Compass Diversified (NYSE: CODI) has entered into a Ninth Amended and Restated Management Services Agreement with Compass Group Management LLC to reduce management costs and strengthen shareholder alignment. The amended agreement lowers the base management fee from 2.00% to 1.25% of Adjusted Net Assets (ANA) at current levels, with a cap of $30 million for 2027. The revised fee and incentive-award provisions take effect on January 1, 2027. Based on current estimates, total 2027 management fees are expected to decline by approximately $19 million to $22 million compared to what the existing formula would have produced.

The agreement replaces the existing incentive fee with two new awards: a Share Alignment Award and a Performance-Based Award. The Share Alignment Award is set at 0.125% of average ANA, intended to support increased CODI share ownership by senior Manager personnel. The Performance-Based Award has a target grant value equal to 0.125% of average ANA, weighted 70% to relative total shareholder return and 30% to EBITDA performance. The amended MSA also introduces governance safeguards, including clawback provisions and Compensation Committee oversight.

"Following a thoughtful Board-led review and negotiations with the Manager, we reached a constructive agreement that reduces fees and further strengthens alignment with long-term shareholder outcomes," said Larry Enterline, Independent Board Chair of CODI. "We are not satisfied with CODI’s current market valuation, and we continue to take concrete steps to help better translate the underlying value of our businesses into shareholder value."

Key Terms of the Amended MSA

The base management fee structure is now tiered based on ANA levels. The fee applies at 1.25% on the first $3 billion of ANA, 1.125% on the next $2 billion of ANA, and 1.00% on ANA above $5 billion. The Share Alignment Award is settled in cash and is designed to build meaningful CODI share ownership under guidelines implemented by the Manager.

The Performance-Based Award is cash-settled and includes specific performance hurdles. The total shareholder return component pays nothing if CODI’s total shareholder return is negative. For 2027, the award pays nothing unless CODI’s share price plus distributions reaches at least $17.25 at the end of 2027.

Future Transition and Outlook

CODI and the Manager intend to seek shareholder approval at CODI’s 2027 annual meeting for an equity-based incentive structure. If approved, this structure would become the go-forward program beginning in 2028, replacing the cash-based Share Alignment Award and Performance-Based Award. The Company reaffirmed its previously issued full-year 2026 outlook, noting that its subsidiaries continue to perform well.

Compass Diversified (NYSE: CODI) has entered into a Settlement Agreement and Mutual Release and a related Plan Support Agreement in connection with the Chapter 11 proceedings of Lugano Diamonds & Jewelry Inc. and its affiliated debtors. The agreement, reached with Lugano and its official committee of unsecured creditors, establishes the framework for CODI's recovery from the Lugano estate. This settlement is designed to accelerate the resolution of Lugano's bankruptcy, facilitate an orderly liquidation of assets, and provide greater certainty of recovery than continued litigation.

"This settlement is an important step forward," said Larry Enterline, Chairman of the Board of CODI. "It accelerates the resolution of the Lugano bankruptcy, allowing the estate to move efficiently toward confirmation of a plan of liquidation. It also enables more timely cash recovery for CODI and reduces the ongoing costs and uncertainty associated with the bankruptcy proceeding."

Under the terms of the Settlement, CODI has agreed to support Lugano's proposed Plan of Liquidation, which incorporates the settlement terms. The resolution allows CODI to focus on its strategic priorities, including deleveraging the balance sheet, enhancing business operations, and closing the gap between CODI's trading price and the intrinsic value of its businesses. The Company also continues to advance its previously announced review of the management services agreement, which is intended to further align incentives with shareholder interests and drive incremental shareholder value.

Subject to creditor approval and bankruptcy court confirmation of the Plan of Liquidation, CODI will be entitled to certain recoveries from the Lugano estate. These recoveries include proceeds from the disposition of Lugano's inventory, tax refunds, insurance, and litigation claims pursued through a liquidation trust. In exchange for releases granted by CODI and its related parties, CODI and its related parties will receive a release of claims from the Lugano estate.

The Settlement will become effective only upon satisfaction of the conditions set forth in the agreements, including the effectiveness of Lugano's Plan of Liquidation. There can be no assurance that the Plan of Liquidation will be confirmed or become effective, or as to the timing thereof. The terms of the Settlement are detailed in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 24, 2026.