				—				90,500				91				180,910				—				—				181,001
Change in unrealized gain on interest rate swap			—				—				—				—				—				—				—				71,083				—				71,083
Deemed distribution to shareholder			—				—				—				—				—				—				—				—				(15,793	)			(15,793	)
Balance — December 31, 2005			2,830,909			$	2,831				3,548,384			$	3,548				185,299			$	186			$	47,292,454			$	132,015			$	5,704,170			$	53,135,204

F-15

---

Table of Contents

					2005				2004				2003
Cash flows from operating activities:
	Net income				$	8,987,984			$	7,413,467			$	822,718
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				3,327,959				2,394,436				1,922,058
		Loss on disposal of property and equipment				—				117,539				—
		Debt issuance cost				—				225,442				—
		Deferred taxes				(1,075,096	)			(1,677,585	)			—
		Deferred interest				616,947				—				—
	Changes in operating assets and liabilities, net of acquisition:
		Increase in accounts receivable and unbilled receivables				(1,637,560	)			(6,883,598	)			(3,107,530	)
		(Increase) in prepaid expenses and other assets				(625,727	)			(1,062,571	)			(376,926	)
		(Decrease) increase in accounts payable				3,716,221				(1,594,484	)			1,995,644
		Increase in accrued expenses and other long-term liabilities				1,343,664				7,647,860				2,687,696
			Net cash provided by operating activities			14,654,392				6,580,506				3,943,660
Cash flows from investing activities:
	Proceeds from sale of property and equipment					—				1,080,718				—
	Cash paid for acquisition					—				(30,256,149	)			—
	Purchases of equipment and improvements					(1,018,502	)			(883,578	)			(302,198	)
			Net cash used in investing activities			(1,018,502	)			(30,059,009	)			(302,198	)
Cash flows from financing activities:
	Proceeds from exercise of stock options					181,001				167,541				—
	Cash payments for debt issuance costs					(1,191	)			(2,605,043	)			—
	Increase (decrease) in swing-line/revolver					(9,530,000	)			11,949,000				(679,000	)
	Proceeds from issuance of long-term debt					—				20,000,000				—
	Repayment of long-term debt					(3,826,108	)			(5,541,085	)			(3,056,666	)
			Net cash provided by (used in) financing activities			(13,176,298	)			23,970,413				(3,735,666	)
			Net increase (decrease) in cash			459,592				491,910				(94,204	)
Cash — Beginning of year						532,540				40,630				134,834
Cash — End of year					$	992,132			$	532,540			$	40,630
Supplemental disclosures of cash flows information:
	Cash paid for interest				$	4,538,515			$	2,458,085			$	1,061,633
	Cash paid for taxes				$	6,477,076			$	134,832			$	118,260
	Cash paid (received) for interest rate swap				$	(11,522	)		$	102,907			$	803,576
Non-cash investing and financing activity —
	Shareholders’ notes payable converted to Common Stock				$	—			$	7,200,000			$	—
	Landlord-provided tenant improvements				$	(191,947	)		$	—			$	—
	Purchase accounting adjustments				$	(3,255	)		$	—			$	—

F-16

---

Table of Contents

1.	Summary of Significant Accounting Policies

F-17

---

Table of Contents

	Goodwill and Other Intangible Assets

	Impairment of Long-Lived Assets and Intangible Assets

	Property and Equipment

		Years
Buildings and building improvements			31.5
Equipment			5
Furniture and fixtures			7
Computer software costs			3-5

	Advertising

	Use of Estimates

	Workers’ Compensation Liability

F-18

---

Table of Contents

	Income Taxes

	Stock Options

		2005				2004				2003
Net income — as reported		$	8,987,984			$	7,413,467			$	822,718
Stock compensation expense required under fair value method — net of tax			(102,059	)			(104,837	)			(66,368	)
Net income — pro forma		$	8,885,925			$	7,308,630			$	756,350

Weighted average fair value of stock options granted			$11.53				$7.02				$1.95
Risk free interest rates			4.0-4.2%				3.83-4.73%				3.33-4.454%
Expected lives		10 years				10 years				6-10 years

	Interest Rate Swap

	Reclassifications

F-19

---

Table of Contents

2.	Long-term Debt

			2005				2004
Senior Credit Agreement:
	Swing-line and revolving line-of-credit, maturing, June 30, 2009		$	6,780,000			$	16,310,000
	Term note due in quarterly installments through June 30, 2008			5,794,474				9,620,582
Term note maturing on December 31, 2009				20,616,947				20,000,000
				33,191,421				45,930,582
Less: current maturities				(2,037,300	)			(2,037,300	)
Long-term debt			$	31,154,121			$	43,893,282

F-20

---

Table of Contents

2006		$	2,037,300
2007			2,716,400
2008			1,040,774
2009			27,396,947
		$	33,191,421

3.	Capital Structure

Class B

Exercise

Expiration

Issue Date

Shares

Price

Date

Issued To

5/15/01

9,529

$

0.20

7/12/06

Majority Shareholder

2/7/02

13,929

$

0.20

7/12/06

Majority Shareholder

2/7/02

4,821

$

0.20

7/12/06

Minority Shareholder

11/20/02

918,172

$

4.85

11/15/22

Minority Shareholder

F-21

---

Table of Contents

4.	Stock Option Plan

							Weighted
							Average
			Number of				Exercise
			Options				Price
Balance — December 31, 2002				24,531			$	5.00
	Granted			656,500				1.95
	Forfeited			(56,000	)			2.00
Balance — December 31, 2003				625,031			$	2.14
	Granted			265,000				7.02
	Exercised			(94,799	)			1.77
	Forfeited			(67,250	)			2.88
Balance — December 31, 2004				727,982			$	3.90
	Granted			25,000				11.53
	Exercised			(90,500	)			2.00
	Forfeited			(103,031	)			6.40
Balance — December 31, 2005				559,451			$	4.00

		Outstanding
						Weighted				Weighted Avg.
						Avg. Exercise				Contractual
Range of Exercise Price		Shares				Price				Remaining Life
$0.00 — $5.00 per share			369,451			$	2.03				4.55
$5.01 — $7.25 per share			165,000			$	7.25				8.76
$7.26 — $11.53 per share			25,000			$	11.53				9.60

F-22

---

Table of Contents

		Exercisable
						Weighted				Weighted Avg.
						Avg. Exercise				Contractual
Range of Exercise Price		Shares				Price				Remaining Life
$0.00 — $5.00 per share			192,518			$	1.97				4.81
$5.01 — $7.25 per share			36,333			$	7.25				8.76
$7.26 — $11.53 per share			—				—				—

5.	Income Taxes

			2005				2004				2003
Current:
	Federal		$	5,567,291			$	1,407,262				—
	State and local			673,959				363,908				—
Deferred				(1,120,542	)			844,982				186,322
				5,120,708				2,616,152				186,322
Change in valuation allowance				—				(2,522,567	)			(186,322	)
Other				29,718				(8,855	)			116,816
			$	5,150,426			$	84,730			$	116,816

		2005				2004				2003
Provision at federal statutory rate		$	4,948,444			$	2,549,387			$	319,441
State and local taxes — net of federal benefit			499,107				374,910				46,977
Change in valuation allowance			—				(2,522,567	)			(186,322	)
Work opportunity tax credits (“WOTC”)			(622,273	)			(561,963	)			(314,511	)
AMT credits			—				—				(56,097	)
Permanent items			312,812				242,218				190,511
Other			12,336				2,745				116,817
Income tax provision		$	5,150,426			$	84,730			$	116,816

F-23

---

Table of Contents

					2005				2004
Deferred Income Tax Assets
	Allowance for Bad Debt				$	1,005,829			$	825,997
	Workers’ Compensation					5,777,435				3,628,303
	Other Accrued Expenses					629,640				654,746
	Work Opportunity Tax Credits (WOTC)					—				218,320
	AMT Credits					—				105,562
	State NOL’s					92,007				78,000
			Total Deferred Income Tax Assets			7,504,911				5,510,928
Deferred Income Tax Liabilities
	Tax Effect of Other Comprehensive Income				$	(45,447	)		$	—
	Depreciation and Amortization					(4,706,783	)			(3,833,343	)
			Total Deferred Income Tax Liabilities			(4,752,230	)			(3,833,343	)
Total Deferred Income Tax Assets, net					$	2,752,681			$	1,677,585
		Current Deferred Income Tax Assets			$	1,525,486			$	1,774,536
		Long-Term Deferred Income Tax Assets (Liabilities)				1,227,195				(96,951	)
					$	2,752,681			$	1,677,585

6.	Intangible Assets and Deferred Financing Costs

Balance at January 1, 2004		$	49,200,419
Acquisition (Note 11)			10,106,882
Balance at December 31, 2004			59,307,301
Purchase Accounting Adjustments			(12,538	)
Balance at December 31, 2005		$	59,294,763

F-24

---

Table of Contents

			2005				2004				Useful Lives
Loan Origination Costs			$	3,920,191			$	3,919,001				Life of related loan
Non-compete agreement				1,000,000				1,000,000				5 Years
Trademarks and names				1,205,656				1,205,656				4 Years
Customer Lists				7,016,690				7,016,690				9 Years
				13,142,537				13,141,347
Accumulated amortization:
	Loan origination costs			(2,132,643	)			(1,476,858	)
	Non-compete agreement			(1,000,000	)			(843,011	)
	Trademarks and tradenames			(376,767	)			(67,354	)
	Customer Lists			(974,540	)			(194,907	)
			$	8,658,587			$	10,559,217

Years Ended December 31:
2006		$	1,577,747
2007			1,577,747
2008			1,463,178
2009			1,116,295
2010			779,632
Thereafter			2,143,988
		$	8,658,587

7.	Property and Equipment

		2005				2004
Furniture, fixtures and equipment		$	8,663,074			$	7,876,173
Leasehold improvements			1,638,899				1,261,887
			10,301,973				9,138,060
Less — accumulated depreciation			(7,425,620	)			(6,057,447	)
		$	2,876,353			$	3,080,613

F-25

---

Table of Contents

8.	Related Party Transactions

9.	Commitments and Contingencies

F-26

---

Table of Contents

										Net Operating
		Gross				Sublease				Lease
Years Ended December 31,		Payments				Receipts				Commitments
2006		$	4,837,185			$	(128,255	)		$	4,708,930
2007			3,817,942				(95,587	)			3,722,355
2008			2,589,592				(95,587	)			2,494,005
2009			1,751,896				(95,587	)			1,656,309
2010			672,482				(7,966	)			664,516
Thereafter			731,227				—				731,227
Total minimum lease payments		$	14,400,324			$	(422,982	)		$	13,977,342

10.	Retirement Savings Plans

F-27

---

Table of Contents

11.	Acquisition

Accounts receivable		$	29,067
Property and equipment			750
Other assets			1,158
Trademarks and trade names			1,206
Customer list			7,017
Goodwill			10,094
Accounts payable			(3,175	)
Workers’ compensation			(8,120	)
Accrued expenses, mainly payroll and related costs			(11,514	)
Deemed distribution			3,773
		$	30,256

F-28

---

Table of Contents

		2004
Net revenues		$	519,692
Net income		$	8,641

F-29

---

Table of Contents

		Page(s)
Report of independent auditors			F-31–F-32
Consolidated balance sheets as of June 30, 2005 and 2004			F-33
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-34
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-35
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-36
Notes to consolidated financial statements			F-37–F-52

F-30

---

Table of Contents

F-31

---

Table of Contents

F-32

---

Table of Contents

				Successor
				June 30,
				2005				2004
Assets
Current assets
	Cash			$	773			$	204
	Accounts receivable, net				13,747				12,689
	Inventories, net				11,060				9,694
	Refundable income taxes				132				210
	Other current assets				1,806				1,757
	Deferred taxes				1,104				943
		Total current assets			28,622				25,497
Property, plant and equipment, net					10,513				10,583
Investment in equity investee					545				786
Goodwill					30,951				30,951
Intangible and other assets, net					13,552				14,114
		Total assets		$	84,183			$	81,931
Liabilities and Shareholders’ Equity
Current liabilities
	Current portion of long-term debt			$	2,583			$	2,333
	Current portion of capitalized lease obligations				69				61
	Accounts payable				3,991				4,257
	Accrued payroll costs				214				1,436
	Accrued foregone offering costs				1,716				—
	Accrued expenses				2,428				1,985
		Total current liabilities			11,001				10,072
Notes payable under revolving line of credit					10,385				7,138
Long-term debt, net of current portion					35,334				37,917
Capitalized lease obligations, net of current portion					135				132
Accrued interest on Senior Subordinated Notes					901				247
Deferred taxes					3,509				3,951
Other liabilities					572				548
		Total liabilities			61,837				60,005
Commitments and contingencies (Note 14)
Shareholders’ equity
	Common stock — $.01 par value, authorized 1,500,000 shares; issued and outstanding 573,536 and 573,408 shares				6				6
	Additional paid-in capital				22,076				22,083
	Shareholders’ notes receivable				(1,035	)			(973	)
	Retained earnings				1,299				810
		Total shareholders’ equity			22,346				21,926
		Total liabilities and shareholders’ equity		$	84,183			$	81,931

F-33

---

Table of Contents

			Successor									Predecessor
							February 10, 2004					July 1, 2003
			Year Ended				through					through				Year Ended
			June 30,				June 30,					February 9,				June 30,
			2005				2004					2004				2003
Net sales			$	70,060			$	24,856				$	38,770			$	53,333
Cost of sales				50,874				17,337					26,382				37,382
	Gross profit			19,186				7,519					12,388				15,951
Selling, general and administrative expenses				10,526				4,119					5,394				8,749
Amortization of intangible assets				629				258					70				132
	Operating income			8,031				3,142					6,924				7,070
Interest expense				4,638				1,588					402				1,978
Recapitalization and foregone offering expenses				3,022				644					1,853				—
Equity in (earnings) losses of investee				241				14					(70	)			(158	)
Other expense (income), net				(471	)			(377	)				(223	)			(266	)
	Income before income taxes			601				1,273					4,962				5,516
Income tax expense				112				463					1,824				2,122
	Net income		$	489			$	810				$	3,138			$	3,394

F-34

---

Table of Contents

										Capital in				Shareholders’								Total
		Preferred				Common				Excess of				Notes				Retained				Shareholders’
		Stock				Stock				Par Value				Receivable				Earnings				Equity
Predecessor Balance at June 30, 2003		$	8,778			$	12			$	3,635			$	(722	)		$	1,731			$	13,434
Interest accretion on Series B Preferred stock			321				—				—				—				(321	)			—
Exercise of options			—				—				342				—				—				342
Issuance of common stock, net of notes receivable thereon			—				—				43				—				—				43
Payment of notes due on common stock			—				—				—				76				—				76
Net income			—				—				—				—				3,138				3,138
Predecessor Balance at February 9, 2004		$	9,099			$	12			$	4,020			$	(646	)		$	4,548			$	17,033
Successor Balance at February 10, 2004		$	—			$	—			$	—			$	—			$	—			$	—
Issuance of common stock, net of notes receivable thereon			—				6				22,083				(954	)			—				21,135
Interest on notes			—				—				—				(19	)			—				(19	)
Net income			—				—				—				—				810				810
Successor Balance at June 30, 2004			—				6				22,083				(973	)			810				21,926
Redemption of stock			—				—				(7	)			—				—				(7	)
Interest on notes			—				—				—				(62	)			—				(62	)
Net income			—				—				—				—				489				489
Successor Balance at June 30, 2005		$	—			$	6			$	22,076			$	(1,035	)		$	1,299			$	22,346

F-35

---

Table of Contents

				Successor									Predecessor
								February 10, 2004					July 1, 2003
				Year Ended				through					through				Year Ended
				June 30,				June 30,					February 9,				June 30,
				2005				2004					2004				2003
Cash flows from operating activities
Net income				$	489			$	810				$	3,138			$	3,394
Adjustments to reconcile net income to net cash provided by (used in) operating activities
	Depreciation and amortization				2,776				1,106					1,277				2,427
	Deferred income taxes				(603	)			(51	)				390				831
	Foregone offering costs				3,022				—					—				—
	Recapitalization expenses				—				644					1,853				—
	Repayment of note discount								—					—				(853	)
	Accretion of note discount				—				—					—				35
	Loss on unamortized discount of senior subordinated notes				—				—					—				595
	Loss (income) from equity investment				241				14					(70	)			(158	)
	Tax Benefit of stock option exercise				—				—					130				—
	Loss on sale of property, plant and equipment				9				95					38				645
	Interest deferred on senior subordinated notes				654				247					—				(744	)
	Other non-cash expenses				—				—					342				—
(Increase) decrease in operating assets and increase (decrease) in operating liabilities
	Accounts receivable				(1,058	)			(4,240	)				2,924				(1,135	)
	Inventories				(1,366	)			(1,308	)				(1,607	)			(155	)
	Other current assets				(49	)			226					(555	)			(379	)
	Refundable income taxes/income taxes payable				78				(255	)				(394	)			(27	)
	Accounts payable and accrued expenses				(1,045	)			2,817					1,090				(108	)
	Other liabilities				(38	)			(16	)				(5	)			(8	)
		Net cash provided by operating activities			3,110				89					8,551				4,360
Cash flows from investing activities
Capital expenditures					(2,014	)			(1,107	)				(1,156	)			(572	)
Investment					—				—					(25	)			—
Acquisition costs					—				(64,702	)				—				—
		Net cash used in investing activities			(2,014	)			(65,809	)				(1,181	)			(572	)
Cash flows from financing activities
Proceeds from revolving credit facility					81,473				31,233					43,355				61,611
Repayments under revolving credit facility					(78,226	)			(24,095	)				(45,621	)			(62,442	)
Proceeds from issuance of long-term debt					—				41,000					—				4,000
Principal payments and retirement of long-term obligations					(2,394	)			(788	)				(3,146	)			(8,994	)
Financing costs associated with issuance of debt					(67	)			(1,272	)				—				(93	)
Foregone offering costs					(1,306	)			—					—				—
Recapitalization expenses					—				(1,308	)				(1,853	)			—
Redemption of common stock					(7	)			—					—				(3,408	)
Redemption of warrants														—				(855	)
Receipt of payment on notes used to fund common stock purchase					—				—					76				—
Issuance of common stock					—				21,135					43				6,316
		Net cash provided by (used in) financing activities			(527	)			65,905					(7,146	)			(3,865	)
		Net increase (decrease) cash and cash equivalents			569				185					224				(77	)
Cash at beginning of year					204				19					205				282
		Cash at end of year		$	773			$	204				$	429			$	205
Supplemental disclosure of non-cash activities
Equipment financed under capital lease				$	72			$	—				$	127			$	1,000
Foregone offering costs incurred not yet paid					1,716				—					—				—
Equipment financed with issuance of note payable					—				—					—				77

F-36

---

Table of Contents

1.	Organization and Nature of Operations

2.	Significant Accounting Policies

	Revenue Recognition

	Use of Estimates

	Consolidation

	Accounts Receivable

	Inventories

F-37

---

Table of Contents

	Property, Plant and Equipment

Building			25 years
Building improvements			5-10 years
Machinery and equipment			8-10 years
Furniture and fixtures			5-10 years
Computers and software			3-6 years
Tooling			3-6 years
Assets under capital lease			Term of lease

	Long-Lived Assets

	Goodwill

	Advertising Costs

	Self-Insurance

	Guarantees

F-38

---

Table of Contents

	New Accounting Pronouncement

	Financial Instruments

	Income Taxes

F-39

---

Table of Contents

	Reclassification

3.	Inventories

		Successor
		June 30,
		2005				2004
Raw materials		$	3,224			$	3,127
Work-in-process			1,672				1,933
Finished goods			6,164				4,634
		$	11,060			$	9,694

4.	Warranty Reserve

		Successor
		June 30,
		2005				2004
Balance at July 1		$	392			$	335
Accruals for warranties issued during period			1,651				1,438
Settlements made during the period			(1,582	)			(1,381	)
		$	461			$	392

5.	Property, Plant and Equipment

		Successor
		June 30,
		2005				2004
Land		$	256			$	256
Building and improvements			2,340				2,328
Machinery and equipment			6,705				5,072
Furniture and fixtures			141				108
Computers and software			620				483
Tooling			2,721				2,249
Assets under capital lease			254				182
Construction-in-progress			459				749
			13,496				11,427
Less: Accumulated depreciation			(2,983	)			(844	)
		$	10,513			$	10,583

F-40

---

Table of Contents

6.	Intangibles and Other Assets

				Successor
				June 30,
				2005				2004
Intangible assets subject to amortization:
	Financing costs			$	1,339			$	1,272
	Developed Technology				900				900
	License and distribution agreements				2,400				2,400
					4,639				4,572
	Less: Accumulated amortization				(887	)			(258	)
					3,752				4,314
Intangible assets not subject to amortization, excluding goodwill:
		Trademarks			9,800				9,800
	Total intangibles and other assets, excluding goodwill, net			$	13,552			$	14,114

																							There-
			2006				2007				2008				2009				2010				after				Total
Financing costs			$	280			$	280			$	280			$	117			$	—			$	—			$	957
Developed Technology				90				90				90				90				90				322				772
License and distribution agreement				266				266				266				266				182				777				2,023
	Totals		$	636			$	636			$	636			$	473			$	272			$	1,099			$	3,752

7.	Investment

				Successor								Predecessor
				June 30,								June 30,
				2005				2004				2003
Summary of operations:
	Revenues			$	13,547			$	18,316			$	11,708
	Costs and expenses				14,029				18,204				11,392
		Net (loss) income		$	(482	)		$	112			$	316
		Company equity in net (loss) income		$	(241	)		$	56			$	158

F-41

---

Table of Contents

					Successor								Predecessor
					June 30,								June 30,
					2005				2004				2003
Balance sheet data:
	Assets:
		Current assets			$	5,410			$	6,616			$	5,651
		Non-current assets				475				468				517
			Total assets		$	5,885			$	7,084			$	6,168
	Liabilities and membership interests:
		Current liabilities			$	5,078			$	5,794			$	4,990
		Membership interests				807				1,290				1,178
			Total liabilities and membership interests		$	5,885			$	7,084			$	6,168

8.	Recapitalization

Uses of Cash
	Redemption of 684,917 of common stock, net of option exercise price and receipt of payment on note receivable to fund purchase of stock		$	26,281
	Redemption of 100% of the redeemable Series B preferred stock at full redemption value as of February 10, 2004 (see Note 10)			9,099
	Prepayment Senior Term Debt (see Note 9)			6,508
	Payment of Outstanding Revolving Line of Credit			121
	Seller fees			1,693
	Purchaser fees			2,418
			$	46,120

F-42

---

Table of Contents

Sources of Cash
	Senior Term Loan (see Note 9)		$	27,000
	Senior Subordinated Notes (see Note 9)			14,000
	New borrowings under revolving line of credit (see Note 9)			5,120
			$	46,120

9.	Long-Term Debt

			Successor
			June 30,
			2005				2004
Collateralized:
	Term Loan Facility		$	23,917			$	26,250
	Senior Subordinated Notes			14,000				14,000
				37,917				40,250
	Less: Current portion			(2,583	)			(2,333	)
			$	35,334			$	37,917
	Notes payable under revolving line of credit		$	10,385			$	7,138

	Senior Credit Facility

F-43

---

Table of Contents

	Senior Subordinated Notes

	Subsequent Event Refinancing

F-44

---

Table of Contents

	Long-Term Debt — Five Year Repayment Schedule (excluding the Revolver)

2006		$	2,583
2007			2,600
2008			3,142
2009			15,592
2010			14,000
		$	37,917

		Successor								Predecessor
						February 10,				July 1,
						2004				2003
		Year Ended				through				through				Year Ended
		June 30,				June 30,				February 9,				June 30,
		2005				2004				2004				2003
Interest expense components are
Interest expense		$	3,984			$	1,341			$	402			$	1,257
Amortization of discount			—				—				—				35
Write-off of unamortized discount costs			—				—				—				595
Interest deferred on senior subordinated notes			654				247				—				91
		$	4,638			$	1,588			$	402			$	1,978
Cash paid for interest		$	4,016			$	524			$	1,148			$	2,666
Effective interest rate on all debt			9.0	%			7.6	%			7.6	%			12.6	%

10.	Shareholders’ Equity

F-45

---

Table of Contents

11.	Income Taxes

				Successor
				June 30,
				2005				2004
Current deferred tax assets/(liabilities)
	Accounts receivable			$	185			$	252
	Inventory				268				222
	Workers’ compensation				—				113
	Warranty and product liability				413				159
	Tax credits				180				250
	Other				58				(53	)
		Total net current deferred tax assets			1,104				943
Long-term deferred tax assets/(liabilities)
	Supplemental retirement				217				203
	Property, plant and equipment				(1,894	)			(2,042	)
	Intangible assets				(995	)			(1,113	)
	Tax credits				293				126
	Goodwill				(1,130	)			(1,130	)
	Other				—				5
		Total net long-term deferred tax liabilities			(3,509	)			(3,951	)
		Net deferred tax liability		$	(2,405	)		$	(3,008	)

			Successor								Predecessor
							February 10,				July 1,
							2004				2003
			Year Ended				through				through				Year Ended
			June 30,				June 30,				February 9,				June 30,
			2005				2004				2004				2003
Current:
	Federal		$	602			$	508			$	1,290			$	1,200
	State			96				6				120				91
Deferred income tax				(586	)			(51	)			414				831
			$	112			$	463			$	1,824			$	2,122

F-46

---

Table of Contents

	Rate Reconciliation

		Successor																Predecessor
										February 10,								July 1,
		Year Ended								2004								2003								Year Ended
		June 30,								through June 30,								through February 9,								June 30,
		2005								2004								2004								2003
Statutory federal income tax rate		$	204				34.0	%		$	433				34.0	%		$	1,687				34.0	%		$	1,875				34.0	%
State taxes, net of federal benefit			23				3.8	%			48				3.80	%			189				3.8	%			221				4.0	%
Investment tax credits			(84	)			(14.0	)%			(28	)			(2.2	)%			(103	)			(2.0	)%			(17	)			(0.3	)%
Non taxable (income) expenses, net			(4	)			(0.7	)%			7				0.6	%			(11	)			(0.2	)%			(10	)			0.2	%
Adjustment to prior year taxes			(34	)			(5.6	)%			4				0.3	%			9				0.2	%			(5	)			(0.1	)%
Miscellaneous			7				1.1	%			(1	)			(0.1	)%			53				1.0	%			58				1.1	%
		$	112				18.7	%		$	463				36.4	%		$	1,824				36.8	%		$	2,122				38.5	%

12.	Leases

Years Ending			Capital				Operating
2006			$	84			$	74
2007				58				55
2008				49				55
2009				29				36
2010				18				—
	Total minimum lease payments			238				220
Less: Amount representing interest				(34	)
	Total obligations under capital lease			204
Less: Current portion				(69	)
	Long-term obligations under capital lease		$	135

F-47

---

Table of Contents

13.	Stock Based Plans

	A) Director Stock Option Plan

						Weighted
						Average
		Number				Exercise
		of Shares				Price
Outstanding at June 30, 2003			15,667			$	6.76
Granted in period July 1, 2003 through February 9, 2004			3,000				21.31
Exercised in period July 1, 2003 through February 9, 2004			(18,667	)			9.10
Outstanding at February 9, 2004			—			$	—
Outstanding at June 30, 2004			—			$	—
Outstanding at June 30, 2005			—			$	—

	B) Stock Incentive Plan

	Stock Purchases

F-48

---

Table of Contents

	Stock Options

							Weighted Average
			Number				Minimum
			of Shares				Exercise Price
Date of Vesting
	February 10, 2005			6,000			$	73.00
	February 10, 2006			6,000				99.67
	February 10, 2007			6,000				140.33
	February 10, 2008			6,000				194.67
	February 10, 2009			6,000				270.37
				30,000			$	155.61

14.	Commitment and Contingencies

F-49

---

Table of Contents

15.	Employee Retirement Plan

16.	Concentration of Sales and Credit Risk

17.	Related Party Transactions

F-50

---

Table of Contents

18.	Warrants for Common Stock

19.	Segment Reporting

		Successor								Predecessor
						February 10,				July 1,
						2004				2003
		Year ended				through				through				Year ended
		June 30,				June 30,				February 9,				June 30,
		2005				2004				2004				2003
Air rifles		$	24,072			$	8,829			$	16,785			$	24,720
Air pistols			11,817				5,004				8,288				10,890
Soft air			15,626				3,221				2,578				1,099
Related consumables			16,947				7,180				9,971				15,148
Other			1,598				622				1,148				1,476
		$	70,060			$	24,856			$	38,770			$	53,333

F-51

---

Table of Contents

20.	Acquisition Adjustment

				Successor
				February 10,
				2004
Allocated to assets and liabilities:
	Cash			$	19
	Accounts receivable				8,449
	Inventory				8,386
	Other current assets				2,223
	Investment in equity investee				800
	Property, plant and equipment, net				10,419
	Liabilities assumed				(8,980	)
	Intangible assets acquired:
		Trademarks			9,800
		Developed Technology			900
		License and distribution agreements			2,400
		Goodwill			30,286
	Total purchase price			$	64,702

F-52

---

Table of Contents

		Page(s)
Consolidated Balance Sheet as of January 1, 2006 (unaudited)			F-54
Consolidated Statements of Income for the Six Months Ended January 1, 2006 and December 26, 2004 (unaudited)			F-55
Consolidated Statements of Shareholders’ Equity, for the Six Months Ended January 1, 2006 and December 26, 2004 (unaudited)			F-56
Consolidated Statements of Cash Flows for the Six Months Ended January 1, 2006 and December 26, 2004 (unaudited)			F-57
Notes to Consolidated Financial Statements			F-58–F-69

F-53

---

Table of Contents

				January 1,
				2006
				(Unaudited)
Assets
Current assets
	Cash			$	796
	Accounts receivable, net				19,794
	Inventories, net				12,316
	Other current assets				2,302
	Deferred taxes				1,262
		Total current assets			36,470
Property, plant and equipment, net					10,069
Investment in equity investee					520
Goodwill					30,951
Intangible and other assets, net					13,585
		Total assets		$	91,595
Liabilities and Shareholders’ Equity
Current liabilities
	Current portion of long-term debt			$	4,100
	Current portion of capitalized lease obligations				64
	Accounts payable				5,863
	Accrued expenses				3,355
	Income taxes payable				1,216
		Total current liabilities			14,598
Long-term debt, net of current portion					35,033
Revolving line of credit					11,329
Capitalized lease obligations, net of current portion					107
Deferred interest					1,243
Deferred taxes					3,522
Other liabilities					585
		Total liabilities			66,417
Commitments and contingencies (Note 11)
Shareholders’ equity
	Common stock — $.01 par value, authorized 1,500,000 shares; Issued and outstanding 577,232 and 573,408 shares				6
	Additional paid-in capital				22,270
	Shareholders’ notes receivable				(1,218	)
	Retained earnings				4,120
		Total shareholders’ equity			25,178
		Total liabilities and shareholders’ equity		$	91,595

F-54

---

Table of Contents

			Six Months Ended
			January 1,				December 26,
			2006				2004
			(Unaudited)				(Unaudited)
Net sales			$	45,223			$	38,234
Cost of sales				32,916				26,471
	Gross profit			12,307				11,763
Selling, general and administrative expenses				4,896				5,393
Amortization of intangible assets				367				310
	Operating income			7,044				6,060
Interest expense				2,695				2,236
Foregone offering costs				—				161
Equity in losses of investee				24				132
Other (income)/expense, net				(217	)			(225	)
	Income before income taxes			4,542				3,756
Income tax expense				1,721				1,407
	Net income		$	2,821			$	2,349

F-55

---

Table of Contents

										Capital in				Shareholders’								Total
		Preferred				Common				Excess of				Notes				Retained				Shareholders’
		Stock				Stock				Par Value				Receivable				Earnings				Equity
Balance at June 30, 2004		$	—			$	6			$	22,083			$	(973	)		$	810			$	21,926
Redemption of stock			—				—				(7	)			—				—				(7	)
Interest on notes			—				—				—				(32	)			—				(32	)
Net income			—				—				—				—				2,349				2,349
Balance at December 26, 2004		$	—			$	6			$	22,076			$	(1,005	)		$	3,159			$	24,236
Balance at June 30, 2005		$	—			$	6			$	22,076			$	(1,035	)		$	1,299			$	22,346
Redemption of stock			—				—				(6	)			—				—				(6	)
Issuance of stock			—				—				200				(150	)			—				50
Interest on notes			—				—				—				(33	)			—				(33	)
Net income			—				—				—				—				2,821				2,821
Balance at January 1, 2006		$	—			$	6			$	22,270			$	(1,218	)		$	4,120			$	25,178

F-56

---

Table of Contents

				Six Month Ended
				January 1,				December 26,
				2006				2004
				(Unaudited)				(Unaudited)
Cash flows from operating activities
Net income				$	2,821			$	2,349
Adjustments to reconcile net income to net cash provided by (used in) operating activities
	Depreciation and amortization				1,485				1,379
	Deferred income taxes				(143	)			(83	)
	Loss from equity investment				24				132
	Loss on sale of property, plant and equipment				2				13
	Interest deferred on senior subordinated notes				342				326
Changes in operating assets and liabilities
	Increase in accounts receivable				(6,047	)			(5,639	)
	Increase in inventories				(1,256	)			(6,225	)
	Increase in other current assets				(496	)			(1,094	)
	Decrease in refundable income taxes/income taxes payable				1,348				873
	Increase in accounts payable and accrued expenses				2,585				1,855
	Decrease in accrued interest and other liabilities				(18	)			(19	)
		Net cash provided by (used in) operating activities			647				(6,133	)
Cash flows from investing activities
Capital expenditures					(677	)			(944	)
		Net cash used in investing activities			(677	)			(944	)
Cash flows from financing activities
Proceeds from revolving credit facility					54,193				47,809
Repayments under revolving credit facility					(53,249	)			(39,257	)
Proceeds from issuance of long-term debt					26,000				—
Principal payments and retirement of long-term obligations					(24,817	)			(1,160	)
Financing costs associated with issuance of debt					(402	)			(40	)
Failed offering costs					(1,716	)			—
Redemption of common stock					(6	)			(6	)
Issuance of common stock					50				—
		Net cash provided by financing activities			53				7,346
		Net increase cash and cash equivalents			23				269
Cash at beginning of year					773				204
		Cash at end of year		$	796			$	473

F-57

---

Table of Contents

1.	Organization and Nature of Operations

2.	Significant Accounting Policies

	Revenue Recognition

	Use of Estimates

	Consolidation

	Accounts Receivable

	Inventories

	Property, Plant and Equipment

F-58

---

Table of Contents

	Long-Lived Assets

	Goodwill

	Advertising Costs

	Self-Insurance

	Guarantees

	New Accounting Pronouncement

F-59

---

Table of Contents

	Stock Based Compensation

	Income Taxes

	Recapitalization

	Interim Financial Statements

F-60

---

Table of Contents

3.	Inventories

		January 1,
		2006
		(Unaudited)
Raw materials		$	3,160
Work-in-process			1,358
Finished goods			7,798
		$	12,316

4.	Warranty Reserve

		January 1,
		2006
		(Unaudited)
Balance at July 1		$	461
Accruals for warranties issued during period			1,483
Settlements made during the period			(1,097	)
		$	847

5.	Property, Plant and Equipment

		January 1,
		2006
		(Unaudited)
Land		$	256
Building and improvements			2,349
Machinery and equipment			7,076
Furniture and fixtures			144
Computers and software			692
Tooling			3,220
Assets under capital lease			254
Construction-in-progress			181
			14,172
Less: Accumulated depreciation			(4,103	)
		$	10,069

F-61

---

Table of Contents

6.	Intangibles and Other Assets

				January 1,
				2006
				(Unaudited)
Intangible assets subject to amortization:
	Financing costs			$	1,739
	Developed Technology				900
	License and distribution agreements				2,400
					5,039
	Less: Accumulated amortization				(1,254	)
					3,785
Intangible assets not subject to amortization, excluding goodwill:
		Trademarks			9,800
	Total intangibles and other assets, excluding goodwill, net			$	13,585

7.	Investment

				Six-Months Ended
				January 1,				December 26,
				2006				2004
				(Unaudited)				(Unaudited)
Summary of operations:
	Revenues			$	6,644			$	5,841
	Costs and expenses				6,693				6,105
		Net loss		$	(49	)		$	(264	)
		Company equity in net loss		$	(24	)		$	(132	)

F-62

---

Table of Contents

					January 1,
					2006
					(Unaudited)
Balance sheet data:
	Assets:
		Current assets			$	4,711
		Non-current assets				430
			Total assets		$	5,141
	Liabilities and membership interests:
		Current liabilities			$	4,382
		Membership interests				759
			Total liabilities and membership interests		$	5,141

8.	Long-Term Debt

			January 1,
			2006
			(Unaudited)
Collateralized:
	Term Loan Facility		$	25,133
	Senior Subordinated Notes			14,000
				39,133
	Less: Current portion			(4,100	)
			$	35,033
	Notes payable under revolving line of credit		$	11,329

	Senior Credit Facility

F-63

---

Table of Contents

		Six-Months Ended
		January 1,				December 26,
		2006				2004
		(Unaudited)				(Unaudited)
Interest expense components are
Interest expense		$	2,354			$	1,910
Interest deferred on senior subordinated notes			341				326
		$	2,695			$	2,236
Cash paid for interest		$	2,341			$	1,942
Effective interest rate on all debt			10.6	%			8.6	%

F-64

---

Table of Contents

9.	Income Taxes

				January 1,
				2006
				(Unaudited)
Current deferred tax assets/(liabilities)
	Accounts receivable			$	328
	Inventory				326
	Warranty and product liability				341
	Tax credits				275
	Other				(8	)
		Total net current deferred tax as sets			1,262
Long-term deferred tax assets/(liabilities)
	Supplemental retirement				222
	Property, plant and equipment				(1,698	)
	Intangible assets				(934	)
	Tax credits				18
	Goodwill				(1,130	)
		Total net long-term deferred tax liabilities			(3,522	)
		Net deferred tax liability		$	(2,260	)

			Six Months Ended
			January 1,				December 26,
			2006				2004
			(Unaudited)				(Unaudited)
Current:
	Federal		$	1,811			$	1,445
	State			53				44
Deferred income tax				(143	)			(82	)
			$	1,721			$	1,407

F-65

---

Table of Contents

		Six-Months Ended
		January 1,								December 26,
		2006								2004
		(Unaudited)								(Unaudited)
Statutory federal income tax rate		$	1,544				34.0	%		$	1,277				34.0	%
State taxes, net of federal benefit			156				4.1	%			156				4.1	%
Investment tax credits			(19	)			(0.4	)%			(45	)			(1.1	)%
Non taxable (income) expenses, net			(11	)			(0.2	)%			7				0.2	%
Miscellaneous			22				0.4	%			12				0.3	%
		$	1,721				37.9	%		$	1,407				37.5	%

10.	Stock Based Plans

	B) Stock Incentive Plan

F-66

---

Table of Contents

							Weighted
							Average
							Minimum
			Number of				Exercise
			Shares				Price
Date of Vesting
	February 10, 2005			6,000			$	73.00
	February 10, 2006			6,000				99.67
	February 10, 2007			6,000				140.33
	February 10, 2008			6,000				194.67
	February 10, 2009			6,000				270.37
				30,000			$	155.61

11.	Commitment and Contingencies

F-67

---

Table of Contents

12.	Employee Retirement Plan

13.	Concentration of Sales and Credit Risk

F-68

---

Table of Contents

14.	Related Party Transactions

15.	Warrants for Common Stock

16.	Segment Reporting

		Six Months Ended
		January 1,				December 26,
		2006				2004
		(Unaudited)				(Unaudited)
Air rifles		$	14,271			$	13,990
Air pistols			6,691				6,384
Soft air			15,412				8,446
Related consumables			8,210				8,566
Other			639				848
		$	45,223			$	38,234

F-69

---

Table of Contents

		Page(s)
Report of independent registered public accounting firm			F-71
Independent Auditors’ Report			F-72
Consolidated and combined balance sheets as of December 31, 2005 and 2004			F-73
Consolidated and combined statements of operations for the periods ended December 31, 2005 and September 19, 2005 and for the years ended December 31, 2004 and 2003			F-74
Consolidated statement of stockholders’ equity for the period ended December 31, 2005			F-75
Combined statements of stockholders’ equity and members’ capital for the period ended September 19, 2005 and the years ended December 31, 2004 and 2003			F-76
Consolidated and combined statements of cash flows for the periods ended December 31, 2005 and September 19, 2005 and for the years ended December 31, 2004 and 2003			F-77
Notes to consolidated and combined financial statements			F-78–F-87

F-70

---

Table of Contents

F-71

---

Table of Contents

F-72

---

Table of Contents

				Consolidated
				Compass AC				Predecessor
				Holdings, Inc.				Combined
				2005				2004
Assets
Current Assets
	Cash and Cash Equivalents			$	1,602,329			$	6,619,956
	Accounts Receivable — Net of Allowance of $105,000 and $80,000 for 2005 and 2004, Respectively				2,847,087				2,582,185
	Deferred Income Tax Asset				111,000				—
	Inventory				328,316				309,402
	Other Current Assets				131,174				52,500
		Total Current Assets			5,019,906				9,564,043
	Property and Equipment — Net				3,185,027				6,668,509
Other Assets
	Other Assets				—				258,555
	Note Receivable				—				297,500
	Other Intangibles — Net				20,034,722				—
	Debt Issuance Cost — Net of Accumulated
	Amortization of $51,803				1,071,774				—
	Goodwill				50,658,604				—
		Total Other Assets			71,765,100				556,055
		Total Assets		$	79,970,033			$	16,788,607
Liabilities, Stockholders’ Equity and Members’ Capital
Current Liabilities
	Accounts Payable			$	848,410			$	1,237,578
	Accrued Wages and Payroll Taxes				290,236				375,709
	Current Portion of Notes Payable				3,875,000				380,000
	Income Taxes Payable				863,000				—
	Other Accrued Liabilities				711,157				385,734
	Accrued Vacation				390,542				313,769
	Accrued Bonuses				295,868				375,000
	Due to Members				—				354,108
		Total Current Liabilities			7,274,213				3,421,898
Long-Term Liabilities
	Deferred Income Tax Liability				249,000				—
	Other Long Term Liabilities				130,801				131,000
	Notes Payable				45,687,500				2,786,667
		Total Long-Term Liabilities			46,067,301				2,917,667
		Total Liabilities			53,341,514				6,339,565
Stockholders’ Equity and Members’ Capital
	Members’ Capital				—				2,601,676
	Common Stock, $0.01 Par Value; 2,000,000				11,364				—
		Shares Authorized; 1,136,364 Shares Issued and
		Outstanding for December 31, 2005 and
		No Par Value; 100,000 Shares Authorized; 27,000 Shares Issued and Outstanding for December 31, 2004
	Additional Paid in Capital				28,397,736				25,200
	Notes Receivable from Stockholders				(3,466,100	)			—
	Retained Earnings				1,685,519				7,822,166
		Total Stockholders’ Equity and Members’ Capital			26,628,519				10,449,042
		Total Liabilities, Stockholders’ Equity and Members’ Capital		$	79,970,033			$	16,788,607

F-73

---

Table of Contents

			Compass AC
			Holdings, Inc.				Predecessor
			Consolidated				Combined
			Sept. 20, 2005				Jan. 1, 2005				Predecessor				Predecessor
			through				through				Combined				Combined
			Dec. 31, 2005				Sept. 19, 2005				2004				2003
Net Sales			$	12,243,134			$	29,725,862			$	36,642,080			$	27,796,468
Cost of Sales				5,142,763				12,959,524				17,866,698				14,568,676
Gross Profit				7,100,371				16,766,338				18,775,382				13,227,792
Selling, General and Administrative Expenses				2,447,858				5,835,356				6,564,616				5,521,248
Amortization				717,081				—				—				—
Income from Operations				3,935,432				10,930,982				12,210,766				7,706,544
Other Income (Expense)
	Interest Income			69,221				163,972				42,079				15,705
	Other Income			—				—				82,331				15,313
	Interest Expense			(1,318,134	)			(172,656	)			(241,903	)			(203,585	)
Income before Provision for Income Taxes				2,686,519				10,922,298				12,093,273				7,533,977
Provision for Income Taxes				1,001,000				—				—				—
Net Income			$	1,685,519			$	10,922,298			$	12,093,273			$	7,533,977

F-74

---

Table of Contents

		Common Stock								Additional												Total
										Paid-In				Stockholders’				Retained				Stockholders’
		Shares				Amount				Capital				Note Receivable				Earnings				Equity
Capital from Acquisition at September 20, 2005			1,000,000			$	10,000			$	24,990,000			$	—			$	—			$	25,000,000
Issuance of Shares to Management			136,364				1,364				3,407,736				(3,409,100	)			—				—
Net Income			—				—				—				—				1,685,519				1,685,519
Interest on Notes Receivable from Management			—				—				—				(57,000	)			—				(57,000	)
Balance at December 31, 2005			1,136,364			$	11,364			$	28,397,736			$	(3,466,100	)		$	1,685,519			$	26,628,519

F-75

---

Table of Contents

		R.J.C.S.				Common Stock												Total
		Members’												Retained				Stockholders’
		Capital				Shares				Amount				Earnings				Equity
Predecessor Combined Balance at December 31, 2002		$	1,043,763				27,000			$	25,200			$	2,721,916			$	3,790,879
Net Income			973,204				—				—				6,560,773				7,533,977
Distributions			(284,292	)			—				—				(4,541,327	)			(4,825,619	)
Predecessor Combined Balance at December 31, 2003			1,732,675				27,000				25,200				4,741,362				6,499,237
Net Income			869,001				—				—				11,224,272				12,093,273
Distributions			—				—				—				(8,143,468	)			(8,143,468	)
Predecessor Combined Balance at December 31, 2004			2,601,676				27,000				25,200				7,822,166				10,449,042
Net Income			625,243				—				—				10,297,055				10,922,298
Distributions			(1,077,610	)			—				—				(15,962,692	)			(17,040,302	)
Predecessor Combined Balance at September 19, 2005		$	2,149,309				27,000			$	25,200			$	2,156,529			$	4,331,038

F-76

---

Table of Contents

				Compass AC
				Holdings, Inc.				Predecessor
				Consolidated				Combined
				Sept. 20, 2005				Jan. 1, 2005				Predecessor				Predecessor
				through				through				Combined				Combined
				Dec. 31, 2005				Sept. 19, 2005				2004				2003
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net Income			$	1,685,519			$	10,922,298			$	12,093,273			$	7,533,977
	Non-Cash Items Included in Net Income:
		Depreciation			168,578				715,347				869,203				728,756
		Amortization			717,081				—				—				—
		Deferred Income Taxes			138,000				—				—				—
		Compensation Cost For Put Options			130,801				—				—				—
	(Increase) Decrease in Assets:
		Accounts Receivable			(526,595	)			261,693				(703,658	)			(359,253	)
		Deposits			—				—				51,500				(51,500	)
		Prepaid Expenses			(18,310	)			(112,864	)			—				—
		Inventory			(15,714	)			(3,200	)			(5,402	)			(179,000	)
	Increase (Decrease) in Liabilities:
		Accounts Payable			186,933				(576,101	)			178,398				107,384
		Other Accrued Liabilities			(69,951	)			294,410				(89,538	)			139,356
		Accrued Wages and Payroll Taxes			(69,675	)			(15,798	)			(54,095	)			165,704
		Income Taxes Payable			863,000				—				—				—
		Accrued Vacation			21,083				55,690				99,719				10,858
		Accrued Bonuses			(40,545	)			(38,587	)			250,000				(75,000	)
	Net Cash Provided By Operating Activities				3,170,205				11,502,888				12,689,400				8,021,282
CASH FLOWS FROM INVESTING ACTIVITIES:
	Proceeds from Sale and Leaseback of Building				5,000,000				—				—				—
	Acquisition of Company, net of cash acquired of $167,984				(79,613,970	)			—				—				—
	Purchase of Property and Equipment				(109,605	)			(1,075,229	)			(816,339	)			(2,087,420	)
	(Issuance) Repayment of Notes Receivable				—				350,000				(350,000	)			—
	(Increase) Decrease in Annuities and Cash Surrender Value — Life Insurance				—				223,555				(144,550	)			(79,005	)
	Net Cash Used In Investing Activities				(74,723,575	)			(501,674	)			(1,310,889	)			(2,166,425	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Repayment of Notes Payable				(937,500	)			(285,000	)			(756,191	)			(1,272,445	)
	Capital from Acquisition				25,000,000				—				—				—
	Issuance of Note Payable in Connection with Acquisition				50,500,000				—				—				—
	Proceeds from Notes Payable				—				—				—				1,355,362
	Note Payable Issuance Costs				(1,123,577	)			—				—				—
	Due to Members — Net				(226,224	)			(127,884	)			69,816				284,292
	Interest on Notes Receivable from Stockholders				(57,000	)			—				—				—
	Distributions				—				(17,040,302	)			(8,143,468	)			(4,825,619	)
	Net Cash Provided By (Used In) Financing Activities				73,155,699				(17,453,186	)			(8,829,843	)			(4,458,410	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					1,602,329				(6,451,972	)			2,548,668				1,396,447
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD/ YEAR					—				6,619,956				4,071,288				2,674,841
CASH AND CASH EQUIVALENTS AT END OF PERIOD/ YEAR				$	1,602,329			$	167,984			$	6,619,956			$	4,071,288
SUPPLEMENTAL DISCLOSURES:
	Interest Paid			$	1,312,394			$	163,997			$	241,903			$	203,585

F-77

---

Table of Contents

1.	Basis of Presentation

2.	Summary of Significant Accounting Policies

F-78

---

Table of Contents

		2005				2004
Raw Materials and Supplies		$	142,526			$	115,402
Work-in-Process			185,790				194,000
		$	328,316			$	309,402

Machinery and Equipment		5 to 7 years
Office Furniture and Equipment		5 to 7 years
Buildings and Building Improvements		7 to 39 years
Vehicles		5 years
Leasehold Improvements		Shorter of useful life or lease term

F-79

---

Table of Contents

F-80

---

Table of Contents

3.	Acquisition of Company

Tangible Assets
	Cash		$	167,984
	Other Current Assets			2,740,959
	Property, Plant and Equipment			8,176,327
Identifiable Intangible Assets				20,700,000
				31,785,270
Less: Current Liabilities Assumed				(2,661,920	)
				29,123,350
Goodwill Recorded				50,658,604
	Net Assets Acquired		$	79,781,954

4.	Property and Equipment

		2005				2004
Machinery and Equipment		$	2,846,910			$	5,005,409
Office Furniture and Fixtures			298,734				479,427
Buildings			—				4,161,155
Land			—				115,615
Vehicles			—				23,154
Leasehold Improvements			207,961				861,313
			3,353,605				10,646,073
Less: Accumulated Depreciation			168,578				3,977,564
		$	3,185,027			$	6,668,509

F-81

---

Table of Contents

5.	Sale and Leaseback of Building

December 31:
2006		$	482,500
2007			482,500
2008			482,500
2009			482,500
2010			482,500
Thereafter			4,689,062
Total Minimum Future Rental Payments		$	7,101,562

6.	Goodwill and Intangible Assets — Net.

		Gross
		Carrying
		Value				Impairment				Goodwill
Goodwill		$	50,658,604			$	—			$	50,658,604

F-82

---

Table of Contents

		Estimated				Gross
		Useful				Carrying				Accumulated				Net
		Lives				Value				Amortization				Intangibles
Customer Relationships			9			$	18,100,000			$	502,778			$	17,597,222
Technology			4				2,600,000				162,500				2,437,500
						$	20,700,000			$	665,278			$	20,034,722

2006		$	2,661,111
2007			2,661,111
2008			2,661,111
2009			2,498,611
2010			2,011,111
Thereafter			7,541,667
		$	20,034,722

7.	Note Receivable

8.	Shareholders’ Note Receivable

F-83

---

Table of Contents

9.	Related Party Transactions

10.	Long Term Debt

	Revolving Loans

Facility:		$4 million of which $-0- was outstanding at December 31, 2005.
Term:		5 years.
Availability:		Revolving loans availability is equal to the sum of 85% of eligible accounts receivable and 50% of eligible inventory as defined in the credit agreement. The Company had borrowing capability of approximately $2.5 million at December 31, 2005, under this facility.
Interest Rate:		2.75% over the Base Rate or 3.75% over the LIBOR Rate.
Interest Payable:		Monthly on Base Rate loans or at the end of the LIBOR period on LIBOR Rate loans. The rate of interest on these borrowings would have been 7.91% at December 31, 2005.

	Term A Loan

Facility:		$35 million of which $34,062,500 was outstanding at December 31, 2005.
Term:		6 years.
Amortization:		Payments are due quarterly on the last day of each calendar quarter commencing December 31, 2005.
Interest Rate:		2.75% over the Base Rate or 3.75% over the LIBOR Rate and is paid in the same manner as is done for revolving credit loans. The rate of interest at December 31, 2005 was 7.91%.

F-84

---

Table of Contents

	Term B Loan

Facility:		$15.5 million, all of which was outstanding at December 31, 2005.
Term:		6.5 years.
Amortization:		Due in full on March 31, 2012.
Interest Rate:		6.50% over the Base Rate or 7.50% over the LIBOR Rate and is paid in the same manner as is done for revolving credit loans. The rate of interest at December 31, 2005 was 11.66%.

		2005				2004
Term A Loan		$	34,062,500			$	—
Term B Loan			15,500,000				—
Key Bank (payable in monthly installments of $31,667, plus interest at 6.5%, adjusted by the LIBOR index, through April, 2013; secured by real estate)			—				3,166,667
			49,562,500				3,166,667
Less: Current Maturities included in Current Liabilities			3,875,000				380,000
Notes Payable		$	45,687,500			$	2,786,667

Year		Repayment
December 31, 2006		$	3,875,000
December 31, 2007			4,437,500
December 31, 2008			5,125,000
December 31, 2009			5,625,000
December 31, 2010			7,125,000
Thereafter			23,375,000
		$	49,562,500

11.	Defined Contribution Plan

F-85

---

Table of Contents

12.	Key Employee — Deferred Compensation Plan

13.	Income Taxes

			9/20/2005-
			12/31/2005
Current Income Taxes:
	Federal		$	755,000
	State			108,000
Deferred Income Taxes				138,000
			$	1,001,000

F-86

---

Table of Contents

Deferred Tax Asset:
		Allowance for Doubtful Accounts		$	40,000
		Deferred Vacation			71,000
		Total Deferred Tax Asset		$	111,000
	Deferred Tax Liability:
		Depreciation and Amortization		$	249,000

14.	Subsequent Event

F-87

---

Table of Contents

		Page(s)
Report of independent registered public accounting firm			F-89
Independent auditors’ report			F-90
Consolidated balance sheets at December 31, 2005 and 2004 (restated)			F-91
Consolidated statements of operations and comprehensive income for the years ended December 31, 2005, 2004 and 2003			F-92
Consolidated statements of stockholders’ equity for the years ended December 31, 2005, 2004 and 2003			F-93
Consolidated statements of cash flows for the years ended December 31, 2005, 2004 and 2003			F-94–F-95
Notes to consolidated financial statements			F-96–F-113

F-88

---

Table of Contents

F-89

---

Table of Contents

F-90

---

Table of Contents

					As of
					December 31,				December 31,
					2005				2004
									(Restated)(1)
Assets
Current Assets:
	Cash and Cash Equivalents				$	1,515,731			$	1,006,720
	Trade Accounts and Other Receivables, Net of Allowance of $5,213 and $3,019, Respectively					2,240,173				1,738,005
	Inventories, Net					626,696				430,778
	Prepaid Expenses and Other Current Assets					342,909				138,697
	Deferred Income Tax Asset					397,799				396,519
	Current Assets of Discontinued Operations					901,271				1,032,131
		Total Current Assets				6,024,579				4,742,850
Property, Plant and Equipment						1,769,344				857,530
	Less: Accumulated Depreciation					(511,941	)			(107,889	)
		Total Property, Plant and Equipment at Net Book Value				1,257,403				749,641
Other Assets:
	Investment in Joint Venture					—				2,474,793
	Goodwill					11,265,603				9,108,727
	Other Intangible Assets, Net					11,907,830				10,485,143
	Other Assets					508,719				430,965
	Other Assets of Discontinued Operations					280,539				509,189
			Total Other Assets			23,962,691				23,008,817
			Total Assets		$	31,244,673			$	28,501,308
Liabilities and Stockholders’ Equity
Current Liabilities:
	Accounts Payable				$	464,765			$	621,332
	Accrued Bonuses					404,640				371,423
	Other Accrued Expenses					1,275,312				355,710
	Income Taxes Payable					1,917,010				1,724,789
	Current Liabilities of Discontinued Operations					290,563				552,076
	Current Maturities of Long-Term Debt					1,620,843				1,053,213
		Total Current Liabilities				5,973,133				4,678,543
Long-Term Liabilities:
	Long-Term Liabilities of Discontinued Operations					114,787				413,243
	Other Liabilities					137,360				48,917
	Long-Term Debt					11,591,467				11,787,886
	Net Deferred Income Tax Liability					4,488,508				3,996,443
		Total Long-Term Liabilities				16,332,122				16,246,489
Cumulative Mandatorily Redeemable Preferred Stock $1.00 par value; authorized 1,500,000 shares in 2005 and 30,000,000 shares in 2004; issued and outstanding 4,500 shares and 90,000 shares at December 31, 2005 and 2004, respectively						90,000				90,000
Stockholders’ Equity:
	Convertible Preferred Stock — $.01 par value; authorized 150,000 shares; issued and outstanding 22,432 shares at December 31, 2005 and 3,000,000 shares authorized and 448,645 shares issued and outstanding at December 31, 2004, respectively					224				4,486
	Common Stock, Series A — $.01 par value; authorized 100,000 shares in 2005 and 2,000,000 shares in 2004, issued and outstanding 14,037 shares and 280,734 shares at December 31, 2005 and 2004, respectively					140				2,807
	Common Stock, Series B — $.01 par value; authorized 50,000 shares in 2005 and 1,000,000 shares in 2004, issued and outstanding 5,000 shares and 100,000 shares at December 31, 2005 and 2004, respectively					50				1,000
	Additional Paid in Capital					9,140,667				8,176,583
	Accumulated Deficit					(82,036	)			(641,675	)
	Accumulated Other Comprehensive Loss					(209,627	)			(56,925	)
		Total Stockholders’ Equity				8,849,418				7,486,276
		Total Liabilities and Stockholders’ Equity			$	31,244,673			$	28,501,308

(1)	-See Note T

F-91

---

Table of Contents

								Silvue				Predecessor
				Silvue				Consolidated				Consolidated				Predecessor
				Consolidated				Sept. 3, 2004				Jan. 1, 2004				Consolidated
				Year Ended				Through				Through				Year Ended
				Dec. 31, 2005				Dec. 31, 2004				Sept. 2, 2004				Dec. 31, 2003
								(Restated)(1)				(Restated)(1)				(Restated)(1)
Net Sales				$	17,092,933			$	4,532,475			$	7,604,112			$	10,446,074
Cost Of Sales					3,815,509				611,588				1,094,565				1,555,465
		Gross Profit			13,277,424				3,920,887				6,509,547				8,890,609
Selling, General and Administrative Expenses					7,491,317				2,319,566				4,005,513				5,275,891
Research and Development Costs					1,072,063				636,931				447,929				549,400
Amortization of Intangibles					708,657				208,857				—				—
Operating Income					4,005,387				755,533				2,056,105				3,065,318
Other Income (Expense):
	Interest Income				336				618				5,436				7,814
	Other Income				19,395				40,609				—				—
	Equity In Net Income of Joint Venture				69,885				94,604				174,487				376,840
	Interest Expense				(1,438,523	)			(366,363	)			(4,835	)			(30,754	)
		Total Other Income (Expense)			(1,348,907	)			(230,532	)			175,088				353,900
Income from Continuing Operations before Provision for Income Taxes					2,656,480				525,001				2,231,193				3,419,218
Provision for Income Taxes					1,257,662				472,254				734,712				1,062,230
Income from Continuing Operations					1,398,818				52,747				1,496,481				2,356,988
Income (loss) from Discontinued Operations,
	Net of Income Taxes				132,637				59,720				(225,019	)			(842,697	)
Net Income					1,531,455				112,467				1,271,462				1,514,291
Other Comprehensive Income (Loss), Net of Tax Foreign Currency Translation Adjustment					(152,702	)			(56,925	)			37,538				68,426
Comprehensive Income				$	1,378,753			$	55,542			$	1,309,000			$	1,582,717

(1)	-See Note T

F-92

---

Table of Contents

																																		Accumulated
		Convertible Preferred																Common Stock																Other
		Stock								Common Stock Series A								Series B								Additional				Retained				Comprehensive				Total
																										Paid-In				Earnings				Income				Stockholders’
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				(Deficit)				(Loss)				Equity
																										(Restated)(1)				(Restated)(1)				(Restated)(1)				(Restated)(1)
Predecessor Consolidated Balance At December 31, 2002			—			$	—				5,000			$	200,000				—				—			$	1,327,505			$	5,466,071			$	(154,688	)		$	6,838,888
Net Income (restated)			—				—				—				—				—				—				—				1,514,291				—				1,514,291
Other Comprehensive Income			—				—				—				—				—				—				—				—				68,426				68,426
Predecessor Consolidated
Balance At December 31, 2003			—				—				5,000				200,000				—				—				1,327,505				6,980,362				(86,262	)			8,421,605
Net Income (restated)			—				—				—				—				—				—				—				1,271,462				—				1,271,462
Dividends Paid			—				—				—				—				—				—				—				(3,000,000	)			—				(3,000,000	)
Other Comprehensive Income			—				—				—				—				—				—				—				—				37,538				37,538
Predecessor Consolidated Balance at September 2, 2004			—			$	—				5,000			$	200,000				—			$	—			$	1,327,505			$	5,251,824			$	(48,724	)		$	6,730,605
Capital From Acquisition			448,645			$	4,486				280,734			$	2,807				100,000			$	1,000			$	7,422,441			$	—			$	—			$	7,430,734
Net Income (restated)			—				—				—				—				—				—				—				112,467				—				112,467
Beneficial Conversion Feature of Preferred Stock			—				—				—				—				—				—				448,645				(448,645	)			—				—
Accretion in Value of Preferred Stock			—				—				—				—				—				—				305,497				(305,497	)			—				—
Other Comprehensive Loss			—				—				—				—				—				—				—				—				(56,925	)			(56,925	)
Balance At December 31, 2004			448,645				4,486				280,734				2,807				100,000				1,000				8,176,583				(641,675	)			(56,925	)			7,486,276
Reverse Stock Split			(426,213	)			(4,262	)			(266,697	)			(2,667	)			(95,000	)			(950	)			7,879				—				—				—
Net Income			—				—				—				—				—				—				—				1,531,455				—				1,531,455
Dividends Declared			—				—				—				—				—				—				—				(15,611	)			—				(15,611	)
Accretion in Value of Preferred Stock			—				—				—				—				—				—				956,205				(956,205	)			—				—
Other Comprehensive Loss							—				—				—				—				—				—				—				(152,702	)			(7,702	)
Balance At December 31, 2005			22,432			$	224				14,037			$	140				5,000			$	50			$	9,140,667			$	(82,036	)		$	(209,627	)		$	8,994,418

(1)	See Note T

F-93

---

Table of Contents

									Silvue				Predecessor
					Silvue				Consolidated				Consolidated				Predecessor
					Consolidated				Sept. 3, 2004				Jan. 1, 2004				Consolidated
					Year Ended				Through				Through				Year Ended
					Dec. 31, 2005				Dec. 31, 2004				Sept. 2, 2004				Dec. 31, 2003
									(Restated)(1)				(Restated)(1)				(Restated)(1)
Cash Flows From Operating Activities:
	Net Income				$	1,531,455			$	112,467			$	1,271,462			$	1,514,291
	Noncash Items Included In Net Income of Continuing Operations:
		Depreciation				404,052				104,499				218,909				195,584
		Amortization				708,657				208,857				—				—
		Allowance For Doubtful Accounts				2,194				2,458				(3,771	)			439
		Reserve For Inventory Obsolescence				21,732				—				—				(20,387	)
		Loss on Sale of Property, Plant and Equipment				22,520				—				—				—
		Deferred Income Tax Expense (Benefit)				(164,356	)			(114,053	)			61,158				180,100
		Equity In Net Income Of Joint Venture				(69,885	)			(94,604	)			(174,487	)			(376,839	)
		Write off of IPR&D				—				458,000				—				—
	Changes In Assets And Liabilities:
		Trade Accounts And Other Receivables				31,517				(302,499	)			(710,371	)			(211,180	)
		Inventories				(158,572	)			42,731				(146,980	)			(91,275	)
		Prepaid Expenses				20,971				71,926				(69,558	)			51,035
		Accounts Payable				(387,492	)			177,201				(78,921	)			188,102
		Other Accrued Expenses				653,992				334,742				(65,909	)			(30,524	)
		Income Taxes Payable				(62,078	)			(75,835	)			961,414				215,500
			Net Cash Provided By Continuing Operations:			2,554,707				925,890				1,262,946				1,614,846
		(Income)Loss from Discontinued Operations				(132,637	)			(59,720	)			225,019				842,697
		Changes In Net Assets and Liabilities of Discontinued Operations				(84,548	)			1,243				(109,250	)			(603,691	)
			Net Cash Provided By (Used In) Discontinued Operations			(217,185	)			(58,477	)			115,769				239,006
			Cash Provided By Operating Activities			2,337,522				867,413				1,378,715				1,853,852
Cash Flows From Investing Activities:
	Purchases Of Property, Plant, And Equipment					(178,313	)			(1,546	)			(168,820	)			(1,091,928	)
	Dividends Received From Joint Venture					—				392,941				—				232,561
	Acquisition Of Company					(398,944	)			(8,851,600	)			—				—
	Cash Acquired in Acquisition of Remaining Joint Venture Interest					511,791				—				—				—
			Net Cash Used In Continuing Operations			(65,466	)			(8,460,205	)			(168,820	)			(859,367	)
			Net Cash Provided By (Used In) Discontinued Operations			90,000				—				(41,427	)			—
			Net Cash Provided By (Used In) Investing Activities			24,534				(8,460,205	)			(210,247	)			(859,367	)
Cash Flows From Financing Activities:
	Net Payments on Bank Line of Credit					—				—				—				(270,216	)
	Borrowings on Long-Term Debt					—				—				36,027				767,346
	Payments On Long-Term Debt					(1,692,211	)			(252,980	)			(71,537	)			(354,704	)
	Dividends Paid					—				—				(3,000,000	)			(350,352	)
	Proceeds from Issuance of Capital Stock					—				7,520,734				—				—
	Other					—				(3,500	)			(9,097	)			(20,096	)
			Net Cash Provided By (Used In) Financing Activities			(1,692,211	)			7,264,254				(3,044,607	)			(228,022	)
Net Increase (Decrease) In Cash And Cash Equivalents						669,845				(328,538	)			(1,876,139	)			766,463
Currency Adjustments						(91,862	)			27,653				(23,620	)			76,770
Beginning Cash And Cash Equivalents						1,009,289				1,310,174				3,209,933				2,366,700
Ending Cash And Cash Equivalents					$	1,587,272			$	1,009,289			$	1,310,174			$	3,209,933
Cash of Continuing Operations					$	1,515,731			$	1,006,720			$	1,307,157			$	3,168,999
Cash of Discontinued Operations						71,541				2,569				3,017				40,934
			Total Cash and Cash Equivalents		$	1,587,272			$	1,009,289			$	1,310,174			$	3,209,933

(1)	See Note T

F-94

---

Table of Contents

							Silvue				Predecessor
			Silvue				Consolidated				Consolidated				Predecessor
			Consolidated				Sept. 3, 2004				Jan. 1, 2004				Consolidated
			Year Ended				through				through				Year Ended
			Dec. 31, 2005				Dec. 31, 2004				Sept. 2 ,2004				Dec. 31, 2003
Supplemental Cash Flow Information
	Income Taxes Paid		$	1,350,192			$	291,641			$	—			$	268,933
	Interest Paid		$	1,240,819			$	360,323			$	29,429			$	58,073
Noncash Investing And Financing Activities
	Purchase Of Property, Plant And Equipment Through Equipment Loan		$	—			$	—			$	(36,027	)		$	—
	Acquisition Of Company Through Financing		$	2,381,000			$	13,000,000			$	—			$	—
	Increase In Equipment Line And Long-Term Debt		$	—			$	—			$	36,027			$	—
	Dividend Payable		$	15,611			$	—			$	—			$	—

F-95

---

Table of Contents

F-96

---

Table of Contents

		December 31				December 31,
		2005				2004
Raw Materials And Supplies		$	261,057			$	173,370
Finished Goods			387,371				257,408
Less Obsolescence Reserve			(21,732	)			—
		$	626,696			$	430,778

F-97

---

Table of Contents

F-98

---

Table of Contents

		Year Ended				Sep. 3, 2004 thru				Jan. 1, 2004 thru				Year Ended
		Dec. 31, 2005				Dec. 31, 2004				Sep. 2, 2004				Dec. 31, 2003
Net Income as Reported		$	1,531,455			$	112,467			$	1,271,462			$	1,514,291
Less Fair Value of Stock Options (net of tax)			(55,866	)			—				—				—
Pro forma Net Income		$	1,475,589			$	112,467			$	1,271,462			$	1,514,291

F-99

---

Table of Contents

F-100

---

Table of Contents

Current Assets
	Cash			$	511,791
	Accounts Receivable				730,908
	Inventory				74,167
	Other Assets				253,208
		Total Current Assets			1,570,074
Property, Plant and Equipment					844,473
Other Assets					72,821
Intangible Assets					2,340,000
Goodwill					2,257,926
		Total Assets		$	7,085,294
Current Liabilities
	Accounts Payable			$	(334,311	)
	Other Current Liabilities				(871,728	)
		Total Current Liabilities			(1,206,039	)
Deferred Tax Liability					(950,776	)
Long-Term Liabilities					(69,854	)
Pre-Acquisition Equity in Joint Venture					(806,324	)
Write-up of investment in Joint Venture as part of purchase price allocation done in September 2004					(1,671,301	)
		Net Assets Acquired		$	2,381,000

						Sept. 3, 2004				Jan. 1, 2004
		Year Ended				through				through
		Dec. 31, 2005				Dec. 31, 2004				Sept. 2, 2004
Revenue		$	18,561,135			$	5,912,762			$	11,744,972
Income from continuing operations		$	1,419,613			$	81,896			$	1,540,058

F-101

---

Table of Contents

Current Assets		$	4,428,735
Property, Plant and Equipment, Net			855,984
Other Assets			336,385
Investment In Joint Venture			2,404,908
Deferred Financing Cost			447,059
Intangible Assets Arising From The Acquisition			11,152,000	*
Goodwill Arising From The Acquisition			9,108,727
Total Assets			28,733,798
Current Liabilities			3,100,087
Long-Term Liabilities			3,782,111
Total Liabilities			6,882,198
Net Assets Acquired		$	21,851,600

	*	Amount includes $458,000 of In-Process Research and Development which was subsequently written-off (see Note B(9)).

			Estimated Useful Life				2005				2004
Building				3-38			$	575,645			$	—
Transportation Equipment				3-4				16,859				15,011
Machinery And Equipment				4-15				536,690				215,537
Furniture, Fixtures, And Office Equipment				2-15				561,754				548,586
Leasehold Improvements			shorter of 10 years or the lease term					45,058				45,058
	Capital Projects In Progress			N/A				33,338				33,338
	Total Property, Plant And Equipment						$	1,769,344			$	857,530

F-102

---

Table of Contents

		Goodwill
Balance December 31, 2003		$	—
Acquired			9,108,727
Balance December 31, 2004			9,108,727
Acquired			2,156,876	*
Balance December 31, 2005		$	11,265,603

								Patented				Customer				Other
				Trademarks				Technology				Relations				Technology				Total
Bal. Dec 31, 2003				$	—			$	—			$	—			$	—			$	—
	Acquired				709,000				4,441,000				4,610,000				934,000				10,694,000
	Amortization				—				(92,521	)			(90,392	)			(25,944				(208,857	)
Bal. Dec 31, 2004					709,000				4,348,479				4,519,608				908,056				10,485,143
		Acquired			—				—				1,915,778				215,566				2,131,344	*
		Amortization			—				(277,563	)			(341,957	)			(89,137	)			(708,657	)
Bal. Dec 31, 2005				$	709,000			$	4,070,916			$	6,093,429			$	1,034,485			$	11,907,830

*	The difference in international goodwill and intangible assets reported at December 31, 2005, as compared to the goodwill and intangible assets presented in Note D as of April 1, 2005, was the result of fluctuations in the foreign currency exchange rates used to translate the balance in U.S. dollars.

2006		$	733,197
2007			733,197
2008			733,197
2009			733,197
2010			733,197
Thereafter			7,532,845
		$	11,198,830

F-103

---

Table of Contents

Nippon ARC Company, Ltd. (NAR) — (50%)		$	2,474,793

		2004
Current Assets		$	1,354,483
Other Assets (Net)			1,047,632
Total Assets		$	2,402,115
Current Liabilities		$	629,554
Long-Term Liability			165,577
Total Liabilities		$	795,131
Joint Venture Equity		$	1,606,984

						Years Ended December 31,
		Three Months Ended
		March 31, 2005				2004				2003
		(Unaudited)
Sales		$	1,468,202			$	5,521,146			$	6,165,002
Net Income		$	139,770			$	538,182			$	753,680
Company’s Proportionate Share of Earnings		$	69,885			$	269,091			$	376,840

F-104

---

Table of Contents

		2005				2004
Note payable to a bank, due in twenty-three quarterly installments ranging from $250,000 to $400,000 plus accrued interest. Interest accrues at a rate equal to one of the following as selected by the Company: LIBOR plus a margin ranging from 2.75% to 3.5% depending on the Company’s ratio of consolidated debt to EBITDA, or Prime plus a margin ranging from 1.25% to 2% depending on the Company’s ratio of consolidated debt to EBITDA. At December 31, 2005 and 2004, the rate was based on LIBOR and was 7.66% and 5.66%, respectively. The final principal and interest payment is due September 2010. The note is secured by all assets of the Company		$	5,975,000			$	7,750,000
Note payable to a bank, interest only payments are due quarterly. All outstanding principal and unpaid interest is due at maturity. Interest accrues at a rate equal to one of the following as selected by the Company: LIBOR plus a margin ranging from 3.25% to 4.0% depending on the Company’s ratio of consolidated debt to EBITDA, or Prime plus a margin ranging from 1.75% to 2.5%, depending on the Company’s ratio of consolidated debt to EBITDA. At December 31, 2005 and 2004, the rate was based on LIBOR and was 8.16% and 6.16%, respectively. The final principal and interest payment is due September 2010. The note is secured by all assets of the Company			2,000,000				2,000,000
Note payable to bank, interest only payments are due quarterly. All outstanding principal and unpaid interest is due at maturity. For the period September 2, 2004 through September 1, 2005, the rate of interest is equal to one of the following as selected by the Company: LIBOR plus a margin of 5.0%, or Prime plus a margin of 3%. Commencing on the first anniversary date and ending at the maturity date, the interest rate is equal to one of the following as selected by the Company: LIBOR plus a margin of 7%, or Prime plus a margin of 5%. At December 31, 2005 and 2004, the rate was based on LIBOR and was 11.19% and 7.16%, respectively. In addition to the quarterly interest payments, a yield enhancement fee equal to 5% for the period September 2, 2004 through September 1, 2005, and 3% for the period September 2, 2005 through maturity is due on the outstanding principal balance. The final interest payment, yield enhancement fee and principal are due September 2010. The note is secured by all assets of the Company			3,000,000				3,000,000
Note payable to a bank, payable in monthly installments of $2,121, including principal and interest at a fixed rate of 6.24%, final payment January 2009, secured by equipment			71,168				91,099
On April 1, 2005 the Company acquired the remaining 50% interest in NAR, held by its former joint venture partner, for total consideration of 400,000,000 Japanese Yen (see also Note D). Terms of the note require 5 annual non-interest bearing payments on March 31 as follows:

March 31		Yen
2006			50,000,000
2007			50,000,000
2008			75,000,000
2009			75,000,000
2010			150,000,000

F-105

---

Table of Contents

		2005				2004
The note is carried at the net present value of the future payments. The note is secured by the shares of stock of SDC Asia Tech, LTD. and by a standby letter of credit			2,164,184				—
Note payable to a Bank, with a maturity date of March 31, 2006, with interest calculated at a rate of 1.375%			127,248				—
Unrealized gain on interest rate swap (See Note S)			(125,290	)			—
Total			13,212,310				12,841,099
Less: Current Maturities Of Long-Term Debt			1,620,843				1,053,213
Long-Term Debt		$	11,591,467			$	11,787,886

Year Ended December 31:
2006		$	1,620,843
2007			1,647,713
2008			1,851,143
2009			1,876,583
2010			6,341,318
		$	13,337,600

			Year Ended				Period of Sep. 3 to				Jan. 1 2004 to				Year Ended
			Dec. 31, 2005				Dec. 31, 2004				Sep. 2, 2004				Dec. 31, 2003
Current:
	Federal		$	719,336			$	388,019			$	505,443			$	485,774
	State			73,429				(35,831	)			128,486				17,568
	Foreign			740,999				261,697				271,824				348,938
				1,533,764				613,885				905,753				852,280
Deferred
	Federal			(241,811	)			(229,180	)			(140,198	)			215,519
	State			(34,291	)			87,549				(30,843	)			(5,569	)
				(276,102	)			(141,631	)			(171,041	)			209,950
Provision For Income Taxes			$	1,257,662			$	472,254			$	734,712			$	1,062,230

F-106

---

Table of Contents

			2005				2004
Current
Section 263(a) Inventory Costs			$	6,495			$	4,028
Exclusion Of Accrued Expenses				254,065				203,129
State Income Taxes				153,621				159,949
Amounts Applicable to Discontinued Operations				(16,382	)			29,413
	Net Deferred Income Tax Asset		$	397,799			$	396,519
Non-Current
Excess Amortization			$	(4,621,119	)		$	(4,074,527	)
Excess Depreciation				382,398				556,521
Federal and State Tax Credits				1,588,748				1,402,392
Less Amounts Applicable to Discontinued Operations				(249,787	)			(478,437	)
				(2,899,724	)			(2,594,051	)
Valuation Allowance				(1,588,784	)			(1,402,392	)
	Net Deferred Income Tax Liability		$	(4,488,508	)		$	(3,996,443	)

Year Ended Dec. 31, 2005		$	71,594
Sept. 3, 2004 — Dec. 31, 2004		$	(6,942	)
Jan. 1, 2004 — Sept. 2, 2004		$	(66,649	)
Year Ended Dec. 31, 2003		$	(283,151	)

F-107

---

Table of Contents

F-108

---

Table of Contents

December 31,
2006		$	210,230
2007			216,411
2008			218,299
2009			201,381
2010			47,367
Thereafter			140,792
Total Minimum Future Rental Payments		$	1,034,480

F-109

---

Table of Contents

Granted			1,663
Forfeited			(82	)
Cancelled			—
Balance — December 31, 2005			1,581

Outstanding
						Weighted Average
Shares		Exercise Price				Contractual Remaining Life
1,066		$	183.60				9.33 Years
515		$	350.00				9.75 Years

Exercisable
						Weighted Average
Shares		Exercise Price				Contractual Remaining Life
-0-		$	183.60				9.33 Years
-0-		$	350.00				9.75 Years

F-110

---

Table of Contents

Risk Free Interest Rate			4.21% and 4.39	%
Expected Life			10 years
Expected Volatility			0	%
Expected Dividend Yield			0	%

			December 31, 2005								December 31, 2004
			Cost Basis				Fair Value				Cost Basis				Fair Value
Assets:
	Cash & Cash Equivalents		$	1,515,731			$	1,515,731			$	1,006,720			$	1,006,720
Liabilities:
	Long-Term Debt		$	11,591,467			$	11,591,467			$	11,787,886			$	11,787,886

F-111

---

Table of Contents

						2005				2004
Current Assets
		Cash				$	71,541			$	2,569
		Accounts Receivable (net of allowance of $169,547 and $5,470)					511,947				646,309
		Inventory					168,893				266,128
		Prepaid Expenses					132,508				117,125
		Deferred Taxes					16,382				—
				Total		$	901,271			$	1,032,131
Other Assets
	Deposits					$	30,752			$	30,752
	Deferred Taxes						249,787				478,437
						$	280,539			$	509,189
Current Liabilities
	Accounts Payable					$	61,480			$	315,125
	Accrued Expenses						168,522				66,072
	Deferred Taxes						—				29,413
	Current Portion of Bank Loan						60,561	(A)			141,466	(A)
			Total			$	290,563			$	552,076
Long-Term Liabilities
	Long-Term Portion of Bank Loan					$	114,787	(A)		$	413,243	(A)

(A)

These amounts represent a note payable to a bank which is payable in monthly installments. At December 31, 2005 and 2004, the monthly payment was $6,466 and $14,628, respectively, including principal and interest at a variable rate. At December 31, 2005 and 2004, this variable rate was 7.62%, and 5.9%, respectively. Final payment on the note is due April 2008. The note is secured by the equipment at the Nevada location.

	•	to expense in-process research and development (IPR&D) of $458,000 that was recorded as part of the purchase price allocation in September 2004 (adjustment A),
	•	to further reallocate the purchase price between goodwill and intangibles (adjustment B),
	•	to record the accretion and beneficial conversion features for the convertible preferred stock not previously recognized (adjustment C),

F-112

---

Table of Contents

	•	to correct an error in the provision for income taxes to reflect a lower utilization of foreign tax credits (adjustment D).

														Preferred Stock
										Purchase				Beneficial
		Amount								Price				Conversion Feature
		Previously				I P R & D				Allocation				and Accretion				Tax Credit				Restated
		Reported(1)				Adjustment A				Adjustment B				Adjustment C				Adjustment D				Amounts
Balance Sheet at Dec. 31, 2004
Deferred Tax Asset		$	1,153,899			$	—			$	—			$	—			$	(757,380	)		$	396,519
Intangible Assets		$	9,161,282			$	(458,000	)		$	1,781,861			$	—			$	—			$	10,485,143
Goodwill		$	9,066,612			$	—			$	(1,126,455	)		$	—			$	1,168,570			$	9,108,727
Income Taxes Payable		$	876,380			$	—			$	—			$	—			$	848,409			$	1,724,789
Deferred Tax Liability		$	3,600,980			$	—			$	690,000			$	—			$	(294,537	)		$	3,996,443
Additional Paid-In Capital		$	7,422,441			$	—			$	—			$	754,142			$	—			$	8,176,583
Retained Earnings (Deficit)		$	747,743			$	(458,000	)		$	(34,594	)		$	(754,142	)		$	(142,682	)		$	(641,675	)
Income Statement Period 9/3/04 through 12/31/04
Research and Development Expense		$	178,931			$	458,000			$	—			$	—			$	—			$	636,931
Amortization of Intangibles		$	174,263			$	—			$	34,594			$	—			$	—			$	208,857
Income Tax Expense		$	329,572			$	—			$	—			$	—			$	142,682			$	472,254
Income Statement Period 1/1/04 to 9/2/04
Income Tax Expense		$	549,231			$	—			$	—			$	—			$	185,481			$	734,712
Income Statement Year Ended 12/31/03
Income Tax Expense		$	859,949			$	—			$	—			$	—			$	202,281			$	1,062,230

(1)	Adjusted for Discontinued Operations Classification

F-113

---

Table of Contents

		Page
Prospectus Summary			1
Risk Factors			14
Forward-Looking Statements			42
Use of Proceeds			43
Dividend and Distribution Policy			45
The Acquisitions of and Loans to Our Initial Businesses			48
Our Manager			60
Pro Forma Capitalization			71
Pro Forma Condensed Combined Financial Statements			72
Selected Financial Data			87
Management’s Discussion and Analysis of Financial Condition and Results of Operations			92
Business			134
Management			175
Management Services Agreement			183
Principal Shareholders/Security Ownership of Directors and Executive Officers			188
Certain Relationships and Related Party Transactions			190
Description of Shares			195
Shares Eligible for Future Sale			205
Material U.S. Federal Income Tax Considerations			207
Underwriting			220
Legal Matters			224
Experts			225
Where You Can Find Additional Information			226
Index to Financial Statements			F-1

---

Table of Contents

Item 13.	Other Expenses of Issuance and Distribution.

SEC Registration Fee		$	30,763
Trustees’ Fees		$	*
NASD Filing Fee		$	*
Accounting Fees and Expenses		$	*
Printing and Engraving Expenses		$	*
Legal Fees and Expenses		$	*
Blue Sky Services and Expenses		$	*
Miscellaneous(1)		$	*
Total		$	*

(1)	This amount represents additional expenses that may be incurred by the company or underwriters in connection with the offering over and above those specifically listed above, including distribution and mailing costs.

*	To be filed by amendment.

Item 14.	Indemnification of Directors and Officers.

	•	for any breach of the director’s duty of loyalty to the company or its members;
	•	for acts or omissions not in good faith or a knowing violation of law;
	•	regarding unlawful dividends and stock purchases analogous to Section 174 of the Delaware General Corporation Law; or
	•	for any transaction from which the director derived an improper benefit.

	•	we must indemnify our directors and officers to the equivalent extent permitted by Delaware General Corporation Law;
	•	we may indemnify our other employees and agents to the same extent that we indemnified our officers and directors, unless otherwise determined by the company’s board of directors; and
	•	we must advance expenses, as incurred, to our directors and executive officers in connection with a legal proceeding to the extent permitted by Delaware law and may advance expenses as incurred to our other employees and agents, unless otherwise determined by the company’s board of directors.

II-1

---

Table of Contents

Item 15.	Recent Sales of Unregistered Securities.

Item 16.	Exhibits and Financial Statement Schedules.

Exhibit No.				Description
	1	.1		Form of Underwriting Agreement*
	2	.1		Compass Group Diversified Holdings LLC Stock Purchase Agreement*
	2	.2		Form of Stock Purchase Agreement by and among Compass Group Diversified Holdings LLC, Compass Group Investments, Inc., Compass CS Partners, L.P., Compass CS II Partners, L.P., Compass Crosman Partners, L.P., Compass Advanced Partners, L.P. and Compass Silvue Partners, L.P.*
	3	.1		Certificate of Trust of Compass Diversified Trust†
	3	.2		Trust Agreement dated as of November 18, 2005 of Compass Diversified Trust†
	3	.3		Certificate of Formation of Compass Group Diversified Holdings LLC†
	3	.4		LLC Agreement dated as of November 18, 2005 of Compass Group Diversified Holdings LLC†
	3	.5		Form of Amended and Restated Trust Agreement of Compass Diversified Trust*
	3	.6		Form of Amended and Restated Operating Agreement of Compass Diversified Holdings LLC*
	4	.1		Specimen certificate evidencing share of trust stock of Compass Diversified Trust (included in 3.2)
	4	.2		Specimen certificate evidencing LLC interest of Compass Group Diversified Holdings LLC*
	5	.1		Form of Opinion*
	8	.1		Form of Tax Opinion*
	10	.1		Form of Management Services Agreement among Compass Group Diversified Holdings LLC and certain of its subsidiaries named therein and Compass Group Management LLC*
	10	.2		Form of Option Plan*
	10	.3		Form of Registration Rights Agreement*
	10	.4		Form of Supplemental Put Agreement*
	10	.5		Form of Employment Agreement by and between Compass Group Management LLC and James Bottiglieri*
	10	.6		Form of Private Placement Agreement by and between Compass Group Diversified Holdings LLC and Compass Group Investments, Inc.*
	10	.7		Form of Private Placement Agreement by and between Compass Group Diversified Holdings LLC and Pharos I LLC.*

II-2

---

Table of Contents

Exhibit No.				Description
	10	.8		Form of Credit Agreement by and between Compass Group Diversified Holdings and       dated as of       , 2006*
	10	.9		Form of Credit Agreement by and between the Compass Group Diversified Holdings, LLC and CBS Personnel Holdings, Inc.*
	10	.10		Form of Credit Agreement by and between the Compass Group Diversified Holdings, LLC and Crosman Acquisition Corp.*
	10	.11		Form of Credit Agreement by and between the Compass Group Diversified Holdings, LLC and Advanced Circuits, Inc.*
	10	.12		Form of Credit Agreement by and between the Compass Group Diversified Holdings, LLC and Silvue Technologies Group, Inc.*
	10	.13		Shareholders Agreement for holders of CBS Personnel Holdings, Inc. Class C common stock*
	10	.14		Shareholders Agreement for holders of Crosman Acquisition Corp. common stock*
	10	.15		Shareholders Agreement for holders of Advanced Circuits, Inc. common stock*
	10	.16		Shareholders Agreement for holders of Silvue Technologies Group, Inc. common stock*
	10	.17		Form of Lock-up Agreement*
	10	.18		Diablo Marketing LLC Members Agreement*
	10	.19		Directors’ Share Plan*
	10	.20		Management Services Agreement by and between Compass CS Inc. and Kilgore Consulting II LLC dated as of October 13, 2000*
	10	.21		Management Services Agreement by and between Crosman Corporation and Kilgore Consulting III LLC dated as of February 10, 2004*
	10	.22		Management Services Agreement by and between Advanced Circuits, Inc. and WAJ, LLC dated as of September 20, 2005*
	10	.23		Management Services Agreement by and between Kilgore Consulting III and SDC Technologies, Inc. dated as of September 2, 2004*
	23	.1		Consent of Grant Thornton LLP
	23	.2		Consent of Grant Thornton LLP
	23	.3		Consent of PricewaterhouseCoopers LLP
	23	.4		Consent of PricewaterhouseCoopers LLP
	23	.5		Consent of Bauerle and Company, P.C.
	23	.6		Consent of White, Nelson & Co. LLP
	23	.7		Consent of Grant Thornton LLP
	23	.8		Consent of Grant Thornton LLP
	23	.9		Consent of Sutherland, Asbill & Brennan LLP*
	24			Powers of Attorney†

*	To be filed by amendment.
†	Previously filed on December 14, 2005.

(b)	All financial statement schedules required pursuant to this item were either included in the financial information set forth in the prospectus or are inapplicable, and, therefore, have been omitted.

Item 17.	Undertakings.

	(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

II-3

---

Table of Contents

	(ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
	(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registration or its securities provided by or on behalf of the undersigned registrant; and
	(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

II-4

---

Table of Contents

	COMPASS DIVERSIFIED TRUST

	By:	COMPASS GROUP DIVERSIFIED

	HOLDINGS LLC, as Sponsor

	By:	/s/ I. Joseph Massoud

	I. Joseph Massoud
	Chief Executive Officer

II-5

---

Table of Contents

	COMPASS GROUP DIVERSIFIED HOLDINGS LLC

	By:	/s/ I. Joseph Massoud

	I. Joseph Massoud
	Chief Executive Officer

Signature				Title		Date
/s/ I. Joseph Massoud I. Joseph Massoud				Chief Executive Officer (Principal Executive Officer) and Director		March 20, 2006
/s/ James J. Bottiglieri James J. Bottiglieri				Chief Financial Officer (Principal Financial and Accounting Officer) and Director		March 20, 2006
* C. Sean Day				Director		March 20, 2006
* D. Eugene Ewing				Director		March 20, 2006
* Ted Waitman				Director		March 20, 2006
* Harold S. Edwards				Director		March 20, 2006
* Mark H. Lazarus				Director		March 20, 2006
*By:		/s/ I. Joseph Massoud I. Joseph Massoud Attorney-in-fact

II-6

 

 

 

 

 

 

 

 

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---