Compass Diversified HoldingsCODI
Compass Diversified Holdings Commitments Disclosure
Commitments and Contingencies
Legal Proceedings
General Matters
The Company and its subsidiaries are subject to legal proceedings and claims that arise in the ordinary course of business. A liability for a loss contingency is accrued when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. For all other material loss contingencies, including those where the loss is reasonably possible or where the amount cannot be reasonably estimated, the Company discloses the nature of the contingency. The Lugano Investigation and the restatement of our previously issued consolidated financial statements for the periods ended at December 31, 2024, 2023 and 2022 has resulted in certain litigation and may result in additional stockholder litigation, regulatory investigations and additional liabilities in future periods.
Lugano Deconsolidation and Scope of Disclosure
As described below, Lugano and certain of its subsidiaries filed Chapter 11 petitions on November 16, 2025 (the “Deconsolidation Date”) and thereafter were deconsolidated from the Company’s consolidated financial statements. Accordingly, as of December 31, 2025, the Company’s loss contingency disclosures focus on matters for which the Company and/or its current or former directors and officers have potential exposure (including matters in which the Company is a named party or otherwise has a present obligation). Certain matters described below relate solely to Lugano and its subsidiaries and do not name the Company as a defendant; such matters are disclosed to the extent they affected amounts recognized in the Company’s consolidated results during the period Lugano was consolidated in 2025 and/or are relevant to the Company’s potential exposure, including (i) matters in which the Company and/or its current or former directors and officers are named or may have indemnification or defense-cost obligations, and (ii) potential claims or challenges that could affect recoveries on the Company’s claims in the Lugano bankruptcy proceedings.
Securities Class Actions Involving the Company
Between May 9, 2025, and June 25, 2025, three putative class actions were commenced against the Company and certain of the Company’s officers and directors, asserting claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder in the U.S. District Court for the Central District of California (collectively, the “CA Securities Class Actions”). On August 22, 2025, such CA Securities Class Actions were consolidated under the caption In re: Compass Securities Litigation, and the Court appointed the Eastern Atlantic States Carpenters Benefit Funds (“EAS Carpenters”) as lead plaintiff and the law firm of Cohen Milstein Sellers & Toll PLLC (“Cohen Milstein”) as lead counsel. On December 10, 2025, with the Court’s approval, the lead plaintiff voluntarily dismissed the consolidated California action in order to pursue its claims in the District of Connecticut.
On May 12, 2025, a separate putative class action was commenced against the Company and certain of its officers and directors in the U.S. District Court for the District of Connecticut, captioned Moreno v. Compass Diversified Holdings LLC, et al. (the “Moreno Action”). The plaintiff in the Moreno Action asserted the same claims as asserted by the plaintiffs in the CA Securities Class Actions. By order dated July 21, 2025, EAS Carpenters was appointed lead plaintiff and Cohen Milstein was appointed lead counsel for the Moreno Action. On February 6, 2026, lead plaintiff filed an amended complaint. The foregoing Securities Class Actions Involving the Company are in the early stages and the Company is currently unable to determine the likelihood of an unfavorable outcome. At this time, management has determined that a loss is reasonably possible but cannot reasonably estimate a range of potential loss. The Company believes it has defenses available to it and intends to vigorously defend itself.
Derivative Actions Involving the Company
On June 5, 2025, a Company shareholder commenced a shareholder derivative action in the U.S. District Court for the Central District of California, captioned Jones v. Sabo, et al. (the “Jones Action”), purporting to assert claims on behalf of the Company against current and former Company officers and directors who were named as defendants. The plaintiff is asserting causes of action for breach of fiduciary duty and violations of Section 14(a) of the Exchange Act. On July 17, 2025, a Company shareholder commenced a shareholder derivative action in the U.S. District Court for the Central District of California, captioned Kelly v. Sabo, et al., (the “Kelly Action”). The plaintiff in the Kelly Action asserted the same causes of action, against the same defendants, as the Jones Action. On August 6, 2025, the parties to the Jones Action and the Kelly Action filed a stipulation and proposed order to consolidate the two actions and to stay the actions, pending certain future events (including resolution of any motions to dismiss in the Securities Class Actions Involving the Company. On January 21, 2026, the court entered an order consolidating and staying the aforementioned derivative cases. The cases will henceforth be known as In Re Compass Diversified Holdings Derivative. On January 28, 2026, plaintiff’s counsel in a case captioned Begich v. Sabo et al, (“Begich Action”) another derivative case that previously had not been served on the Company, requested that the court include the Begich Action in the consolidated stayed cases.
On September 12, 2025, a shareholder of CODI filed a shareholder derivative action in the U.S. District Court for the District of Connecticut, captioned Kamp v. Sabo, et al. (the “Kamp Action”). The plaintiff in the Kamp Action asserts the same causes of action as in the above derivative cases, plus a cause of action for securities fraud in violation of Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. On October 7, 2025, a shareholder of CODI filed a shareholder derivative action in the U.S. District Court for the District of Connecticut, captioned Sulger v. Sabo, et al. (the “Sulger Action”). The plaintiff in the Sulger Action asserts the same causes of action as in the Kamp Action. On October 9, 2025, a shareholder of CODI commenced a shareholder derivative action in the U.S. District Court for the District of Columbia, captioned Moore v. Sabo, et al. (the “Moore Action”). The plaintiff in the Moore Action asserts similar claims against the same defendants as in the Kamp Action and Sulger Action. On December 8, 2025, the Court consolidated the Kamp Action, Sulger Action and Moore Action. The cases will henceforth be known as In re Compass Diversified Holdings Derivative Litigation. On January 12, 2026, the parties filed a stipulation and proposed order to stay the consolidated action pending further developments in the Securities Class Actions Involving the Company. The court entered that order on January 13, 2026.
The foregoing Derivative Actions Involving the Company are in the early stages and the Company is currently unable to determine the likelihood of an unfavorable outcome. At this time, management has determined that a loss is reasonably possible but cannot reasonably estimate a range of potential loss. The Company believes it has defenses available to it and intends to vigorously defend itself.
External Investigations and Reviews Involving the Company and Lugano
As a result of the Company’s withdrawal of reliance on its 2024, 2023, and 2022 financial statements, its failure to timely file its financial statements for the quarters ended at March 31, 2025, June 30, 2025, and September 30, 2025, and the underlying conduct at the Company’s Lugano subsidiary, there are ongoing investigations initiated by
the U.S. Securities Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”). The regulatory investigative process is inherently uncertain and the foregoing investigations are in the early stages. Additionally, the Financial Industry Regulatory Authority (“FINRA”) initiated a routine review of trading activity in the Company’s securities following the public announcement of the restatement. On November 17, 2025, the Company received notification from FINRA that its review had been completed and had referred the matter to the SEC for whatever actions the SEC deems appropriate, if any. The Company has cooperated and continues to cooperate fully with each ongoing investigation.
State Court Action Naming Company as a Defendant in Lugano-Related Matters
On July 24, 2025, a complaint was filed against Lugano, the Company and others in California State Court, styled Champion Force Industrial Limited v. Lugano Diamonds & Jewelry Inc., et al., asserting claims for breach of contract, goods had and received, conversion, fraud, promissory estoppel, unjust enrichment, and fraudulent conveyance. The plaintiff is a vendor of diamonds and finished jewelry to Lugano and is seeking in excess of $56.4 million in damages, principally for unpaid goods. On September 12, 2025, CODI filed a motion to quash due to lack of personal jurisdiction. As a result of the Lugano Bankruptcy, the claims against Lugano in the Champion Action are subject to the automatic stay. On January 12, 2026, the plaintiff filed a stipulation and proposed order substituting Royal T. Diamonds Group Ltd. a/k/a Royal T. Diamonds Ltd. assignee of Champion Force’s claims, as plaintiff in place of Champion Force. On February 11, 2026, Champion Force filed its opposition to CODI’s motion to quash, and CODI filed its reply on February 18, 2026. A hearing on CODI’s motion to quash is currently scheduled for February 26, 2026. The foregoing matter is in the early stages and the Company is currently unable to determine the likelihood of an unfavorable outcome as to the Company. As a result of the Lugano bankruptcy, the claims against Lugano are subject to the automatic stay. The stay generally does not extend to non-debtor parties such as the Company, although a court may stay proceedings against non-debtors in certain circumstances (including where the debtor is a necessary party).
Additionally, the Company was named as a defendant in Ken Kraus v. Lugano Diamonds & Jewelry, Inc., et al. (the “Kraus Action”), in which the plaintiff is seeking approximately $1.4 million in damages, plus interest and penalties. On January 12, 2026, the judge in the Kraus Action stayed the case with respect to all defendants.
During the year ended December 31, 2024 and the period Lugano was consolidated in 2025, the Company recorded accruals for certain Lugano-related vendor obligations in accordance with applicable accounting standards, although such obligations are subject to dispute. As of December 31, 2024 and the Deconsolidation Date, the recorded amount of such accruals was $49.8 million and $52.7 million, respectively. After the Deconsolidation Date, these amounts were deconsolidated and are no longer included in the Company’s consolidated liabilities
The Company intends to avail itself of all available defenses in these matters. Management has determined that a loss is reasonably possible, but cannot reasonably estimate the loss or range of possible loss, if any, that may result from this litigation.
Lugano-Specific Claims and Threatened Claims
Certain matters described below relate solely to Lugano and are included only for the purposes described above under the heading Lugano Deconsolidation and Scope of Disclosure. These matters are described to the extent they affected amounts recognized in the Company’s consolidated results during the period Lugano was consolidated in 2025 and/or are relevant to the Company’s potential exposure described above.
During the period from approximately May 7, 2025 to November 15, 2025, litigation was threatened and initiated by counterparties to transactions that appear to have been overseen by Lugano’s former CEO, Moti Ferder, who resigned effective May 7, 2025. The vast majority involve purported investment arrangements whereby the claimant delivered a specified dollar amount to Lugano in exchange for either (a) a profits interest in the future sale of a specified diamond(s), or (b) a guaranteed interest rate (collectively, “Diamond Financing Arrangements”).
Certain Diamond Financing Arrangements are the subject of current litigation, primarily in California State court, and the majority of the plaintiffs in these cases have presented similar fact patterns and are primarily seeking damages for alleged losses of principal amounts invested (“Diamond Financing Litigation”). The total damages being sought by all plaintiffs in Diamond Financing Litigation is approximately $32.2 million, plus interest and penalties, in most cases.
As noted below under the heading Impact of Lugano Chapter 11 Filing the Diamond Financing Litigation is subject to an automatic stay that prohibits, among other things, the continuation of these actions against Lugano, as debtor, outside of the bankruptcy process.
During the year ended December 31, 2024 and the period Lugano was consolidated in 2025, the Company recorded accruals for the estimated principal of short-term debt and interest expense related to previously undisclosed financing arrangements at Lugano (which includes the accrual for all Diamond Financing Arrangements) in accordance with applicable accounting standards, although such obligations were and are subject to dispute. As of December 31, 2024 and the Deconsolidation Date, the recorded amount of such accruals was $169.8 million and $183.7 million, respectively. After the Deconsolidation Date, these amounts were deconsolidated and are no longer included in the Company’s consolidated liabilities
Where the Company is named as a defendant in any Lugano-related matter, the Company intends to avail itself of all available defenses. The Company cannot predict whether claims arising from these matters will be asserted against the Company or its current or former directors and officers, or the outcome of any such matters. If asserted, management believes a loss could be reasonably possible, but cannot reasonably estimate the loss or range of possible loss, if any.
Impact of Lugano Chapter 11 Filing
On November 16, 2025, Lugano Holding, Inc. and certain of its subsidiaries, including Lugano, filed voluntary Chapter 11 petitions under the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Upon the filing of a bankruptcy petition, Section 362 of the Bankruptcy Code imposes an automatic stay that prohibits, among other things, the commencement or continuation of numerous actions against the debtor entity (in this case, Lugano), which include all lawsuits and collection efforts. The stay was immediately effective upon the bankruptcy filing without any further action by the debtor entity or any other party. The automatic stay remains in place until resolution of the bankruptcy case, or until otherwise waived by the debtor. The automatic stay generally protects only the debtor and does not usually extend to non-debtor parties who may be the subject of claims or litigation, including co-defendants named in litigation where Lugano is also defendant. In certain circumstances, a court may extend the stay to non-debtors if the debtor entity is a necessary party to the action. The automatic stay prohibits further litigation against Lugano outside of the Bankruptcy Court but does not necessarily prohibit continuation of actions against non-debtor parties, including CODI, absent a court order extending the stay.
In connection with the Lugano Bankruptcy proceedings, the Company’s claims against Lugano, including its senior secured receivable/claim, may be subject to challenge by Lugano or other parties in interest, including through claims or causes of action that could seek to subordinate or recharacterize the Company’s claim or otherwise reduce recoveries. Additionally, Lugano, its estate representative, creditors, or other parties in interest may assert claims or causes of action against the Company and/or its current or former directors and officers, including claims that could seek monetary damages or other relief.
The Company cannot predict whether any such claims will be asserted or the outcome of any such matters, and the assertion or resolution of such matters could affect the timing and amount of any recoveries. If asserted, such matters could result in significant defense costs, settlement payments or judgments, and could affect the timing and amount of any recoveries on the Company’s claims in the bankruptcy proceedings.
Leases
The Company and its subsidiaries lease office and manufacturing facilities, computer equipment and software under various operating arrangements. Certain of the leases are subject to escalation clauses and renewal periods. The Company and its subsidiaries recognize lease expense, including predetermined fixed escalations, on a straight-line basis over the initial term of the lease including reasonably assured renewal periods from the time that the Company and its subsidiaries control the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Certain of our subsidiaries have leases that contain both fixed rent costs and variable rent costs based on achievement of certain operating metrics. The variable lease expense was not a material component of our total lease expense for the years ending December 31, 2025, 2024 or 2023.
The maturities of lease liabilities at December 31, 2025 having an initial or remaining non-cancelable term of one year or more are as follows (in thousands):
| Operating | Finance | Total | ||||||||||||||||||
| 2026 | $ | 49,861 | $ | 719 | $ | 50,580 | ||||||||||||||
| 2027 | 42,505 | 7,040 | 49,545 | |||||||||||||||||
| 2028 | 32,047 | — | 32,047 | |||||||||||||||||
| 2029 | 22,281 | — | 22,281 | |||||||||||||||||
| 2030 | 18,335 | — | 18,335 | |||||||||||||||||
| Thereafter | 44,924 | — | 44,924 | |||||||||||||||||
| Total undiscounted lease payments | $ | 209,953 | $ | 7,759 | $ | 217,712 | ||||||||||||||
| Less: Interest | 46,015 | 892 | 46,907 | |||||||||||||||||
| Present value of lease liabilities | $ | 163,938 | $ | 6,867 | $ | 170,805 | ||||||||||||||
The Company’s rent expense for the fiscal years ended December 31, 2025, 2024 and 2023 totaled $60.5 million, $53.9 million and $50.3 million, respectively. The Company entered into a finance lease during the year ended December 31, 2024. The amortization and interest related to this lease was not material in 2024.
The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and discount rate used to present value the minimum lease payments. The Company's lease agreements often include one or more options to renew at the company's discretion. In general, it is not reasonably certain that lease renewals will be exercised at lease commencement and therefore lease renewals are not included in the lease term. As the discount rate is rarely determinable, the Company utilizes the incremental borrowing rate of the subsidiary entering into the lease arrangement, on a collateralized basis, over a similar term as adjusted for any country specific risk.
The weighted average remaining lease terms and discount rates for all of our leases were as follows:
| Lease Term and Discount Rate | December 31, 2025 | December 31, 2024 | ||||||||||||
| Weighted-average remaining lease term (years) | ||||||||||||||
| Operating Leases | 5.75 | 6.05 | ||||||||||||
| Finance Leases | 1.33 | 2.33 | ||||||||||||
| Weighted-average discount rate | ||||||||||||||
| Operating Leases | 8.64 | % | 8.9 | % | ||||||||||
| Finance Leases | 9.90 | % | 9.90 | % | ||||||||||
Supplemental balance sheet information related to leases was as follows (in thousands):
| Line Item in the Company’s Consolidated Balance Sheets | December 31, 2025 | December 31, 2024 | ||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Operating lease right-of-use assets | Other non-current assets | $ | $ | |||||||||||||||||
| Finance lease right-of-use assets | Other non-current assets | |||||||||||||||||||
| $ | 153,636 | $ | 198,521 | |||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Operating lease liabilities - current | Other current liabilities | $ | $ | |||||||||||||||||
| Operating lease liabilities - non-current | Other non-current liabilities | |||||||||||||||||||
| Finance lease liabilities - current | Other current liabilities | |||||||||||||||||||
| Finance lease liabilities - non-current | Other non-current liabilities | |||||||||||||||||||
| $ | 170,805 | $ | 223,665 | |||||||||||||||||
Supplemental cash flow information related to leases was as follows (in thousands):
| Year ended December 31, 2025 | Year ended December 31, 2024 | Year ended December 31, 2023 | ||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||
| Operating cash flows from operating leases | $ | 49,410 | $ | 47,688 | $ | 39,806 | ||||||||||||||
| Operating cash flows from finance leases | 676 | 447 | — | |||||||||||||||||
| Financing cash flows from finance leases | 42 | 21 | — | |||||||||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||||||||||||||
| Operating leases | $ | 24,834 | $ | 27,477 | $ | 61,560 | ||||||||||||||
| Finance leases | — | 6,883 | — | |||||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Mar 1, 2023 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.