Execution Version
 

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ASSET PURCHASE AGREEMENT

Dated as of May 13, 2011

Between

SANCOMPASS, INC.
 
ENCOMPASS SUPPLY CHAIN SOLUTIONS, INC.

and
 
ENCOMPASS GROUP AFFILIATES, INC.
 
ENCOMPASS PARTS DISTRIBUTION, INC.
 
CYBER-TEST, INC.
 
VANCE BALDWIN, INC.
 
TRITRONICS, INC.
 
ENCOMPASS SERVICE SOLUTIONS, INC.
 

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Table of Contents

   
Page
     
1.
DEFINITIONS; CERTAIN RULES OF CONSTRUCTION.
1
2.
PURCHASE AND SALE OF ASSETS.
12
 
2.1.
Purchase and Sale of Assets.
12
 
2.2.
Excluded Assets.
14
 
2.3.
Assumption of Liabilities.
15
 
2.4.
Liabilities Not Assumed.
16
 
2.5.
Purchase Price and Other Consideration.
17
 
2.6.
The Closing.
17
 
2.7.
Escrow Amounts.
18
3.
REPRESENTATIONS AND WARRANTIES OF THE SELLER.
18
 
3.1.
Organization.
18
 
3.2.
Power, Authorization and Shareholder Approval.
18
 
3.3.
Authorization of Governmental Authorities.
19
 
3.4.
Noncontravention.
19
 
3.5.
Title to Assets.
20
 
3.6.
All Assets Necessary to Conduct Business.
20
 
3.7.
Intentionally Omitted.
20
 
3.8.
SEC Filings; Financial Statements
20
 
3.9.
Absence of Undisclosed Liabilities.
22
 
3.10.
Absence of Certain Developments.
22
 
3.11.
Debt; Guarantees.
22
 
3.12.
Real Property.
23
 
3.13.
Accounts Receivable.
23
 
3.14.
Equipment.
23
 
3.15.
Acquired Inventory.
23
 
3.16.
Intellectual Property.
24
 
3.17.
Legal Compliance; Permits.
25
 
3.18.
Tax Matters.
25
 
3.19.
Employee Benefit Plans.
26
 
3.20.
Independent Contractors.
28
 
3.21.
Environmental Matters.
28
 
3.22.
Contracts.
28
 
3.23.
Required Consents.
30
 
3.24.
Customers and Suppliers.
30
 
3.25.
Labor and Employment.
30
 
3.26.
Litigation; Governmental Orders.
31
 
3.27.
Product Warranties; Defects; Liability.
31
 
3.28.
Insurance.
31
 
3.29.
No Brokers.
32
 
3.30.
Accounts Payable.
32
 
3.31.
Bona Fide Payment Disputes.
32
4.
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE BUYER.
32
 
4.1.
Parent Representations
32
 
4.2.
Buyer Representations
34
5.
COVENANTS.
35

 
 
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Table of Contents (continued)
 

     
Page
         
5.1.
Closing.
35
 
5.2.
Notices and Consents.
35
 
5.3.
Operation of Business.
37
 
5.4.
Preservation of Business.
39
 
5.5.
Full Access.
39
 
5.6.
Maintenance of Books and Records.
39
 
5.7.
Notice of Developments.
39
 
5.8.
Expenses.
40
 
5.9.
Employee Matters.
40
 
5.10.
Confidentiality.
41
 
5.11.
Publicity.
42
 
5.12.
Noncompetition and Nonsolicitation.
42
 
5.13
Distributions and Affiliate Payments.
43
 
5.14.
Collection of Accounts Receivable.
43
 
5.15.
Subordinated Notes.
44
 
5.16.
Payment of Seller Notes.
44
 
5.17.
Release From Letter of Credit.
44
 
5.18.
Bulk Transfer Laws.
44
 
5.19
Use of Trade Names.
44
 
5.20
Parent Stockholders’ Agreement.
44
 
5.21
Amendment to Parent Charter.
44
 
5.22
Further Assurances.
44
6.
CONDITIONS TO THE PARENT AND THE BUYER’S OBLIGATIONS AT THE CLOSING
45
 
6.1.
Representations and Warranties.
45
 
6.2.
Performance.
45
 
6.3.
Compliance Certificate.
45
 
6.4.
Requisite Shareholder Approval.
45
 
6.5.
Key Contracts.
45
 
6.6.
Key Real Property Leases.
45
 
6.7.
Qualifications.
46
 
6.8.
Absence of Litigation.
46
 
6.9.
Consents, etc.
46
 
6.10.
FIRPTA Certificate.
46
 
6.11.
Proceedings and Documents.
46
 
6.12.
Ancillary Agreements.
46
 
6.13
Affiliate Transactions Terminated.
46
 
6.14.
Release From Certain Liabilities.
46
 
6.15.
No Material Adverse Change.
47
 
6.16.
Execution of Non-Competition Agreement
47
 
6.17.
Seller Note Exchange Agreements.
47
 
6.18.
Parent Stockholders’ Agreement.
47
7.
CONDITIONS TO THE SELLERS’ OBLIGATIONS AT THE CLOSING.
47
 
7.1.
Representations and Warranties.
47
 
7.2.
Performance.
47
 
7.3.
Compliance Certificate.
47

 
 
ii

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Table of Contents (continued)

     
Page
         
7.4.
Qualifications.
47
 
7.5.
Absence of Litigation.
47
 
7.6.
Consents, etc.
48
 
7.7.
Proceedings and Documents.
48
 
7.8.
Ancillary Agreements.
48
 
7.9.
Release From Letter of Credit.
48
 
7.10.
Release from Certain Debt.
48
 
7.11.
Seller Note Exchange Agreements.
48
 
7.12.
Requisite Shareholder Approval.
48
 
7.13.
Amendment to Parent Charter
48
 
7.14.
Parent Stockholders’ Agreement.
48
8.
INDEMNIFICATION.
49
 
8.1.
Indemnification by Sellers.
49
 
8.2.
Time for Claims.
50
 
8.3.
Indemnity Escrow.
50
 
8.4.
Seller Indemnification.
51
 
8.5.
Remedies Cumulative.
51
 
8.6.
Remedies.
51
 
8.7.
Survival.
51
9.
TERMINATION.
52
 
9.1.
Termination of Agreement.
52
 
9.2.
Effect of Termination.
53
10.
TAX MATTERS
53
 
10.1.
Tax Treatment.
53
 
10.2.
Allocation of the Consideration.
53
 
10.3.
Transfer Taxes.
54
 
10.4.
Cooperation.
54
 
10.5.
Non-Reliance.
54
 
10.6.
Payment of Taxes.
54
 
10.7.
Straddle Period.
54
 
10.8.
Payment of Principal.
54
 
10.9.
Intercompany Accounts.
55
11.
MISCELLANEOUS
55
 
11.1.
Notices.
55
 
11.2.
Succession and Assignment; No Third-Party Beneficiary.
57
 
11.3.
Amendments and Waivers.
57
 
11.4.
Entire Agreement.
57
 
11.5.
Counterparts.
57
 
11.6.
Severability.
57
 
11.7.
Acknowledgment and Release.
58
 
11.8.
Headings.
58
 
11.9.
Construction.
58
 
11.10.
Governing Law.
58
 
11.11.
Jurisdiction; Venue; Service of Process.
59
 
11.12.
Specific Performance.
59
 
11.13.
Waiver of Jury Trial.
60

 
 
iii

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ASSET PURCHASE AGREEMENT
 
This Asset Purchase Agreement dated as of May 13, 2011 (as amended or otherwise
modified, the “Agreement”) is between Sancompass, Inc., a Delaware corporation
(the “Parent”) and Encompass Supply Chain Solutions, Inc., a Delaware
corporation (the “Buyer”) and Encompass Group Affiliates, Inc., a Florida
corporation (“Encompass”), Encompass Parts Distribution, Inc. (f/k/a Encompass
Group Affiliates, Inc.), a Delaware corporation and a wholly-owned subsidiary of
Encompass (“Encompass Parts”), Cyber-Test, Inc., a Delaware corporation
(“Cyber-Test”), Vance Baldwin, Inc., a Florida corporation (“Vance Baldwin”),
Tritronics, Inc., a Maryland corporation (“Tritronics”) and Encompass Service
Solutions, Inc., a Delaware Corporation (“Encompass Service Solutions” and with
Encompass, Encompass Parts, Cyber-Test, Vance Baldwin, Tritronics and Encompass
Service Solutions, each a “Seller” and collectively, the “Sellers”).
 
RECITALS
 
WHEREAS, the Sellers are engaged in the business of the distribution and sale of
parts for consumer electronics and related products, and providing repair,
refurbishment and maintenance services for consumer electronics and related
products (with all business activities associated therewith, the “Business”);
 
WHEREAS, the Buyer desires to purchase and acquire substantially all of the
assets and contractual rights (and assume certain of the liabilities) of the
Business from the Sellers, and the Sellers desire to sell such assets and
contractual rights to the Buyer in accordance with the terms and conditions set
forth in this Agreement;
 
WHEREAS, the Parent and the Buyer were formed for the purpose of entering into
the Contemplated Transactions; and
 
WHEREAS, the Buyer and the Sellers desire to make certain representations,
warranties, covenants and agreements in connection with the Contemplated
Transactions and also to prescribe various conditions to the Contemplated
Transactions.
 
AGREEMENT
 
NOW THEREFORE, in consideration of the premises and mutual promises herein made,
and in consideration of the representations, warranties and covenants herein
contained, and other good and valuable consideration, the Buyer and the Sellers
hereby agree as follows:
 
1.         DEFINITIONS; CERTAIN RULES OF CONSTRUCTION.
 
As used herein, the following terms will have the following meanings:
 
    “Action” means any claim, action, cause of action or suit (whether in
contract or tort or otherwise), litigation (whether at law or in equity, whether
civil or criminal), controversy, assessment, arbitration, investigation,
hearing, charge, complaint, demand, notice or proceeding to, from, by or before
any Governmental Authority.
 
 
 

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“Acquired Assets” is defined in Section 2.1.
 
“Acquisition Proposal” means any proposal or offer from any Person other than
the Buyer for the acquisition, transfer, purchase or other disposition of the
Business or the Acquired Assets (or any material portion thereof), including (a)
the acquisition, transfer, purchase or other disposition of any Equity Interest
of the Sellers, (b) any business combination involving or otherwise relating to
the Sellers, (c) any offer or proposal to restructure all or any portion of the
Liability of the Sellers or (d) any other similar transaction, the consummation
of which would reasonably be expected (i) to prevent or materially delay the
Contemplated Transactions or (ii) to dilute materially the benefits to the Buyer
of such transactions.
 
“Affiliate” means, with respect to any specified Person at any time, (a) each
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with such specified Person at such time, (b) each Person
who is at such time an officer or director of, or direct or indirect beneficial
holder of at least 20% of the aggregate voting power of, such specified Person,
(c) each Person that is managed by a common group of executive officers and/or
directors as such specified Person, (d) the members of the immediate family (i)
of each officer, director or holder described in clause (b) and (ii) if such
specified Person is an individual, of such specified Person and (e) each Person
of which such specified Person or an Affiliate (as defined in clauses (a)
through (d)) thereof will, directly or indirectly, beneficially own at least 20%
of any class of Equity Interests at such time.
 
“Affiliate Transaction” is defined in Section 6.13.
 
“Agreement” is defined in the Preamble.
 
“Allocation” is defined in Section 10.2.
 
“Amendment to the Amended and Restated Note Purchase Agreement” means the
second  amendment to the Amended and Restated Note Purchase Agreement, by and
between Encompass Parts, certain Guarantors (as defined therein), the Note
Purchasers (as defined therein), and Sankaty Advisors, LLC, substantially in the
form of Exhibit A.
 
“Ancillary Agreements” means the Amendment to the Amended and Restated Note
Purchase Agreement, the Bills of Sale and Assumption Agreement, the Escrow
Agreement and certain contribution agreements.
 
“Assumed Liabilities” is defined in Section 2.3.
 
“Available Funds” is defined in Section 8.3.
 
“Balance Sheet Assets” is defined in Section 2.1.1.
 
“Bills of Sale and Assumption Agreement” means the bills of sale between the
Sellers and the Buyer substantially in the form of Exhibit B.
 
“Board of Directors” means the Board of Directors of Encompass.
 
 
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“Business” is defined in the Recitals.
 
“Business Day” means any weekday other than a weekday on which banks in New
York, New York are authorized or required to be closed.
 
“Business Employees” is defined in Section 5.9.
 
“Business Technology” means any and all Technology used or useful in connection
with the Business and any and all Intellectual Property in any and all such
Technology.
 
“Buyer” is defined in the Preamble.
 
“Buyer Indemnified Person” is defined in Section 8.1.1.
 
“Cash Portion” is defined in Section 2.5.
 
“Circuit City Bankruptcy Action” shall mean certain pending claims, as described
in the complaint filed by Circuit City, against Vance Baldwin in November, 2010.
 
“Circuit City Claims” are defined in Section 8.1.1.
 
“Claim for Indemnification” is defined in Section 8.2.1.
 
“Closing” is defined in Section 2.6.1.
 
“Closing Date” is defined in Section 2.6.1.
 
“Code” means the United States Internal Revenue Code of 1986, as amended.
 
“Compensation” means, with respect to any Person, all salaries, wages,
compensation, remuneration, bonuses or benefits of any kind or character
whatever (including issuances or grants of Equity Interests), made or provided
directly or indirectly by the Seller or its Affiliates to such Person or
Affiliates of such Person.
 
“Consideration” is defined in Section 2.5.
 
“Consulting Letter Agreement” is defined in Section 2.4.2.
 
“Contemplated Transactions” means, collectively, the transactions contemplated
by this Agreement, including (a) the purchase and sale of the Acquired Assets
and the assumption of the Assumed Liabilities, (b) the execution, delivery and
performance of this Agreement and the Ancillary Agreements and (c) the Seller
Note Exchange.
 
“Contracts” is defined in Section 2.1.5.
 
“Contractual Obligation” means, with respect to any Person, any contract,
agreement, deed, mortgage, lease, license, commitment, promise, undertaking,
arrangement or understanding related to the Business, whether written or oral
and whether express or implied, or other document or instrument (including any
document or instrument evidencing or otherwise relating to any Debt), to which
or by which such Person is a party or otherwise subject or bound or to which or
by which any property, business, operation or right of such Person is subject or
bound.
 
 
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“Current Insurance Policies” is defined in Section 3.28.
 
“Cyber-Test” is defined in the Preamble.
 
“Debt” means, with respect to any Person, all obligations (including all
obligations in respect of principal, accrued interest, penalties, fees and
premiums) of such Person (a) for borrowed money (including overdraft
facilities), (b) evidenced by notes, bonds, debentures or similar Contractual
Obligations, (c) for the deferred purchase price of property, goods or services
(other than trade payables or accruals incurred in the Ordinary Course of
Business), (d) under capital leases (in accordance with GAAP), (e) in respect of
letters of credit and bankers’ acceptances, (f) for Contractual Obligations
relating to interest rate protection, swap agreements and collar agreements and
(g) in the nature of Guarantees of the obligations described in clauses (a)
through (f) above of any other Person.  For the avoidance of doubt, Debt shall
also include the Sankaty Notes and the Seller Notes.
 
“Eckert Note” is defined in Section 2.4.3.
 
“Employee Plan” is defined in Section 3.19.1.
 
“Encompass” is defined in the Preamble.
 
“Encompass Canada” means Encompass Distribution Canada, Inc., an Ontario, Canada
corporation.
 
“Encompass Common Stock” means the shares of the common stock of Encompass, no
par value.
 
“Encompass Mexico” means Encompass Parts Distribution, S. de R.L. de C.V., a
Mexican corporation.
 
“Encompass Parts” is defined in the Preamble.
 
“Encompass Service Solutions” is defined in the Preamble.
 
“Encompass Shareholder Meeting” is defined in Section 5.2.1.
 
“Encumbrances” means any and all claims and any other interests, charges,
conditions, equitable interests, liens, licenses, pledges, security interests,
mortgages, rights of way, easements, encroachments, encumbrances, servitudes,
rights of first offer or first refusal, buy/sell agreements and any other
restrictions or covenants with respect to, or conditions governing the use,
construction, voting (in the case of any security or equity interest), transfer,
receipt of income or exercise of any other attribute of ownership.
 
 
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“Enforceable” means, with respect to any Contractual Obligation stated to be
Enforceable by or against any Person, that such Contractual Obligation is a
legal, valid and binding obligation of such Person enforceable by or against
such Person in accordance with its terms, subject to the effect of bankruptcy,
reorganization, insolvency, receivership, moratorium and other similar laws
affecting the rights and remedies of creditors generally and further subject to
the exercise of judicial discretion and principles of equity.
 
“Environmental Laws” means any Legal Requirement relating to (a) Releases or
threatened Releases of Hazardous Substances, (b) pollution or protection of
public health or the environment or worker safety or health or (c) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances.
 
“Equipment” is defined in Section 3.14.
 
“Equity Interest” means (a) any capital stock, share, partnership or membership
interest, unit of participation or other similar interest (however designated)
in any Person and (b) any option, warrant, purchase right, conversion right,
exchange rights or other Contractual Obligation which would entitle any Person
to acquire any such interest in such Person or otherwise entitle any Person to
share in the equity, profit, earnings, losses or gains of such Person (including
stock appreciation, phantom stock, profit participation or other similar
rights).
 
“Equity Purchase Price” is defined in Section 2.5.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
 
“Escrow Agent” means the agent appointed to manage and disburse the Escrow
Funds, in accordance with the terms of the Escrow Agreement.
 
“Escrow Agreement” means the Escrow Agreement substantially in the form of
Exhibit C as may be entered into on or prior to the Closing Date among the
Sellers, the Buyer and the Escrow Agent.
 
“Escrow Amount” is defined in Section 2.7.
 
“Escrow Funds” means, at any particular time, the amount of funds remaining in
the escrow account, as established in accordance with the Escrow Agreement.
 
“Exchange Act” is defined in Section 3.8.1.
 
“Excluded Assets” is defined in Section 2.2.
 
“Excluded Liabilities” is defined in Section 2.4.
 
“Facilities” means any buildings, plants, improvements or structures located on
the Real Property.
 
“GAAP” means generally accepted accounting principles in the United States as in
effect from time to time.
 
 
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“Government Order” means any order, writ, judgment, injunction, decree,
stipulation, ruling, determination or award entered by or with any Governmental
Authority.
 
“Governmental Authority” means any United States federal, state or local or any
foreign government or political subdivision thereof, or any multinational
organization or authority or any authority, agency or commission entitled to
exercise any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power, any court or tribunal (or any
department, bureau or division thereof), or any arbitrator or arbitral body.
 
“Guarantee” means, with respect to any Person, (a) any guarantee of the payment
or performance of, or any contingent obligation in respect of, any Debt or other
Liability of any other Person, (b) any other arrangement whereby credit is
extended to any obligor (other than such Person) on the basis of any promise or
undertaking of such Person (i) to pay the Debt or other Liability of such
obligor, (ii) to purchase any obligation owed by such obligor, (iii) to purchase
or lease assets under circumstances that are designed to enable such obligor to
discharge one or more of its obligations or (iv) to maintain the capital,
working capital, solvency or general financial condition of such obligor and
(c) any liability as a general partner of a partnership or as a venturer in a
joint venture in respect of Debt or other obligations of such partnership or
venture.
 
“Hazardous Substance” is defined in Section 3.21.
 
“Indemnity Claim” means any claim for indemnification made by a Buyer
Indemnified Person under Section 8 with respect to any actual or potential Loss.
 
“Independent Accountant” is defined in Section 10.2.
 
“Intellectual Property” means the entire right, title and interest in and to all
proprietary rights of every kind and nature, including all rights and interests
pertaining to or deriving from:
 
(a)         patents, copyrights, mask work rights, technology, know-how,
processes, trade secrets, algorithms, inventions, works, proprietary data,
databases, formulae, research and development data and computer software or
firmware;
 
(b)         trademarks, trade names, service marks, service names, brands, trade
dress and logos, and the goodwill and activities associated therewith;
 
(c)         domain names, rights of privacy and publicity, moral rights, and
proprietary rights of any kind or nature, however denominated, throughout the
world in all media now known or hereafter created;
 
(d)        any and all registrations, applications, recordings, licenses,
common-law rights and Contractual Obligations relating to any of the foregoing;
and
 
(e)         all Actions and rights to sue at law or in equity for any past or
future infringement or other impairment of any of the foregoing, including the
right to receive all proceeds and damages therefrom, and all rights to obtain
renewals, continuations, divisions or other extensions of legal protections
pertaining thereto.
 
 
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“Intercompany Liability” means any Liability owed by any Seller to one or more
of the other Sellers or any of their Affiliates (including the Non-Seller
Subsidiaries, Encompass Canada and Encompass Mexico).
 
“Intercompany Receivable” means any receivable or other amount owed to any
Seller by one or more of the other Sellers or any of their Affiliates (including
the Non-Seller Subsidiaries, Encompass Canada and Encompass Mexico).
 
“Inter-Seller Allocation” is defined in Section 10.2.
 
“IRS” means the Internal Revenue Service.
 
“Law” or “Legal Requirement” means any United States federal, state or local or
foreign law, statute, standard, ordinance, code, rule, regulation, resolution or
promulgation, or any Governmental Order, or any license, franchise, permit or
similar right granted under any of the foregoing, or any similar provision
having the force or effect of law.
 
“Liability” means, with respect to any Person, any liability or obligation of
such Person whether known or unknown, whether asserted or unasserted, whether
determined, determinable or otherwise, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, whether incurred or
consequential, whether due or to become due and whether or not required under
GAAP to be accrued on the financial statements of such Person.
 
“Licenses” is defined in Section 3.16.4.
 
“Losses” is defined in Section 8.1.1.
 
“Material Adverse Effect” means, with respect to the Business, any change,
effect or circumstance that, when considered either singly or in the aggregate,
is, or is reasonably likely to be, materially adverse to the Business, condition
(financial or otherwise) or results of operations of the Sellers taken as a
whole.  Notwithstanding the foregoing, none of the following shall be deemed to
constitute, and none of the following shall be taken into account in determining
whether there has been a Material Adverse Effect with respect to the Sellers:
 
Any event arising from or relating to:
 
 
i.
general business or economic conditions, unless such event disproportionately
affects the Sellers (taken as a whole) or the Business in any material respect),

 
 
ii.
the taking of any action expressly required by this Agreement and the Ancillary
Agreements contemplated hereby,

 
 
iii.
any acts or omissions of any Seller taken at the request or demand of Sankaty or
the Buyer,

 
 
iv.
any national or international political or social conditions, including the
engagement by the United States in hostilities, whether or not pursuant to the
declaration of a national emergency or war, or the occurrence of any military or
terrorist attack upon the United States, or any of its territories, possessions,
or diplomatic or consular offices or upon any military installation, equipment
or personnel of the United States,

 
 
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v.
any changes in financial, banking or securities markets (including any
disruption thereof and any decline in the price of any security or any market
index), or

 
 
vi.
any changes in GAAP or in any Law.

 
“Most Recent Balance Sheet” is defined in Section 3.8.2.
 
“Most Recent Balance Sheet Date” is defined in Section 3.8.2.
 
“Non-Competition Agreement” means the agreement between the Buyer and H.I.G.
Capital, L.L.C. in substantially the same form as set forth in Exhibit D.
 
“Non-Seller Subsidiaries” means SpectruCell, Inc., a Delaware corporation, and
Hudson Street Investments, Inc., a Delaware corporation.
 
“Ordinary Course of Business” means an action (i) taken by any Person in the
ordinary course of such Person’s business which is consistent with the past
customs and practices of such Person (including past practice with respect to
quantity, amount, magnitude and frequency, standard employment and payroll
policies and past practice with respect to management of working capital, as any
of the foregoing may be modified in connection with the requirements of this
Agreement) which is taken in the ordinary course of the normal day-to-day
operations of such Person, or (ii) taken by a Seller, that has been consented
to, in writing, by Sankaty.
 
“Organizational Documents” means, with respect to any Person (other than an
individual), (a) the certificate or articles of incorporation or organization
and any joint venture, limited liability company, operating or partnership
agreement and other similar documents adopted or filed in connection with the
creation, formation or organization of such Person and (b) all by-laws, voting
agreements and similar documents, instruments or agreements relating to the
organization or governance of such Person, in each case, as amended or
supplemented.
 
“Parent” is defined in the Preamble.
 
“Parent Stockholders’ Agreement” is defined in Section 5.20.
 
“Parties” means the Parent, the Buyer and the Sellers, the parties to this
Agreement.
 
“Permitted Encumbrances” means the following Encumbrances: (i) Liens for Taxes
or assessments or other governmental charges or levies that are either (A) not
yet due and payable or (B) fully reserved for the Most Recent Balance Sheet and
disclosed on Schedule 1; (ii) pledges or deposits securing obligations under
worker’s compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) pledges or deposits securing bids,
tenders, contracts (other than contracts for the payment of money) or leases to
which a Seller  is a party as lessee made in the ordinary course of business;
(iv) deposits securing public or statutory obligations of the Borrower;
(v) inchoate and unperfected workers’, mechanics’, or similar liens arising in
the ordinary course of business; (vi) carriers’, warehousemen’s, suppliers’ or
other similar possessory liens arising in the ordinary course of business and
securing indebtedness not yet due and payable; (vii) deposits of money securing,
or in lieu of, surety, appeal or customs bonds in proceedings to which the
Borrower is a party and (viii) zoning restrictions, easements, licenses, or
other restrictions on the use of real property or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not materially
impair the use, value, or marketability of such real estate.
 
 
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“Permits” means, with respect to any Person, any license, franchise, permit,
consent, approval, right, privilege, certificate or other similar authorization
issued by, or otherwise granted by, any Governmental Authority to which or by
which such Person is subject or bound or to which or by which any property,
business, operation or right of such Person is subject or bound.
 
“Person” means any individual or corporation, association, partnership, limited
liability company, joint venture, joint stock or other company, business trust,
trust, organization, Governmental Authority or other entity of any kind.
 
“Products” is defined in Section 3.27.1.
 
“Proxy Statement” is defined in Section 3.8.3.
 
“Purchase Price” is defined in Section 2.5.
 
“Real Property” is defined in Section 3.12.
 
“Real Property Leases” is defined in Section 3.12.
 
“Release” means any actual, threatened or alleged spilling, leaking, pumping,
pouring, emitting, dispersing, emptying, discharging, injecting, escaping,
leaching, dumping, or disposing of any Hazardous Substance (including the
disposal or abandonment of barrels, containers, tanks or other receptacles
containing or previously containing any Hazardous Substance).
 
“Representative” means, with respect to any Person, any director, officer,
employee, agent, or other representative of such Person under such Person’s
control.
 
“Required Consent” is defined in Section 3.23.
 
“Requisite Shareholder Approval” is defined in Section 3.2.3.
 
“RGIP” means RGIP, LLC, a Delaware limited liability company.
 
“Sankaty” means, collectively, Sankaty Credit Opportunities II, L.P., a Delaware
limited partnership, Sankaty Credit Opportunities III, L.P., a Delaware limited
partnership, Sankaty Credit Opportunities IV, L.P., a Delaware Limited
Partnership, Sankaty Credit Opportunities (Offshore Master) IV, L.P., a Cayman
limited partnership, and certain other funds advised by Sankaty Advisors, LLC.
 
“Sankaty Notes” means, collectively, the Senior Notes and the Subordinated
Notes.
 
 
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“SEC” is defined in Section 3.8.1
 
“SEC Documents” is defined in Section 3.8.1.
 
“Securities Act” is defined in Section 3.8.1.
 
“Seller” and “Sellers” are defined in the Preamble.
 
“Seller Indemnified Person” is defined in Section 8.4.1.
 
“Sellers’ Knowledge” means the actual knowledge of Robert Gowens, John E.
Donahue, Robert Coolidge or Kimberly Wagner, or the knowledge such individuals
should reasonably be expected to obtain in the ordinary course of their duties
on behalf of Encompass.
 
“Seller Note Exchange” shall mean the transaction between the holders of the
Seller Notes and Encompass in which the Seller Notes will be exchanged or paid
in full to the holders of the Seller Notes in exchange for equity of the Parent
substantially in accordance with Schedule 4.1.6.
 
“Seller Note Exchange Agreements” are the binding agreements pursuant to which
the Seller Note Exchange will occur.
 
“Seller Notes” means, collectively (a) the convertible promissory note issued to
the former majority stockholder of Vance Baldwin in the initial principal amount
of $1,000,000 by Encompass, issued on August 17, 2007 and (b) the subordinated
promissory note issued in favor of Tritronics in the initial principal amount of
$1,000,000 by Encompass, issued on August 1, 2008.
 
“Seller Plan” is defined in Section 3.19.2.
 
“Seller Tax Group Member” means (a) each Seller, (b) Encompass Canada, (c)
Encompass Mexico and (d) any Person with which a person described in clause (a),
(b) or (c) files or is required to file a consolidated, combined, unitary or
similar Tax Return or for whose Taxes any Seller, Encompass Canada or Encompass
Mexico may have liability as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period, as a result of any tax
sharing or tax allocation agreement, arrangement or understanding, or as a
result of being liable for another person’s Taxes as a transferee or successor,
by contract or otherwise.
 
“Senior Notes” shall mean the first priority secured senior notes issued by
Encompass Parts to Sankaty in the initial aggregate principal amount of
$12,690,000.
 
“Series E Preferred Stock” means the shares of series E preferred stock of
Encompass, $0.01 par value.
 
“Sony LC” is defined in Section 5.17.
 
“SOX” is defined in Section 3.8.1.
 
 
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“Straddle Period” is defined in Section 10.7.
 
“Subordinated Notes” means the second priority Series A and Series B
subordinated notes issued by Encompass Parts to Sankaty in the amount of
$24,500,000.
 
“Subsidiary” means, with respect to any Person, any and all entities that such
Person directly and indirectly owns, beneficially or of record (a) an amount of
Equity Interests in such entity that is sufficient to enable such Person to
elect at least a majority of members of such entity’s governing body or (b) at
least fifty percent (50%) of the outstanding Equity Interests or financial
interests of such entity.
 
“Tax” or “Taxes” means (a) any and all federal, state, local, or foreign or
other income, gross receipts, license, payroll, employment, excise, escheat
obligation, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise, profits, withholding,
social security and payroll (or similar, including FICA), employment,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind or any charge of any kind in the nature of (or similar
to) taxes whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not and (b) any liability for the payment of any amounts of
the type described in clause (a) of this definition as a result of being a
member of an affiliated, consolidated, combined or unitary group for any period,
as a result of any tax sharing or tax allocation agreement, arrangement or
understanding, or as a result of being liable for another person’s taxes as a
transferee or successor, by contract or otherwise.
 
“Tax Return” means any return, election, estimate, declaration, report, claim
for refund or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
 
“Technology” means all inventions, works, discoveries, innovations, know-how,
information (including ideas, research and development, formulas, compositions,
processes and techniques, data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, business and marketing plans and
proposals, documentation and manuals), computer software, firmware, computer
hardware, integrated circuits and integrated circuit masks, electronic,
electrical and mechanical equipment and all other forms of technology, including
improvements, modifications, works in process, derivatives or changes, whether
tangible or intangible, embodied in any form, whether or not protectable or
protected by patent, copyright, mask work right, trade secret law or otherwise,
and all documents and other materials recording any of the foregoing.
 
“Termination Date” is defined in Section 9.1.
 
“Transferred Employee” is defined in Section 5.9.
 
“Transferred Plans” is defined in Section 5.9.4.
 
“Transfer Taxes” means any sales, use, registration, real property transfer,
stamp, documentary or excise Taxes and recording charges incurred with respect
to the purchase and sale of the Acquired Assets hereunder.
 
 
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“Treasury Regulations” means the regulations promulgated under the Code.
 
“Tritronics” is defined in the Preamble.
 
“Vance Baldwin” is defined in the Preamble.
 
“WARN” means the Worker Adjustment and Retraining Notification Act, and any
comparable law under the laws of any state.
 
Except as otherwise explicitly specified to the contrary, (a) references to a
Section, Article, Exhibit or Schedule means a Section or Article of, or Schedule
or Exhibit to this Agreement, unless another agreement is specified, (b) the
word “including” will be construed as “including without limitation,” (c) the
words “hereof,” “herein” and “hereunder” and words of similar import refer to
this Agreement as a whole (including the Exhibits and Schedules hereto) and not
to any particular provision of this Agreement, (d) the use of the word “or” is
not intended to be exclusive unless expressly indicated otherwise, (e)
references to a particular statute or regulation include all rules and
regulations thereunder and any predecessor or successor statute, rules or
regulation, in each case as amended or otherwise modified from time to time, (d)
words in the singular or plural form include the plural and singular form,
respectively and (e) references to a particular Person include such Person’s
successors and assigns to the extent not prohibited by this Agreement.
 
2.         PURCHASE AND SALE OF ASSETS.
 
2.1.           Purchase and Sale of Assets.  The Sellers agree to grant, sell,
assign, transfer, convey and deliver to the Buyer, and the Buyer agrees to
purchase from the Sellers at the Closing, subject to and upon the terms and
conditions contained herein, free and clear of any and all Encumbrances, other
than Encumbrances in favor of Sankaty or Permitted Encumbrances, all of the
Sellers’ rights, titles and interests in and to all of the following properties
and assets of the Sellers, other than the Excluded Assets described in Section
2.2 (collectively, the “Acquired Assets”):
 
2.1.1             All assets of the Business reflected on the Most Recent
Balance Sheet and all assets of the Business that have been acquired since the
date of Most Recent Balance Sheet (other than assets reflected on the Most
Recent Balance Sheet that have been disposed of in the Ordinary Course of
Business since the date of the Most Recent Balance Sheet) (collectively, the
“Balance Sheet Assets”), including:
 
(a)         all tangible personal property (such as equipment (including, but
not limited to, product tooling), acquired inventory, raw materials, supplies,
manufactured and purchased parts, works in progress, finished goods, furniture,
automobiles, trucks, tractors and trailers) of the Business;
 
(b)         all peripherals, computers and other electronic equipment used by
the Business Employees; and
 
(c)         all accounts receivable, notes receivable, cash, cash equivalents,
securities, prepaid expenses and other current assets of the Business other than
Intercompany Receivables (except for Intercompany Receivables due to any Seller
from Encompass Mexico or Encompass Canada that the Buyer has designated and
agreed to treat as Acquired Assets as provided in Section 10.9).
 
 
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2.1.2              All rights of the Sellers under all Permits used or useful in
connection with the operation of the Business and any pending applications
relating to any of the foregoing, including all Permits described in Schedule
3.17.2;
 
2.1.3              All Business Technology, goodwill associated therewith,
licenses and sublicenses granted in respect thereto and rights thereunder,
remedies against infringements thereof and rights to protection of interest
therein;
 
2.1.4              All customer, distributor and supplier mailing lists, and all
purchase histories and contact histories of the Business;
 
2.1.5              All rights of the Sellers under any Contractual Obligations
related to the Business which are listed on Schedule 2.1.5, as well as such
Contractual Obligations related to the Business which are entered into after the
date hereof and prior to the Closing in the Ordinary Course of Business
(provided that the Sellers shall have provided notice to the Buyer at least five
(5) Business Days prior to the execution of any such Contract) and, to the
extent required by Section 5.3, are approved in writing by the Buyer, which
shall be added to Schedule 2.1.5 by an amendment at the Closing (collectively,
the “Contracts”);
 
2.1.6              All claims, deposits, prepayments, refunds, causes of action,
rights of recovery, rights of set off and rights of recoupment;
 
2.1.7              All business and financial records, warranty and repair logs,
books, ledgers, files, plans, documents, correspondence, lists, plats,
architectural plans, drawings, notebooks, specifications, creative materials,
advertising and promotional materials, marketing materials, studies, reports,
equipment repair, maintenance or service records relating to the Business,
whether written or electronically stored or otherwise recorded;
 
2.1.8              All rights in and with respect to the assets associated with
the Employee Plans listed on Schedule 2.1.8;
 
2.1.9              All rights in and with respect to the insurance policies and
contracts listed on Schedule 3.28;
 
2.1.10            All of the Sellers’ rights to the use of all product names
related to the Business, including but not limited to Encompass Parts
Distribution, Cyber-Test, Vance Baldwin, Tritronics, Encompass Service
Solutions, Encompass Canada and Encompass Mexico and Green Choice Parts;
 
2.1.11            All confidentiality agreements and non-competition agreements
to which any Seller is a party;
 
 
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2.1.12            All equity or other ownership interests in Encompass Canada
and Encompass Mexico; and
 
2.1.13            All other assets of the Sellers of every kind and description,
tangible or intangible, pertaining to or used in the Business, other than the
Excluded Assets.
 
2.2.           Excluded Assets.  There shall be excluded from the Acquired
Assets to be sold, assigned, transferred, conveyed and delivered to the Buyer
hereunder, and to the extent in existence on the Closing Date, there shall be
retained by the Sellers, the following assets, properties and rights
(collectively, the “Excluded Assets”):
 
2.2.1             Each Seller’s charter and other Organizational Documents,
taxpayer and other identification numbers, seals, minute books, stock transfer
books, blank stock certificates and other documents relating to the
organization, maintenance and existence of such Seller as a legally organized
entity;
 
2.2.2              Any (a) confidential personnel and medical records pertaining
to any employees of the Sellers other than Transferred Employees, (b) books and
records that the Sellers are required by law to retain or that the Sellers
determine are necessary or advisable to retain including, without limitation,
Tax Returns, financial statements and corporate or other entity filings;
provided, that Buyer shall have the right to make copies of (i) any portions of
such retained books and records that relate to the Business or any of the
Acquired Assets and (ii) any Tax Returns, (c) any information management systems
of the Sellers, other than those used or held for use exclusively in the conduct
of the Business and (d) all corporate minute books, stock ledgers and stock
certificates of Sellers and any of their subsidiaries;
 
2.2.3              All claims, rights and interest in and to any refunds of
federal, state or local franchise, income or other Taxes of each Seller and paid
by such Seller prior to the Closing Date;
 
2.2.4              All claims (including but not limited to claims under the
Sellers’ insurance policies), causes of action and chooses in action of the
Sellers, and all rights and interests of the Sellers under any settlement
agreements, in each case arising from or relating to the ownership of operation
of the Business on or prior to the Closing Date and any proceeds therefrom or
arising in connection with the discharge by the Sellers of the Excluded
Liabilities;
 
2.2.5              All Contractual Obligations relating to any present, former
or prospective employee or independent contractor of the Sellers related to the
Business or involving any compensation, performance based compensation, equity
grants or similar arrangements, unless such Contracts are listed on Schedule
2.1.5;
 
2.2.6              All equity or other ownership interests in Non-Seller
Subsidiaries;
 
2.2.7              All equity or other ownership interests any Seller has in
another Seller;
 
 
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2.2.8              Any Contract or other asset agreed upon in writing by the
Sellers and the Buyer; and
 
2.2.9              All Intercompany Receivables (except for Intercompany
Receivables due to a Seller from Encompass Mexico or Encompass Canada that the
Buyer has designated and agreed to treat as Acquired Assets as provided in
Section 10.9).
 
2.3.           Assumption of Liabilities.  At the Closing, on the terms and
subject to the conditions set forth herein and except as specified in Section
2.4 hereof, from and after the Closing, the Buyer will assume and satisfy or
perform when due, the Liabilities of the Sellers other than the Excluded
Liabilities (the “Assumed Liabilities”) including, without limitation:
 
2.3.1              All Liabilities under the Contracts (other than any Excluded
Liabilities);
 
2.3.2              All accounts payable and accrued expenses (excluding, for the
avoidance of doubt, any accrued interest or other accrued liabilities related to
the Subordinated Notes) of the Business set forth on the face of the Most Recent
Balance Sheet;
 
2.3.3              All accounts payable and accrued expenses (excluding, for the
avoidance of doubt, any accrued interest or other accrued liabilities related to
the Subordinated Notes) of the Business incurred after the Most Recent Balance
Sheet in the Ordinary Course of Business that would, if incurred prior to the
Most Recent Balance Sheet date, be required in accordance with GAAP to be set
forth on the face of the Most Recent Balance Sheet;
 
2.3.4              The Senior Notes outstanding as of the Closing;
 
2.3.5              Amounts due to Jack Donahue, pursuant to the terms of the
employment agreement by and between Encompass and Jack Donahue, dated as of
August 17, 2007 (as amended on July 31, 2009 and on August 17, 2009), but
limited to (i) salary or severance in an amount not to exceed $21,000 per month
from the Closing Date through August 17, 2011, with such amounts prorated for
partial months, and (ii) a one-time “bonus payment” to Jack Donahue in an amount
not to exceed $20,000;
 
2.3.6              All Liabilities under the Interim Management & Restructuring
Advisory Proposal between Encompass and Phoenix Management Services, Inc., dated
as of September 1, 2010, other than Liabilities occurring prior to the Closing
Date;
 
2.3.7              All product return and product warranty Liability for
products of the Business;
 
2.3.8              The Liabilities arising from the following claims of the
Circuit City Bankruptcy Action: (i) Claim No. 1400 and (ii) the obligations of
Vance Baldwin, or any of its Affiliates, to make any payments to Circuit City or
any representative of the Circuit City estate, on account of asserted unearned
advances or on account of avoidable preferential transfers: and
 
2.3.9              Subject to Section 2.6.2, the liabilities listed on Schedule
2.3.9.
 
 
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2.4.           Liabilities Not Assumed.  Notwithstanding Section 2.3 or any
other provision of this Agreement, the Assumed Liabilities will not include, the
Buyer will not assume or perform, and the Sellers shall retain, pay, perform,
discharge and satisfy any of the following Liabilities (collectively, the
“Excluded Liabilities”):
 
2.4.1              The Seller Notes, including any unpaid interest, fees or
penalties, all of which will be cancelled pursuant to the Seller Note Exchange
Agreements;
 
2.4.2              Any Liability of the Sellers with respect to a certain Letter
Agreement between Encompass, Danson Partners LLC and Wayne Danson, for payment
of certain consulting fees, including any unpaid interest, fees or penalties
(the “Consulting Letter Agreement”);
 
2.4.3              Any Liability of the Sellers in connection with a certain
Convertible Subordinated Promissory Note issued by the Sellers to Eckert Seamans
Cherin & Mellot, LLC, dated as of August 17, 2007, including any unpaid
interest, fees or penalties (the “Eckert Note”);
 
2.4.4              Any Liability of the Sellers for costs and expenses incurred
in connection with this Agreement, the making or performance of this Agreement
and the transactions contemplated hereby, other than as contemplated by Section
2.5;
 
2.4.5              Any Liability of the Sellers or any of their Affiliates
arising out of or related to the New York Medical Plan with Oxford Health Plans,
LLC;
 
2.4.6              Provided the Buyer offers employment to all of the Business
Employees on substantially the same terms and conditions as provided by the
Sellers, and except to the extent any Liability arises or is increased due to
the Buyer’s termination of any Business Employee after the Closing, any
Liability of the Sellers or any of their Affiliates for making payments or
providing Compensation of any kind to its employees or former employees (or
independent contractors or former independent contractors), including (a) as a
result of the sale of the Acquired Assets or as a result of the termination by
the Buyer of any employees, (b) any Liability arising out of, or relating to,
WARN; (c) any Liability in respect of work-related employee injuries or worker’s
compensation claims and (d) except to the extent set forth in Section 2.3.5, any
Liability arising out of, or relating to severance payments due to Jack Donahue
(including, without limitation, arising from any termination of his employment
by Buyer following the Closing Date);
 
2.4.7              Any Liability of any Seller or any Affiliate of any Seller
for Taxes (including, for the avoidance of doubt, any such Taxes that may become
a Liability of the Buyer under any doctrine of de facto merger or transferee or
successor liability), except as otherwise provided in Section 10.2 with respect
to Transfer Taxes; and
 
2.4.8              All Intercompany Liabilities (except for Intercompany
Liabilities due from a Seller to Encompass Mexico or Encompass Canada that the
Buyer has designated and agreed to treat as Assumed Liabilities as provided in
Section 10.9).
 
 
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2.5.           Purchase Price and Other Consideration.   At the Closing, the
Buyer agrees to purchase the Acquired Assets, and as consideration therefor, the
Buyer agrees to (a) assume the Assumed Liabilities, (b) transfer the
Subordinated Notes to the Sellers, (c) pay $1,000,000 (the “Cash Portion”) as
contemplated by Section 2.7, (d) transfer or cause to be transferred to
Cyber-Test (or  to one or more of the Sellers as Buyer may specify pursuant to
Section 10.2) shares of equity of the Parent consistent with the capital
structure term sheet attached as Schedule 4.1.6 (the “Equity Purchase Price”)
and (e) pay the amounts required by Section 5.8 and any amount required to be
paid to Sellers pursuant to the last sentence of Section 2.7 (collectively, (b),
(c), (d) and (e) are referred to herein as the “Purchase Price,” and
collectively (a), (b), (c), (d) and (e) are referred to herein as the
“Consideration”).  The Consideration shall be allocated in accordance with the
Allocation as determined by Section 10.2; provided, that as set forth in Section
10.2, the Equity Purchase Price shall be allocated solely as consideration for
assets of Cyber-Test unless Buyer determines to allocate such Equity Purchase
Price otherwise as provided in Section 10.2.
 
2.6.           The Closing.
 
2.6.1              The closing of the transactions contemplated by this
Agreement (the “Closing”) will take place at the offices of Ropes & Gray LLP at
the Prudential Tower at 800 Boylston Street, Boston, Massachusetts, or at such
other location as the parties may agree, within five (5) Business Days after the
satisfaction of the conditions set forth in Sections 6 and 7, which can be
satisfied prior to the Closing (the date of the Closing being the “Closing
Date”).  Except as otherwise provided in Section 9, the failure to consummate
the purchase and sale provided for in this Agreement on the date and time and at
the place specified herein will not relieve any Party to this Agreement of any
obligation under this Agreement.
 
2.6.2              At the Closing, the following transactions shall occur in the
following sequence:
 
(a)         The Senior Notes will be amended pursuant to the Amendment to the
Amended and Restated Note Purchase Agreement;
 
(b)         The Subordinated Notes will be contributed to the Parent, and the
Subordinated Notes will then be contributed, directly or indirectly, to the
Buyer;
 
(c)         The Series E Preferred Stock and other equity interest in Encompass
held by Sankaty and RGIP will be purchased by Encompass for $1.00;
 
(d)         The Buyer will purchase, and the Sellers will sell the Acquired
Assets; and
 
(e)         Subject to receipt of payoff/release letters in favor of Buyer
reasonably acceptable to Buyer, Buyer will assume and pay at the Closing the
liabilities listed on Schedule 2.3.9; provided that Buyer shall not be required
to assume and pay such liabilities in the event that it has not received such
payoff/release letters.
 
 
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2.7.           Payment of Cash Portion of Purchase Price.  At the Closing, Buyer
shall pay the Cash Portion of the Purchase Price  by wire transfer of
immediately available funds as follows: (a) to the Escrow Agent, to such account
as the Escrow Agent specifies to Buyer and Sellers in writing no fewer than two
Business Days prior to the Closing Date, cash in an amount equal to $350,000
(the “Escrow Amount”) and (b) $650,000 to such account or accounts as Sellers
specify to the Buyer in writing no fewer than two Business Days prior to the
Closing.  In addition, in the event that Buyer does not assume the liabilities
set forth on Schedule 2.3.9 as provided in Section 2.6.2(e), then the amounts
set forth on such Schedule shall be paid to Sellers to the account specified in
clause (b) above or to such other accounts as are specified by Sellers.
 
3.         REPRESENTATIONS AND WARRANTIES OF THE SELLER.
 
In order to induce the Parent and the Buyer to enter into and perform this
Agreement and to consummate the Contemplated Transactions, the Sellers, jointly
and severally, hereby represent and warrant to the Parent and the Buyer that,
except (i) as set forth in the Disclosure Schedule (it being understood and
agreed by the Parties hereto that disclosure of any item in any section or
subsection of the Disclosure Schedule shall be deemed disclosure with respect to
any other section or subsection of the Disclosure Schedule to which the
relevance of such item is readily apparent on its face), or (ii) other than with
respect to the representations and warranties set forth in Section 3.8 and
Section 3.22, as set forth in and readily apparent from the SEC Documents filed
and publicly available or drafts of SEC documents provided to Buyer’s counsel on
May 10, 2011 (excluding for purposes hereof and exhibits thereto), the
statements contained in this Section 3 are true and correct as of the date of
this Agreement and will be true and correct as of the Closing as though made as
of the Closing, except to the extent such representations and warranties are
specifically made as of a particular date (in which case such representations
and warranties will be true and correct as of such date).
 
The Disclosure Schedule shall be arranged in sections and subsections
corresponding to the numbered and lettered sections and subsections specifically
referenced in this Section 3.  Each of the statements in this Section 3 is
modified by exceptions set forth on the Disclosure Schedule, whether or not the
specific statement is explicitly qualified by reference to the Disclosure
Schedule.
 
3.1.           Organization.  Each Seller is (a) duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, and (b) duly qualified to do business and is in good standing in
each jurisdiction in which it owns or leases Real Property and in each other
jurisdiction in which the failure to so qualify has not had, and is not
reasonably likely to have, a Material Adverse Effect.
 
3.2.           Power,  Authorization and Shareholder Approval.
 
3.2.1              The execution, delivery and performance by each Seller of
this Agreement and each Ancillary Agreement to which it is a party and the
consummation of the Contemplated Transactions are within the power and authority
of such Seller and have been duly authorized by all necessary action on the part
of such Seller, other than the affirmative vote of the holders of a majority of
the Equity Interest of Encompass, in accordance with Encompass’s Organizational
Documents, entitled to vote on the record date.  This Agreement and each
Ancillary Agreement to which the Seller is a party (a) has been duly executed
and delivered by such Seller, (b) is a legal, valid and binding obligation of
such Seller, enforceable against such Seller in accordance with its terms and
(c) such Seller has all necessary corporate power and authority to carry out
their obligations under this Agreement and the Ancillary Agreements and to
consummate the Contemplated Transactions.
 
 
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3.2.2              The Board of Directors, at a meeting duly called and held at
which all directors were present, unanimously (i) determined that the terms of
the Agreement are fair and in the best interests of Encompass and its
shareholders, and declared it advisable, to enter into this Agreement and
consummate the Contemplated Transactions, upon the terms and subject to the
conditions set forth herein, (ii) approved the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby upon the terms and conditions contained herein.
 
3.2.3              The affirmative vote of the holders of a majority of the
outstanding shares of the common stock of Encompass (on an as-converted basis)
(the “Requisite Shareholder Approval”) is the only vote of the holders of any
class or series of the capital stock of Encompass that is necessary to adopt and
approve this Agreement and consummate the transactions contemplated by this
Agreement.
 
3.3.           Authorization of Governmental Authorities.  Except as disclosed
on Schedule 3.3, no action by (including any authorization, consent or
approval), or in respect of, or filing with, any Governmental Authority is
required for, or in connection with, the valid and lawful (a) authorization,
execution, delivery and performance by any Seller of this Agreement and each
Ancillary Agreement to which the Seller is a party or (b) consummation of the
Contemplated Transactions by the Sellers.
 
3.4.           Noncontravention.  Neither the execution, delivery and
performance by any Seller of this Agreement or any Ancillary Agreement to which
it is a party nor the consummation of the Contemplated Transactions will,
assuming the taking of any action by (including any authorization, consent or
approval), or any filing with, any Governmental Authority, in each case as
disclosed on Schedule 3.4:
 
(a)         violate any Legal Requirement;
 
(b)         result in a breach or violation of, or default under, any
Contractual Obligation of any Seller;
 
(c)         require any action by (including any authorization, consent or
approval) or in respect of (including notice to), any Person under any
Contractual Obligation of any Seller;
 
(d)         result in the creation or imposition of an Encumbrance upon, or the
forfeiture of, any Acquired Asset; or
 
(e)         result in a breach or violation of, or default under, the
Organizational Documents of any Seller.
 
 
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except, in each case, to the extent such breach, violation, failure to obtain
any acquired action, Encumbrance or forfeiture has not had, and would not
reasonably be expected to have, a Material Adverse Effect.
 
3.5.           Title to Assets.  The Sellers have good and marketable title to,
or a valid and subsisting leasehold interest in or valid rights under contract
to use, all of the Acquired Assets, free and clear of all Encumbrances other
than Permitted Encumbrances, and, by virtue of the grant, sale, assignment,
transfer, conveyance, assignment and delivery of the Acquired Assets hereunder,
at the Closing, the Buyer shall receive good title to the Acquired Assets, free
and clear of all Encumbrances other than Permitted Encumbrances and Encumbrances
created in favor of the Buyer or Sankaty.
 
3.6.           All Assets Necessary to Conduct Business.  The Acquired Assets
comprise all of the assets, properties and rights of every type and description,
real, personal, tangible and intangible used by the Seller in, or necessary to,
the conduct of the Business as now conducted, except where the failure have such
assets would not, and would not reasonably be expected to have, a Material
Adverse Effect.  The Excluded Assets do not include any asset, property or
right, of any type or description, whether real or personal, tangible or
intangible, that is necessary for the conduct of the Business or otherwise
related directly to the Business, in each case, as now conducted.
 
3.7.           Intentionally Omitted.
 
3.8.           SEC Filings; Financial Statements.
 
3.8.1              SEC Filings.
 
(a)         Except as disclosed on Schedule 3.8.1, all statements, reports,
schedules, forms, exhibits and other documents required to have been filed with
or furnished to the United States Securities and Exchange Commission (the “SEC”)
by Encompass or its Subsidiaries since January 1, 2010 and the drafts of SEC
documents provided to Buyer’s counsel on May 10, 2011 (the “SEC Documents”) have
been timely filed or furnished, as the case may be.  As of their respective
dates (or, if amended, supplemented or superseded by a filing prior to the date
of this Agreement, then on the date of such amendment, supplement or superseding
filing): (i) each of the SEC Documents complied in all material respects with
the applicable requirements of the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the “Securities Act”), or the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the “Exchange Act”) (as the case may be), and the
requirements of the Sarbanes-Oxley Act of 2002 (“SOX”), except for such
noncompliance as was remedied by any amendment or subsequent filing, each as in
effect on the date so filed or furnished, and (ii) none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
 
 
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(b)         The SEC Documents include all certifications and statements required
by Rule 13a-14 or 15d-14 under the Exchange Act and Sections 302 and 906 of SOX
and the rules and regulations of the SEC promulgated thereunder, and such
certifications and statements contain no qualifications or exceptions to the
matters certified or stated therein and have not been modified or withdrawn.
 
3.8.2              Financial Statements.
 
(a)         Except as set forth on Schedule 3.8.2, the financial statements
(including related notes, if any) contained in the SEC Documents: (i) complied
as to form in all material respects with the published rules and regulations of
the SEC applicable thereto; (ii) were prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered (except as may be indicated
in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC, and except that the unaudited
financial statements may not have contained notes and were subject to normal and
recurring year-end adjustments); and (iii) fairly presented in all material
respects the consolidated financial position of Encompass and its consolidated
Subsidiaries as of the respective dates thereof and the consolidated results of
operations and cash flows of Encompass and its consolidated Subsidiaries for the
periods covered thereby; except in each case for such noncompliance as was
remedied or disclosed by or in any amendment or subsequent filing.  For purposes
of this Agreement, “Most Recent Balance Sheet” means that unaudited consolidated
balance sheet of Encompass and its consolidated Subsidiaries as of December 31,
2010 set forth in Encompass’s draft Quarterly Report on Form 10-Q provided to
Buyer’s counsel on May 10, 2011 and the “Most Recent Balance Sheet Date” means
December 31, 2010.
 
(b)          Except as disclosed on Schedule 3.8.1, since the Most Recent
Balance Sheet Date, (i) neither Encompass nor any of its Subsidiaries nor, to
the knowledge of Encompass, any member of the board of directors, officer,
employee, auditor, accountant or representative of Encompass or any of its
Subsidiaries has received or otherwise obtained knowledge of any material
complaint, allegation, assertion or claim, whether written or oral, regarding
the accounting or auditing practices, procedures, methodologies or methods of
Encompass or any of its Subsidiaries or their respective internal accounting
controls, including any material complaint, allegation, assertion or claim that
Encompass or any of its Subsidiaries has engaged in questionable accounting or
auditing practices, and (ii) to the knowledge of Encompass, no attorney
representing Encompass or any of its Subsidiaries, whether or not employed by
Encompass or any of its Subsidiaries, has reported evidence of a material
violation of securities laws, breach of fiduciary duty or similar violation, by
Encompass or any of its officers, Trustees, employees or agents to the Trustees
of Encompass or any committee thereof or to any Trustee or executive officer of
Encompass.
 
 
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3.8.3              Proxy Statement.  The proxy statement, letter to
stockholders, notice of meeting and form of proxy accompanying the proxy
statement that will be provided to the shareholders of Encompass in connection
with the solicitation of proxies for use at the Encompass Shareholder Meeting
(collectively, as amended or supplemented, the “Proxy Statement”) will, at the
date of its initial filing with the SEC and at the date of any amendment or
supplement thereto, comply as to form in all material respects with the
applicable requirements of the Exchange Act.  The Proxy Statement will not, at
the time the Proxy Statement is filed with the SEC, at the time the Proxy
Statement is first sent to the shareholders of Encompass, at the date of any
amendment or supplement thereto, or at the time of Encompass Shareholder
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that notwithstanding the foregoing, no
representation or warranty is made by Encompass with respect to information
supplied by Buyer or any of its partners, members, stockholders, directors,
officers, employees, affiliates, agents or other representatives that is
included or incorporated by reference in the Proxy Statement.
 
3.9.         Absence of Undisclosed Liabilities.  Neither Encompass nor any of
its Subsidiaries have any Liabilities that would be required to be reflected in
the Most Recent Balance Sheet, except for (a) Liabilities set forth on the face
of the Most Recent Balance Sheet, (b) Liabilities incurred in the Ordinary
Course of Business since the Most Recent Balance Sheet Date (none of which
results from, arises from, or relates to any breach of violation of, or default
under, a Contractual Obligation or Legal Requirement), (c) Liabilities which
have not had, and would not reasonably be expected to have, have a Material
Adverse Effect and/or (d) Liabilities disclosed on any Schedule hereto.
 
3.10.      Absence of Certain Developments.  Except as set forth on Schedule
3.10, since the Most Recent Balance Sheet Date, the Business has been conducted
in the Ordinary Course of Business and:
 
(a)         there has been no material loss, destruction, damage or eminent
domain taking (in each case, whether or not insured) affecting the Business or
any Acquired Asset;
 
(b)         the Seller has not materially increased the Compensation payable or
paid, whether conditionally or otherwise, to any officer or management level
employee;
 
(c)         the Seller has not terminated or closed any Facility, business or
operation related to the Business;
 
(d)         the Seller has not written up or written down any Acquired Asset or
revalued its inventory related to the Business; and
 
(e)         no event or circumstance has occurred which has had, or is
reasonably likely to have, a Material Adverse Effect.
 
3.11.      Debt; Guarantees.  The Sellers do not have Liabilities in respect of
Debt except for (a) the Sankaty Notes, (b) the Seller Notes, (c) certain
inter-company Debt as set forth on Schedule 3.11 and (d) certain third-party
Debt as set forth on Schedule 3.11.  For each item of inter-company Debt and
third-party Debt, Schedule 3.11 correctly sets forth the debtor, the principal
amount of the Debt as of the date of this Agreement, the creditor, the maturity
date and the collateral, if any, securing the Debt.  The Sellers do not have a
Liability in respect of a guarantee of any Liability of any other Person other
than another Seller.
 
 
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3.12.           Real Property.  None of the real property that is primarily used
in the Business is owned by any Seller.  Schedule 3.12 sets forth an accurate
and complete list of all real property leased by the Sellers and primarily
related to the Business (such leased real property, the “Real Property”), and
specifies the lessor(s) of such leased property and identifies each lease or any
other Contractual Obligation under which such property is leased (the “Real
Property Leases”).  The Sellers have good title and own all right, title and
interest in all respective leasehold estates and other rights purported to be
granted by the Real Property Leases free and clear of any Encumbrances.  The
Real Property Leases do not impose material restrictions on any portion of the
Business.  The Sellers have delivered to the Buyer true, correct and complete
copies of the Real Property Leases including all amendments, modifications,
notices or memoranda of lease thereto and all estoppel certificates or
subordinations, non-disturbance and attornment agreements related thereto.  All
such Real Property Leases will continue in full force and effect immediately
after giving effect to the Contemplated Transactions.  The current use of the
Real Property is, in all material respects, in accordance the terms of any
Permits, except where failure to do so would not have, and would not be
reasonably expected to have, a Material Adverse Effect.  All Permits the lack of
which would result in a Material Adverse Effect will continue in full force and
effect immediately after giving effect to the Contemplated Transactions.
 
3.13.           Accounts Receivable.  Schedule 3.13 contains a true and complete
list of all existing accounts and notes receivable and includes the name of the
obligated party together with the number of days outstanding of such accounts or
notes receivable.  All accounts and notes receivable reflected on the Most
Recent Balance Sheet and all accounts and notes receivable arising subsequent to
the Most Recent Balance Sheet Date and on or prior to the Closing Date, have
arisen or will arise in the Ordinary Course of Business and to Seller’s
knowledge represent or will represent legal, valid, binding and enforceable
obligations to the Seller.
 
3.14.           Equipment.  Except as would materially adversely affect the
Acquired Assets or the Business, all of the fixtures and other improvements to
the Real Property included in the Acquired Assets (including any Facilities) and
all of the tangible personal property other than inventory included in the
Acquired Assets (the “Equipment”) (a) are adequate and suitable for their
present and intended uses, (b) when taken as a whole are in good working order,
operating condition and state of repair, (c) when taken as a whole have no
material defects (whether patent or latent) and (d) have been maintained in
accordance with normal industry practice.
 
3.15.           Acquired Inventory.  The items contained in the acquired
inventory are merchantable products for sale in the Ordinary Course of Business,
except for slow-moving, obsolete, below standard quality, damaged, or defective
items consistent with the reserves set forth in amounts consistent with the Most
Recent Balance Sheet.
 
 
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3.16.           Intellectual Property.
 
3.16.1            To the Sellers’ Knowledge, no Seller has (a) interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties or (b) received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that a Person
must license or refrain from using any Intellectual Property rights of any third
party in connection with the conduct of the Business or the use of the Business
Technology).  To the Sellers’ Knowledge, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Business Technology.
 
3.16.2            Schedule 3.16.2 identifies (a) all registered Intellectual
Property which has been issued to any Seller related to the Business, (b) each
pending application for registration which any Seller has made with respect to
any Business Technology, (c) each Contractual Obligation which any Seller or any
of its Affiliates have granted to any third party with respect to any of (a) or
(b) above and (d) each Contractual Obligation which any Seller has granted to
any third party with respect to Business Technology that is not included in (a)
or (b) above.  True, accurate and complete copies of all such registrations,
applications and Contractual Obligations, in each case, as amended, or otherwise
modified and in effect, have been delivered to the Buyer, as well as true,
accurate and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item.  Each such
registration is valid and subsisting.  Schedule 3.16.2 also identifies each
trade name, trade dress and unregistered trademark or service mark used by the
Seller in connection with the Business or the Business Technology.
 
3.16.3            With respect to each item of Business Technology, the lack of
which would have a Material Adverse Effect:
 
(a)         the Sellers possess all right, title, and interest in and to such
item, free and clear of any Encumbrance except Permitted Encumbrances; and
 
(b)         such item is not subject to any outstanding Government Order, and no
Action is pending or threatened, which challenges the legality, validity,
enforceability, use or ownership of such item.
 
3.16.4             Schedule 3.16.4 identifies each item of Business Technology
that any Person besides a Seller owns and that is used by any Seller in
connection with the Business pursuant to any license, sublicense or other
Contractual Obligation (the “Licenses”) other than commercially available
non-custom software.  Except as disclosed on Schedule 3.16.4, there are no
royalties for the use of any such Business Technology.  The Sellers have
delivered to the Buyer true, accurate and complete copies of all of the
Licenses, in each case, as amended or otherwise modified and in effect.  To the
Sellers’ Knowledge, the Sellers’ use and dissemination of any and all data and
information concerning consumers of its products or users of any web sites
operated by the Sellers is in compliance with all applicable privacy policies,
terms of use, and Legal Requirements.  The transactions contemplated to be
consummated hereunder as of the Closing will not violate any privacy policy,
terms of use, or Legal Requirements relating to the use, dissemination, or
transfer of such data or information.
 
 
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3.17.           Legal Compliance; Permits.
 
3.17.1            Compliance.  No Seller is in breach or violation of, or
default under, and has not since June 30, 2010 been in breach or violation of,
or default under:
 
(a)         its Organizational Documents nor, to the Sellers’ Knowledge, is
there a basis which could constitute such a breach, violation or default; or
 
(b)         any Legal Requirement nor, to the Sellers’ Knowledge, is there a
basis which could constitute a breach, violation, or default and no Seller has
received any notice of a claim that it has breached any Legal Requirement that
would be reasonably likely to have a materially adverse effect on the Acquired
Assets or the Buyer’s right to acquire the Acquired Assets.
 
3.17.2            Permits.  The Sellers have been duly granted all material
Permits under all Legal Requirements necessary for the conduct of the Business,
except where failure to do would not have, and would not be reasonably expected
to have, a Material Adverse Effect.  Schedule 3.17.2 describes each Permit
affecting, or relating to, the Acquired Assets or the Business together with the
Governmental Authority or other Person responsible for issuing such Permit. 
Except as disclosed on Schedule 3.17.2, (a) the Permits are valid and in full
force and effect, (b) to the Sellers’ Knowledge, no Seller is in breach or
violation of, or default under, any such Permit and no Seller has received any
notice of a claim of such a  breach, violation nor default and (c) all material
Permits will continue to be valid and in full force and effect for the benefit
of the Buyer, on identical terms following the consummation of the Contemplated
Transactions,.
 
3.18.           Tax Matters.  Since December 31, 2006 each Seller Tax Group
Member has duly and timely filed, or has caused to be duly and timely filed on
its behalf, all Tax Returns required to be filed by it in accordance with all
Legal Requirements.  All such Tax Returns were and are true, correct and
complete in all material respects. All Taxes owed by any Seller Tax Group
Member, whether or not shown on any Tax Return, have been timely paid.  No
Seller Tax Group Member currently is the beneficiary of any extension of time
within which to file any such Tax Return and no statute of limitations with
respect to any Tax for which any Seller may have Liability has been waived or
extended. There is no pending audit, examination, investigation, dispute,
proceeding or claim for which any Seller Tax Group Member has received notice
relating to any Tax for which such Seller may have Liability.  To the Sellers’
Knowledge, no claim has been made since December 31, 2006 by an authority in a
jurisdiction where any Seller Tax Group Member does not file Tax Returns that
such Seller Tax Group Member may be subject to taxation by that jurisdiction. No
Seller Tax Group Member is a party to any Tax sharing or allocation agreement,
arrangement or understanding.  There are no Encumbrances on any of the assets of
the Business that arose in connection with any failure (or alleged failure) to
pay any Tax.  Each Seller Tax Group Member has withheld and paid or caused to be
withheld and paid all Taxes that it is or was obligated to withhold and pay from
amounts owing to any employee, creditor, independent contractor, shareholder or
other third party.  The Sellers have delivered or made available to the Buyer
copies of all of their Tax Returns for taxable years ending after December 31,
2006 and all examination reports, and statements of deficiencies assessed
against or agreed to by any Seller Group member since January 1, 2007.  No
Seller Tax Group Member has, or as a result of the Contemplated Transactions,
will have, any Liability with respect to Taxes that would reasonably be expected
to have an adverse effect upon the Buyer’s right, title and interest in or to,
or the Buyer’s right to use or enjoy (free and clear of any Encumbrances other
than Permitted Encumbrances) any Acquired Asset.  No Seller Tax Group Member has
incurred any Liability for unpaid Taxes other than in the Ordinary Course of
Business.
 
 
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3.19.           Employee Benefit Plans.
 
3.19.1            For purposes of this Agreement, “Employee Plan” means any
plan, program, agreement, policy or arrangement, whether or not reduced to
writing and whether funded or unfunded, (a) in which any one or more current or
former employees, directors, consultants or independent contractors of or in
respect of the Business, or any beneficiary or dependent of any such Person,
participates or is eligible to participate, and (b) that is (i) a welfare plan
within the meaning of Section 3(1) of ERISA including health and medical
arrangements, life, disability or severance and indemnity programs, (ii) a
pension benefit plan within the meaning of Section 3(2) of ERISA, (iii) a stock
bonus, stock purchase, stock option, restricted stock, stock appreciation right
or other equity-based plan or (iv) bonus or other incentive, remuneration,
severance, fringe-benefit, retention, change-of-control, profit-sharing,
long-service, equity-based or deferred compensation arrangement.
 
3.19.2            Schedule 3.19.2 lists all Employee Plans as to which any
Seller or any of its respective Affiliates sponsors, maintains, contributes or
is obligated to contribute, or under which such Seller has or may have any
Liability (each, a “Seller Plan”).  With respect to each Seller Plan, the
Sellers have made available to the Buyer true, accurate and complete copies of
each of the following: (a) if the plan has been reduced to writing, the plan
document together with all amendments thereto, (b) if the plan has not been
reduced to writing, a written summary of all material plan terms, (c) copies of
any summary plan descriptions, employee handbooks or similar employee
communications, (d) in the case of any funding arrangement intended to qualify
as a VEBA under Section 501(c)(9) of the Code, a copy of the IRS letter
determining that it so qualifies, (e) in the case of any plan that is intended
to be qualified under Code Section 401(a), a copy of the most recent
determination letter from the IRS and any related correspondence, and a copy of
any pending request for such determination, and (f) in the case of any plan for
which Forms 5500 are required to be filed, a copy of the two most recently filed
Forms 5500, with schedules attached.
 
3.19.3             No Seller nor any other Person that would be or, at any
relevant time, would have been considered a single employer with such Seller
under the Code or ERISA has ever maintained a plan subject to Title IV of ERISA
or Code Section 412, nor has any Seller or any such Person ever contributed or
been required to contribute to any “multiemployer plan” as defined in Section
4001(a)(8) of ERISA.
 
 
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3.19.4           Each Seller Plan that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the IRS as
to its qualification or the deadline for timely seeking such a determination has
not yet passed, and to the Sellers’ Knowledge nothing has occurred that could
adversely affect such qualification.  Each Seller Plan, including any associated
trust or fund, has been administered in all material respects in accordance with
its terms and with applicable Legal Requirements, and all required contributions
to, and premium payments with respect to, each Seller Plan have been made on a
timely basis to the extent not due, have been appropriately accrued for. 
Nothing has occurred with respect to any Employee Plan that has subjected or
would reasonably be expected to subject the Buyer to a penalty under Section 502
of ERISA or to an excise tax under the Code, or that has subjected or would
reasonably be expected to subject any participant in, or beneficiary of, an
Employee Plan to a tax under Section 4973 of the Code.
 
3.19.5           There is no pending or, to the Sellers’ Knowledge, threatened
Action relating to a Seller Plan, other than routine claims in the Ordinary
Course of Business for benefits provided for by the Seller Plans.  No Seller
Plan is or, within the last six years, has been the subject of an examination or
audit by a Governmental Authority, is the subject of an application or filing
under, or is a participant in, a government-sponsored amnesty, voluntary
compliance, self-correction or similar program.
 
3.19.6           Except as required under Section 601, et seq., of ERISA or
Section 4980B of the Code or applicable state law, no Seller Plan provides or
has any obligation to provide benefits or coverage in the nature of health, life
or disability insurance following retirement or other termination of employment.
 
3.19.7           Except to the extent prohibited by applicable Legal
Requirements, each of the Employee Plans may be amended in any manner or
terminated at any time by the Sellers.
 
3.19.8           No benefit under any Employee Plan, including any severance or
parachute payment plan or agreement, will be established or become accelerated,
vested, or payable by reason of the transactions contemplated by this Agreement,
either alone or upon the occurrence of any other event.  The Sellers have not
made payments, or have been or are a party, or are otherwise obligated under any
Employee Plan or any other agreement, contract, arrangement or plan that could
result in it making payments, that have resulted or would result, separately or
in the aggregate, in the payment of any “excess parachute payment” that would
not be deductible by the Sellers by reason of Code Section 280G or in the
imposition of an excise Tax under Code Section 4999 (or any corresponding
provisions of state, local or foreign Tax law).
 
3.19.9           Each Employee Plan which is subject to the requirements of
Section 409A of the Code has been adopted and administered in compliance with
such Section, Treasury Regulations under Section 409A of the Code and the
guidance issued by the Department of the Treasury thereunder from January 1,
2005 to date.

 
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3.19.10         Each Company Plan subject to the Patient Protection and
Affordable Care Act, as modified by the Health Care and Education Reconciliation
Act, and related regulations, has been operated in compliance therewith and is a
“grandfathered health plan,” as defined herein.
 
3.20.           Independent Contractors.  None of the Business Employees are
independent contractors.
 
3.21.           Environmental Matters.   To the Seller’s Knowledge (a) the
Sellers at all times have operated and are operating the Business, in all
material respects, in compliance with all Environmental Laws, (b) there has been
no release or threatened release of any pollutant, petroleum or any fraction
thereof, contaminant or toxic or hazardous material (including toxic mold),
substance or waste (each a “Hazardous Substance”) on, upon, into or from any
site currently or heretofore owned, leased or otherwise used by any Seller in
connection with the Business, (c) there have been no Hazardous Substances
generated by any Seller with respect to the Business that have been disposed of
or come to rest at any site that has been included in any published U.S.
federal, state or local “superfund” site list or any other similar list of
hazardous or toxic waste sites published by any Governmental Authority in the
United States, (d) there are no underground storage tanks located on, no PCBs
(polychlorinated biphenyls) or PCB-containing Equipment used or stored on, and
no hazardous waste as defined by the Resource Conservation and Recovery Act
stored on, any site owned or operated by any Seller in connection with the
Business, except for the storage of hazardous waste in compliance with
Environmental Laws and (e) the Sellers have delivered to the Buyer true,
accurate and complete copies of all material environmental records, reports,
notifications, certificates of need, permits, pending permit applications,
correspondence, engineering studies, and environmental studies or assessments,
in each case as amended and in effect, relating to the Business.
 
3.22.           Contracts.
 
3.22.1           Contracts.  Except as disclosed on Schedule 3.22.1, no Seller
is bound by or a party to:
 
(a)         any Contractual Obligation (or group of related Contractual
Obligations) related to the Business for the purchase or sale of inventory, raw
materials, commodities, supplies, goods, products, equipment or other personal
property, or for the furnishing or receipt of services, in each case, the
performance of which will extend over a period of more than one year or which
requires annual payments to or by the Seller in excess of $50,000;
 
(b)         (i) any capital lease or (ii) any other lease or other Contractual
Obligation relating to the Equipment providing for annual rental payments in
excess of $50,000, under which any Equipment is held or used by any Seller in
respect of the Business;
 
(c)         any Contractual Obligation, other than Real Property Leases or
leases relating to the Equipment, relating to the lease or license of any
Acquired Asset, including Technology and Intellectual Property (and including
all customer license and maintenance agreements) that is not included on
Schedule 3.16.2 or Schedule 3.16.4;

 
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(d)         any Contractual Obligation relating to the acquisition or
disposition of (i) the Business or (ii) any asset of the Business other than in
the Ordinary Course of Business;
 
(e)         any Contractual Obligation concerning or consisting of a
partnership, limited liability company or joint venture agreement;
 
(f)          any Contractual Obligation relating to confidentiality or
non-competition (whether the Seller is subject to or the beneficiary of such
obligations);
 
(g)         any Contractual Obligation under which any Seller is obligated to
provide preferred pricing to any Person, including any “most favored nation”
obligations;
 
(h)         any Contractual Obligation under which any Seller is, or may become,
obligated to incur any severance pay or special Compensation obligations which
would become payable by reason of, this Agreement or the Contemplated
Transactions;
 
(i)          any agency, dealer, distributor, sales representative, marketing or
other similar agreement;
 
(j)          any Contractual Obligation under which a Seller has advanced or
loaned an amount to any other Seller or any of its Affiliates or employees other
than in the Ordinary Course of Business; and
 
(k)         any other Contractual Obligation (or group of related Contractual
Obligations) the performance of which involves consideration in excess of
$100,000 over the life of such Contractual Obligation.
 
3.22.2           The Sellers have delivered to the Buyer true, accurate and
complete copies of each written Contractual Obligation and a written summary of
each oral Contractual Obligation based on the Seller’s books and records, which
are listed on Schedule 3.22.1, in each case, as amended or otherwise modified
and in effect.
 
3.22.3           Enforceability, etc.  To the Sellers’ Knowledge, each Contract
is Enforceable against each party to such Contractual Obligation, and is in full
force and effect, and, subject to obtaining the Requisite Shareholder Approval
and any Required Consent, will continue to be so Enforceable and in full force
and effect on identical terms for the benefit of the Buyer following the
consummation of the Contemplated Transactions.
 
3.22.4           Breach, etc.  Neither any Seller, nor, to the Sellers’
Knowledge, any other party to any Contract contained on Schedule 2.1.5 or
otherwise is in breach or violation of, or default under, or has repudiated any
provision of, any Contract of the type described in Section 3.22.1 to which it
is a party.

 
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3.22.5           Affiliate Contracts. Except as disclosed on Schedule 3.22.5, no
Affiliate of the Seller, except for another Seller, is a consultant, competitor,
creditor, debtor, customer, distributor, supplier or vendor of, or is party to
any Contractual Obligation or understanding with, the Seller.  No Affiliate of
the Seller, except for another Seller owns any Acquired Assets.
 
3.23.           Required Consents.  With respect to the Contracts set forth on
Schedule 2.1.5, Schedule 3.23 sets forth each Contractual Obligation (including
Personal Property Leases), Permit or other right that will not continue in full
force and effect or requires a consent, approval, waiver or other action by any
Person (aside from the Requisite Shareholder Approval) as a result of the
execution, delivery and performance of the this Agreement, the Ancillary
Agreements and the Contemplated Transactions, the required consent, and the
identity of any Person who is entitled to consent to or receive notice of the
Contemplated Transactions (all such required consents or other actions, the
“Required Consents”).
 
3.24.           Customers and Suppliers. With respect to the Business, except as
set forth on Schedule 3.24, (a) since June 30, 2010, none of the Sellers’
material suppliers, collaborators, distributors or customers have canceled or
otherwise terminated its relationship with any Seller or, during the last twelve
(12) months, materially altered its relationship with any Seller and (b) to the
Sellers’ Knowledge, no Seller has received any threat or notice from any such
Person, to terminate, cancel or otherwise materially modify its relationship
with any Seller.  Statements made by suppliers, collaborators, distributors or
customers to the effect that the Sellers’ financial condition may affect their
ability to continue do business with the Sellers, shall not be construed to
violate this Section 3.24.
 
3.25.           Labor and Employment.  There are no unfair labor practice
complaints pending against any Seller before the National Labor Relations Board
or any other comparable state agency.  There are no work slowdowns, lockouts,
stoppages, picketing or strikes pending, or to the Sellers’ Knowledge threatened
between any Seller, on the one hand, and its employees, on the other hand, and
there have been no such troubles since June 30, 2010.  No employee of any Seller
is represented by a labor union.  No Seller is a party to, or otherwise subject
to, any collective bargaining agreement or other labor union contract.  To the
Sellers’ Knowledge, no petition has been filed or proceedings instituted by an
employee or group of employees of any Seller with the National Labor Relations
Board or any other comparable state agency seeking recognition of a bargaining
representative.  To the Sellers’ Knowledge, there is no organizational effort
currently being made or threatened by, or on behalf of, any labor union to
organize any employees of any Seller and no demand for recognition of any
employees of any Seller has been made by, or on behalf of, any labor union.  The
Sellers have provided to the Buyer true and complete information as to the name,
current job title and compensation for each of the last three (3) years of all
Business Employees.  Each Seller is, and during the last three years has been,
in material compliance with all federal, state and local employment laws,
regulations and other requirements related to employment, employment practices,
wages, hours and other terms and conditions of employment with respect to the
Business Employees.  To the Sellers’ Knowledge, none of the key Business
Employees has any plan to terminate employment with any Seller.

 
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3.26.           Litigation; Governmental Orders.
 
3.26.1           Litigation.  With respect to the Business, except as disclosed
on Schedule 3.26, there is no Action to which any Seller is a party (either as
plaintiff or defendant) pending, or to the Sellers’ Knowledge, threatened, which
may materially affect the Business, the Acquired Assets or the use or exercise
by the Buyer of any Acquired Asset.  There is no Action to which any Seller is a
party (either as plaintiff or defendant)  pending, or to the Sellers’ Knowledge,
threatened, and, to the Sellers’ Knowledge there is no Action to which the
Business or Acquired Assets are subject which is pending or has been threatened
which (a) would prevent consummation of any of the Contemplated Transactions,
(b) would result in any of the Contemplated Transactions being rescinded
following consummation, (c) would limit or otherwise adversely affect the right
of the Buyer to own the Acquired Assets, or to operate all or any material
portion of either the Business or the Acquired Assets or (d) would compel the
Buyer to dispose of all or any material portion of either the Business or
Acquired Assets or the business.  There is no Action related to the Business
which any Seller presently intends to initiate.
 
3.26.2           Governmental Orders.  To the Knowledge of the Sellers, no
Governmental Order has been issued which names the Seller, or materially affects
the Acquired Assets or the Business.
 
3.27.           Product Warranties; Defects; Liability.
 
3.27.1           Except as disclosed in Schedule  3.27.1, no product related to
the Business currently or previously manufactured, sold, leased, licensed,
delivered or installed by any Seller (collectively, the “Products”) is subject
to any guaranty, warranty, or other indemnity beyond the applicable standard
terms and conditions of sale, lease or license.  Schedule 3.27.1 includes a
summary of the standard terms and conditions of sale, lease or license for the
applicable Seller (including applicable guaranty, warranty, and indemnity
provisions).
 
3.27.2           Except as disclosed on Schedule 3.27.2, there is no Action to
which any Seller is a party pending, or to the Sellers’ Knowledge, threatened
relating to, or otherwise involving, alleged defects in the Products or services
provided by any Seller, or the failure of any such Products or services to meet
certain specifications.  Schedule 3.27.2 sets forth all concluded Actions
(including the disposition thereof) against any Seller since June 30, 2010
relating to, or otherwise involving, alleged defects in the Products or services
provided by such Seller, or the alleged failure of any such services or Products
to meet certain specifications.
 
3.28.           Insurance.   Schedule 3.28 sets forth a list of currently
maintained insurance policies with respect to the Acquired Assets (the “Current
Insurance Policies”).  The Sellers have provided to the Buyer true, accurate and
complete copies of all Current Insurance Policies, in each case, as amended or
otherwise modified and in effect.  All such policies provide adequate coverage
for all normal risks incident to the Business and are in character and amount at
least equivalent to that carried by Persons engaged in a business subject to the
same or similar risks, perils or hazards.

 
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3.29.           No Brokers.  No Seller has Liability of any kind to, or is
subject to any claim of, any broker, finder or agent in connection with the
Contemplated Transactions other than those which will be borne by such Seller.
 
3.30.           Accounts Payable.  All accounts payable reflected on the Most
Recent Balance Sheet and all accounts payable arising subsequent to the Most
Recent Balance Sheet Date and on or prior to the Closing Date, have arisen or
will arise in the Ordinary Course of Business, represent or will represent
legal, valid, binding and enforceable obligations to the Sellers and have been,
or in the case of accounts payable arising after the date of this Agreement,
will be, paid in the aggregate recorded amounts thereof in a timely manner in
accordance with their terms.
 
3.31.           Bona Fide Payment Disputes.  Except as set forth on Schedule
3.31, there are no salary or severance payments that are subject to a bona fide
dispute as of the date of this Agreement.
 
NONE OF THE SELLERS, ANY AFFILIATE THEREOF, NOR ANY OF THEIR REPRESENTATIVES
(FINANCIAL, LEGAL OR OTHERWISE), MAKES OR HAS MADE ANY REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER RELATING TO THE COMPANY
OR ANY OF ITS SUBSIDIARIES OR THE BUSINESS OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED
HEREBY, OTHER THAN THOSE REPRESENTATIONS AND WARRANTIES OF EACH SELLER EXPRESSLY
SET FORTH IN SECTION 3 (AND ALL OF WHICH SHALL TERMINATE IN ACCORDANCE WITH
SECTION  8.6).  THE ACQUIRED ASSETS ARE TO BE SOLD AND TRANSFERRED TO THE BUYER
HEREUNDER ON AN “AS IS” “WHERE IS” BASIS AND THE SELLERS HEREBY EXPRESSLY
DISCLAIM ANY EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES WITH RESPECT TO
ANY MATTER WHATSOEVER.  BUYER EXPRESSLY ACKNOWLEDGES AND AGREES THAT ALL OF THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE 3 ARE CORPORATE
REPRESENTATIONS AND ARE NOT MADE BY ANY DIRECTOR OF SELLER IN THEIR RESPECTIVE
INDIVIDUAL CAPACITY.
 
4.         REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE BUYER.
 
4.1.           Parent Representations.  The Parent hereby represents and
warrants to the Sellers that:
 
4.1.1             Organization.  The Parent is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization. 
The Parent has not commenced any operations and has incurred no Liabilities
since its incorporation except for the expenses related to its organization and
the Contemplated Transactions.
 
4.1.2             Power and Authorization.  The execution, delivery and
performance by the Parent of this Agreement and each Ancillary Agreement to
which it is a party and the consummation of the Contemplated Transactions are
within the power and authority of the Parent and have been duly authorized by
all necessary action on the part of the Parent.  This Agreement and each
Ancillary Agreement to which the Parent is a party (a) has been duly executed
and delivered by the Parent and (b) is a legal, valid and binding obligation of
the Parent, enforceable against the Parent in accordance with its terms.

 
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4.1.3             Authorization of Governmental Authorities.  Except as
disclosed on Schedule 4.1.3, no action by (including any authorization, consent
or approval), or in respect of, or filing with, any Governmental Authority is
required for, or in connection with, the valid and lawful (a) authorization,
execution, delivery and performance by the Parent of this Agreement and each
Ancillary Agreement to which it is a party or (b) the consummation of the
Contemplated Transactions by the Parent
 
4.1.4             Noncontravention.  Except as disclosed on Schedule 4.1.4,
neither the execution, delivery nor performance by the Parent of this Agreement
or any Ancillary Agreement to which it is a party nor the consummation of the
Contemplated Transactions will:
 
(a)         assuming the taking of any action by (including any authorization,
consent or approval) or in respect of, or any filing with, any Governmental
Authority, in each case, as disclosed on Schedule 4.1.3, violate any provision
of any Legal Requirement applicable to the Parent;
 
(b)         result in a breach or violation of, or default under, any
Contractual Obligation of the Parent;
 
(c)         require any action by (including any authorization, consent or
approval) or in respect of (including notice to), any Person under any
Contractual Obligation; or
 
(d)         result in a breach or violation of, or default under, the Parent’s
Organizational Documents.
 
4.1.5             Absence of Litigation.  There are no actions pending against
the Parent or any of its Subsidiaries, or any of their respective assets or
properties that, individually or in the aggregate, would prevent the Parent from
consummating the transactions contemplated hereby or which would materially
impair the ability of the Parent to consummate the Contemplated Transactions.
 
4.1.6             Capitalization.  Schedule 4.1.6 sets forth a description of
the capitalization of the Parent to be in effect at the Closing substantially
consistent with such Schedule.  At the Closing, all of the outstanding shares of
the Parent will have been duly authorized and validly issued, and will be fully
paid and nonassessable, not subject to any preemptive right.  Except to the
extent substantially consistent with Schedule 4.1.6, there are not and at the
Closing there will not be any phantom shares or other contractual rights the
value of which is determined in whole or in part by the value of any shares of
beneficial interest of the Parent and there are not and will not be at the
Closing any outstanding share appreciation rights with respect to the shares of
beneficial interest of the Parent.  There are no other authorized classes of
beneficial interests of the Parent.
 
4.1.7             Taxes.  All Taxes owed by the Parent and each of its
Subsidiaries, whether or not shown on any Tax Return, have been timely paid.

 
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4.1.8             No Brokers.  The Parent has no Liability of any kind to any
broker, finder or agent with respect to the Contemplated Transactions for which
the Sellers could be Liable.
 
4.1.9             Parent Charter.  The Parent has provided to the Sellers a
true, correct and complete copy of the Parent’s Certificate of Incorporation, as
filed with the Delaware Secretary of State on April 20, 2011.
 
4.2.           Buyer Representations.  The Buyer hereby represents and warrants
to the Sellers that:
 
4.2.1             Organization.  The Buyer is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization. The
Buyer has not commenced any operations and has incurred no Liabilities since its
incorporation except for the expenses related to its organization and the
Contemplated Transactions.
 
4.2.2             Power and Authorization.  The execution, delivery and
performance by the Buyer of this Agreement and each Ancillary Agreement to which
it is a party and the consummation of the Contemplated Transactions are within
the power and authority of the Buyer and have been duly authorized by all
necessary action on the part of the Buyer.  This Agreement and each Ancillary
Agreement to which the Buyer is a party (a) has been duly executed and delivered
by the Buyer and (b) is a legal, valid and binding obligation of the Buyer,
enforceable against the Buyer in accordance with its terms.
 
4.2.3             Authorization of Governmental Authorities.  Except as
disclosed on Schedule 4.2.3, no action by (including any authorization, consent
or approval), or in respect of, or filing with, any Governmental Authority is
required for, or in connection with, the valid and lawful (a) authorization,
execution, delivery and performance by the Buyer of this Agreement and each
Ancillary Agreement to which it is a party or (b) the consummation of the
Contemplated Transactions by the Buyer.
 
4.2.4             Noncontravention.  Except as disclosed on Schedule 4.2.4, the
execution, delivery and performance by the Buyer of this Agreement or any
Ancillary Agreement to which it is a party nor the consummation of the
Contemplated Transactions will:
 
(a)         assuming the taking of any action by (including any authorization,
consent or approval) or in respect of, or any filing with, any Governmental
Authority, in each case, as disclosed on Schedule 4.2.3, violate any provision
of any Legal Requirement applicable to the Buyer;
 
(b)         result in a breach or violation of, or default under, any
Contractual Obligation of the Buyer;
 
(c)         require any action by (including any authorization, consent or
approval) or in respect of (including notice to), any Person under any
Contractual Obligation; or
 
(d)         result in a breach or violation of, or default under, the Buyer’s
Organizational Documents.

 
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4.2.5             Absence of Litigation.  There are no actions pending against
the Buyer or any of its assets or properties that, individually or in the
aggregate, would prevent the Buyer from consummating the transactions
contemplated hereby or which would materially impair the ability of the Buyer to
consummate the Contemplated Transactions.
 
4.2.6             Capitalization.  The Buyer is a wholly-owned Subsidiary of the
Parent.  All of the outstanding shares of the Buyer have been duly authorized
and validly issued, and are fully paid and nonassessable and are not subject to
any preemptive right.  There are not any phantom shares or other contractual
rights the value of which is determined in whole or in part by the value of any
shares of beneficial interest of the Buyer and there are not any outstanding
share appreciation rights with respect to the shares of beneficial interest of
the Buyer.  There are no other authorized classes of beneficial interests of the
Buyer.
 
4.2.7             Taxes.  All Taxes owed by the Buyer, whether or not shown on
any Tax Return, have been timely paid.
 
4.2.8             No Brokers.  The Buyer has no Liability of any kind to any
broker, finder or agent with respect to the Contemplated Transactions for which
the Sellers could be Liable.
 
5.         COVENANTS.
 
5.1.           Closing. Subject to the terms and conditions of this Agreement,
and notwithstanding that Seller may solicit Acquisition Proposals prior to the
Closing, each of the Parties will use its commercially reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable in order to consummate and make effective
the Contemplated Transactions as promptly as possible (including satisfaction,
but not waiver, of the closing conditions set forth in Sections 6 and 7).
 
5.2.           Notices and Consents.
 
5.2.1             Sellers.
 
(a)         The Sellers will give all notices to, make all filings with and
obtain all authorizations, consents or approvals from, any Governmental
Authority or other Person that are set forth on Schedule 3.3 or Schedule 3.4 or
as otherwise reasonably requested by the Buyer.
 
(b)         As soon as practical after the date hereof, the Sellers shall
establish a record date for, duly call, give notice of, convene and hold a
meeting of the Encompass Shareholders (the “Encompass Shareholder Meeting”), and
in any event within thirty (30) days of the mailing of the Proxy Statement, for
the purpose of voting upon the adoption of this Agreement.  Unless this
Agreement is earlier terminated pursuant to Section 9, the Sellers shall use its
reasonable best efforts to solicit from the shareholders of Encompass proxies in
favor of the adoption of this Agreement and take all other action necessary or
advisable to secure the Requisite Shareholder Vote at the Encompass Shareholder
Meeting.  The Sellers shall provide the Buyer with such information with respect
to the solicitation of the Requisite Shareholder Vote as is reasonably requested
by the Buyer.

 
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(c)         As soon as practicable following the date hereof, but in any event
no later than the later of (i) June 7, 2011 or (ii) two business days after the
expiration or waiver of the Sellers’ right to terminate under Section 9.1(e)
hereof, the Company shall prepare and file with the SEC the Proxy Statement for
use in connection with the solicitation of proxies from the shareholders of
Encompass for use at the Encompass Shareholder Meeting.  The Sellers shall
furnish all information concerning Encompass (and its respective Affiliates, if
applicable), as is required to be included in the Proxy Statement or such other
filings, or that is customarily included in such Proxy Statement or such other
filings in connection with the preparation and filing with the SEC of the Proxy
Statement.  Encompass shall use reasonable best efforts to cause the Proxy
Statement to be disseminated to the shareholders of Encompass as promptly as
practicable following the filing thereof with the SEC and confirmation from the
SEC that it will not comment on, or that it has no additional comments on, the
Proxy Statement.  In any event, the Company shall disseminate the Proxy
Statement to the shareholders of Encompass within five (5) Business Days after
such confirmation or clearance.  Unless this Agreement is earlier terminated
pursuant to Section 9, none of the Sellers or any of their respective Affiliates
shall file with the SEC the Proxy Statement, or any amendment or supplement
thereto, and none of the Sellers or any of their respective Affiliates, if
applicable, shall correspond or otherwise communicate with the SEC or its staff
with respect to the Proxy Statement without providing the Buyer hereto a
reasonable opportunity to review and comment thereon or participate therein and
shall include in such Proxy comments reasonably proposed by the Buyer.  Unless
this Agreement is earlier terminated pursuant to Section 9, the Sellers shall
advise the Buyer, promptly after it receives notice thereof, of any receipt of a
request by the SEC or its staff for an amendment or revisions to the Proxy
Statement, any receipt of comments from the SEC or its staff on the Proxy
Statement or any receipt of a request by the SEC or its staff for additional
information in connection therewith, and (ii) shall provide the other party with
copies of all correspondence with its representatives and the SEC or its staff
with respect to the Proxy.  If at any time prior to the Encompass Shareholder
Meeting, any information relating to the Sellers or any of their respective
partners, members, stockholders, directors, officers or Affiliates, should be
discovered by Encompass or the Buyer which should be set forth in an amendment
or supplement to the Proxy Statement, so that the Proxy Statement would not
include any misstatement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, the party
which discovers such information shall promptly notify the other, and an
appropriate amendment or supplement to the Proxy Statement describing such
information shall be promptly prepared and filed with the SEC and, to the extent
required by applicable Law or the SEC or its staff, disseminated to the
shareholders of Encompass.  The Sellers shall cause the Proxy Statement to
comply as to form and substance in all material respects with the applicable
requirements of the Exchange Act and the rules of the SEC.

 
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5.2.2             Parent.  The Parent will give all notices to, make all filings
with and obtain all authorizations, consents or approvals from, any Governmental
Authority or other Person that are set forth on Schedule 4.1.3 and Schedule
4.1.4 or as otherwise reasonably requested by the Sellers.
 
5.2.3             Buyer.  The Buyer will give all notices to, make all filings
with and obtain all authorizations, consents or approvals from, any Governmental
Authority or other Person that are set forth on Schedule 4.2.3 and Schedule
4.2.4 or as otherwise reasonably requested by the Sellers.
 
5.3.           Operation of Business.  With respect to the Business, from the
date of this Agreement until the first to occur of (a) the Closing Date and (b)
the termination of this Agreement, the Sellers will use their commercially
reasonable efforts to conduct the Business in all material respects in the
Ordinary Course of Business.  Without limiting the generality of the foregoing,
the Sellers agree:
 
5.3.1             Not to:
 
(a)         engage in any practice, take any action, or enter into any
transaction of the sort described in Section 3.10 above;
 
(b)         declare, set aside or pay any dividends on or make other
distributions in respect of any of its Equity Interests, except for
distributions made to Encompass in order to meet the Expenses of Encompass and
the Business consistent with past practice;
 
(c)         directly or indirectly redeem, repurchase or otherwise acquire any
Equity Interests;
 
(d)         issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, (i) any shares of Equity
Interest in any Seller, (ii) any securities convertible into or exchangeable or
exercisable for any such Equity Interests, (iii) any rights, warrants or options
to acquire or with respect to any such shares of Equity Interests, or (iv) take
any action to cause to be exercisable any otherwise unexercisable option under
any existing share option plan;
 
(e)         except as otherwise contemplated by this Agreement, materially amend
or permit the adoption of any material amendment to the Organizational Documents
of any Seller, except for amendments that would not materially restrict the
operation of their businesses;
 
(f)          effect a recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction;
 
(g)         adopt a plan of complete or partial liquidation, dissolution,
consolidation, restructuring or recapitalization of the Sellers;

 
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(h)         make any capital expenditure except for expenditures required by
existing Contracts or expenditures made in response to any emergency, whether
caused by war, terrorism, weather events, public health events, outages or
otherwise;
 
(i)          acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the material assets of any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
material assets of any other Person, except for the purchase of assets from
suppliers or vendors in the ordinary course of business;
 
(j)          enter into any Contract that would materially restrict, after the
Closing, the Buyer with respect to engaging or competing in any line of business
or in any geographic area;
 
(k)         materially change any of its financial or Tax accounting methods,
elections or practices in any respect, except as required by GAAP or Law;
 
(l)          take, agree to take, or omit to take any action which would cause
any of the conditions set forth in this Agreement not to be able to be satisfied
prior to the Termination Date;
 
(m)        agree or consent to any material agreements or material modifications
of existing agreements or course of dealings with any Governmental Authority in
respect of the operations of the Business, except as required by Law to renew
Permits or for agreements, or modifications of existing agreements, in the
Ordinary Course of Business;
 
(n)         cease to maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are customary for
the nature of the property so insured and for companies engaged in the
respective businesses of the Sellers, to the extent available on commercially
reasonable terms;
 
(o)         increase or decrease benefits or compensation payable to any officer
or management level Business Employee without the approval of the Buyer (with
such approval not to be unreasonably withheld);
 
(p)         amend, modify or terminate any Contract or file or support, whether
directly or indirectly, any motion, application or other pleading seeking the
entry of an order authorizing or approving the rejection or termination of such
Contract;
 
(q)         hire or otherwise engage any new employees related to the Business,
without the approval of the Buyer (with such approval not to be unreasonably
withheld);
 
(r)          sell, lease, transfer, mortgage, encumber, alienate or dispose of
Acquired Assets in an aggregate amount in excess of $25,000 per such occurrence,
except for sales of Equipment or as permitted by clause (s) below;

 
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(s)         sell, use, dispose of, convey or transfer, by bailment, consignment,
warehousing, similar arrangement or otherwise, any inventory, wherever located,
other than in the Ordinary Course of Business; or
 
(t)          agree to do anything prohibited by this Section 5.3.
 
5.3.2             To continue to make all payments required under all
Contractual Obligations, including, but not limited to, payments in connection
with any employment agreements, except for those severance payments subject to
bona fide dispute and that are described on Schedule 3.31 and to inform the
Buyer in the event a payment becomes subject to a bona fide dispute.  Subject to
the previous sentence, the Sellers shall continue to make all undisputed
severance and salary payments in connection with any employment agreements
between the Sellers and Jack Donahue, Atul Patel or Phoenix Management Services,
Inc., all in the Ordinary Course of Business.
 
5.4.           Preservation of Business. The Sellers will use commercially
reasonable efforts to keep its business and properties substantially intact,
including its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, customers, suppliers, distributors and
employees.
 
5.5.           Full Access. The Sellers will permit Representatives, financial
advisors, accountants and attorneys of the Buyer to be provided with reasonable
access to all premises, properties, personnel, books, records (including Tax
records), contacts, and documents pertaining to the Business during regular
business hours, to the extent that such access would not unreasonably interfere
with the conduct of the Business.
 
5.6.           Maintenance of Books and Records. Until at least the fifth
anniversary after the Closing Date, the Sellers will preserve all records
possessed by the Sellers on the date hereof or hereafter generated or created in
connection with the Business prior to the Closing Date, and any such records
conveyed to the Buyer hereunder pursuant to this Agreement together with all
records generated or created after the Closing Date in connection with the
Business must be preserved by the Buyer for such period.  After the Closing Date
and up until at least the fifth anniversary after the Closing Date, upon any
reasonable request from a party hereto or its Representatives, the Party holding
records generated or created in connection with the Business will (a) provide to
the requesting party or its Representatives, financial advisors, accountants and
attorneys reasonable access to such records during normal business hours and (b)
permit the requesting party or its Representatives, financial advisors,
accountants and attorneys to make copies of such records, in each case at no
cost to the requesting party or its Representatives, financial advisors,
accountants and attorneys (other than for reasonable out-of-pocket expenses). 
Such records may be sought under this Section 5.6 for any reasonable purpose,
including, without limitation, to the extent reasonably required in connection
with the audit, accounting, Tax, litigation, federal securities disclosure or
other similar needs of the party seeking such records.
 
5.7.           Notice of Developments. Each Party will give prompt written
notice to the other Parties of (a) any development causing a breach of any of
its own representations and warranties in Section 3 and Section 4 above and (b)
any development causing a material breach of its covenants or obligations of
which such Party has knowledge.  No disclosure by any Party pursuant to this
Section 5.7, however, shall be deemed to amend or supplement the Disclosure
Schedule or to prevent or cure any misrepresentations, breach of warranty, or
breach of covenant.

 
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5.8.           Expenses. Whether or not the Contemplated Transactions are
consummated, the Sellers will pay their own financial advisory, legal,
accounting and other expenses incurred by them or for their benefit in
connection with (a) the preparation and execution of this Agreement, the
compliance herewith and (b) the Contemplated Transactions, provided, however,
that in the event the Contemplated Transactions are consummated, the Buyer
agrees to reimburse the Sellers (collectively and not individually) up to
$150,000 of such expenses relating to the consummation of the Contemplated
Transactions, with such amounts to be paid to the Sellers (or the creditors
thereof) on the Closing Date in accordance with such instructions as shall be
provided by the Sellers to the Buyer.  Furthermore, in the event the
Contemplated Transactions are consummated, the Buyer agrees to reimburse the
Sellers (collectively and not individually) for certain additional expenses set
forth on Schedule 5.8 such reimbursements shall be paid to the Sellers (or the
creditors thereof) as and when required to be paid pursuant to Section 5.8.
 
5.9.           Employee Matters. The Sellers will provide the Buyer with a list
of its current employees engaged in the operation of the Business (the “Business
Employees”) and their duties, compensation history and personnel records. 
Except as disclosed on Schedule 5.9 and prior to the Closing, the Buyer will
offer employment to the Business Employees, on such terms and conditions as
provided by the Sellers.  The Sellers shall encourage such employees to consider
employment with the Buyer.  Any Business Employee who accepts an offer of
employment with the Buyer and actually commences employment with the Buyer on
the Closing is referred to herein as a “Transferred Employee.”  The Sellers
agree that the Buyer shall have no financial or other responsibility for
employee severance and other costs associated with the termination of employment
of any employees of the Sellers prior to the Closing, except as otherwise
expressly set forth in this Agreement.  If any Business Employee, excluding a
Transferred Employee, becomes entitled to severance at any time on or after the
Closing as a result of his or her employment with the Sellers, the Sellers shall
be liable for such amounts, which liability shall constitute an Excluded
Liability, provided that the Buyer has offered employment to such Business
Employees on substantially the same terms and conditions as provided by the
Sellers.  From the date of this Agreement until the Closing, the Sellers shall
not terminate any Business Employees without cause without the Buyer’s consent
and shall make all reasonable efforts to retain its employees in the ordinary
course of business until the Closing and after the Closing.
 
5.9.1             Subject to the terms and conditions of this Agreement and any
applicable employment agreement with a Transferred Employee, the Buyer (or its
Affiliates) may terminate the employment of any Transferred Employee on or after
the Closing Date and each shall remain “at will” and the Buyer shall retain all
rights to alter, amend or terminate any term or condition of employment,
compensation or benefits with respect to Transferred Employees from and after
the Closing Date.

 
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5.9.2             As of the Closing Date, all Transferred Employees will be
deemed to have resigned their employment with the Sellers and will cease active
participation in the Sellers’ or the Sellers’ Affiliate’s Plans not transferred
pursuant to Section 5.9.4.
 
5.9.3             Each Transferred Employee who participates in a Buyer employee
benefit plan following the Closing will be given credit under such plan for
service prior to the Closing to the extent such service was taken into account
by the Sellers under its analogous plan or plans immediately prior to the
Closing Date to the extent legally permitted.
 
5.9.4             As of the Closing, the Sellers shall cause to be transferred
to or held for the benefit of the Buyer all rights, duties, powers, and
obligations under and with respect to the Employee Plans listed on Schedule
5.9.4 (“Transferred Plans”) (including those as plan sponsor) and the rights,
duties, powers and obligations of the Sellers under and with respect to the
Transferred Plans (including those as plan sponsor) shall be assumed by or
otherwise assigned to the Buyer.  With respect to the period prior to the
Closing, any Liability relating to the Transferred Plans shall constitute an
Excluded Liability.  The Sellers represent, warrant and agree that there are and
will be no material costs or other impediments to transferring the Transferred
Plans to the Buyer.
 
5.9.5             Nothing in this Agreement shall be construed as an amendment
of any employee benefit plan of the Buyer or the Sellers.
 
5.9.6             The Buyer will not on or at any time prior to ninety (90) days
after the Closing Date, effectuate a “plant closing” or “mass layoff” as those
terms are defined in WARN, affecting in whole or in part any site of employment
of the Business, without complying with the notice requirements and other
provisions of WARN.  The Buyer will be responsible for any obligation with
respect to the Transferred Employees under WARN arising or accruing after the
Closing Date.
 
5.10.         Confidentiality.
 
5.10.1          Confidentiality of the Sellers.
 
(a)         The Sellers acknowledge that the success of the Business after the
Closing depends upon the continued preservation of the confidentiality of
certain information possessed by the Sellers, that the preservation of the
confidentiality of such information by the Sellers is an essential premise of
the bargain between the Sellers and the Parent and the Buyer, and that the
Parent and they Buyer would be unwilling to enter into this Agreement in the
absence of this Section 5.10.1(a).  Accordingly, the Sellers hereby agree with
the Parent and the Buyer that the Sellers and their Representatives, legal
counsel, accountants and financial advisors, will not, and that the Sellers will
cause its subsidiaries not to, at any time on or after the Closing Date,
directly or indirectly, without the prior written consent of the Parent or they
Buyer, disclose or use, any confidential or proprietary information involving or
relating to the Business or the Acquired Assets. The Sellers further agree with
the Parent and the Buyer that the Sellers shall not disclose any information
that is confidential in nature to any competitor of the Business in a manner
that could adversely affect the Sellers, except under procedures that are
reasonably acceptable to the Parent or the Buyer.  Notwithstanding anything to
the contrary in this Section 5.10.1(a), the information subject to the foregoing
provisions of this Section 5.10.1(a) will not include any information generally
available to, or known by, the public (other than as a result of disclosure in
violation hereof); and provided, further, that the provisions of this Section
5.10.1(a) will not prohibit any retention of copies of records or disclosure (i)
required by any applicable Legal Requirement so long as reasonable prior notice
is given of such disclosure and a reasonable opportunity is afforded to contest
the same, (ii) made in connection with the enforcement of any right or remedy
relating to this Agreement or the Contemplated Transactions, or (iii) made to
any customer of or vendor to the Sellers provided that such party has signed a
commercially reasonable confidentiality agreement and so long as reasonable
prior notice is given to the Parent or the Buyer of such disclosure and Seller
makes a reasonable effort to accommodate any concerns or comments expressed by
the Parent or the Buyer.  The Sellers agree that they will be responsible for
any breach or violation of the provisions of this Section 5.10.1(a) by any of
its Representatives, legal counsel, accountants or financial advisors.

 
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5.10.2           Certain Confidentiality Agreements.  At or prior to the
Closing, the Sellers will, and will cause their Affiliates to, assign to the
Buyer any rights which such Person may have under any confidentiality agreement
(or similar Contractual Obligation) relating to the confidential information of
the Business.
 
5.11.         Publicity. No public announcement or disclosure will be made by
any Party with respect to the subject matter of this Agreement or the
Contemplated Transactions without the prior written consent of the Parent and
the Buyer and the Sellers; provided, however, that the provisions of this
Section 5.11 will not prohibit (a) any disclosure required by any applicable
Legal Requirements (in which case the disclosing party will provide the other
Parties with the opportunity to review in advance the disclosure) or (b) any
disclosure made in connection with the enforcement of any right or remedy
relating to this Agreement or the Contemplated Transactions.
 
5.12.         Noncompetition and Nonsolicitation.
 
5.12.1           The Sellers agree that, in consideration of the purchase by the
Buyer hereunder, they shall not, and shall not permit any of their Affiliates
to, on or prior to the date which is five (5) years after the Closing Date,
directly or indirectly, run, own, manage, operate, control, be employed by,
provide consulting services to, participate in, lend its name to, invest in or
be connected in any manner with the management, ownership, operation or control
of any business, venture, or activity which competes with the Business
(including parts and accessories therefor) being conducted at the Closing Date
or the Products (or related products or services performing functions similar to
those of the Products); provided, however, the Sellers shall not be considered
to be in default of this Section 5.12 solely by virtue of holding for portfolio
purposes as a passive investor not more than five percent of the issued and
outstanding equity securities of a corporation, the equity securities of which
are listed or quoted on a stock exchange or an over-the-counter market within
the United States.

 
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5.12.2           The Sellers further agree that for a period of five (5) years
after the Closing Date they will not, and will not permit any subsidiary to,
directly or indirectly without the prior written consent of the Buyer, recruit,
offer employment, employ, engage as a consultant, lure or entice away or in any
other manner persuade or attempt to persuade any person who is an employee of
the Buyer or any subsidiary, group, or division of the Buyer or any Affiliate
thereof, to leave the employ of the Buyer unless such person has been terminated
by the Buyer or an Affiliate of the Buyer.
 
5.12.3           If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 5.12 is invalid or
unenforceable, the Parties hereto agree that the court making the determination
of invalidity or unenforceability will have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
will be enforceable as so modified after the expiration of the time within which
the judgment may be appealed.
 
5.13.       Distributions and Affiliate Payments.   The Sellers shall not make
any distributions or dividends in respect of any Equity Interests or any
payments to any Affiliate or any Affiliate of an Affiliate, or any payments
pursuant to any Affiliate Transaction, until the later of (i) two-year
anniversary of the Closing Date or (ii) the resolution of any Claims or pending
Claims, without the prior written consent of the Buyer.  The following shall not
be construed as a payment to an Affiliate or pursuant to an Affiliate
Transaction:
 
(a)         Payments to an officer or former officer of a Seller pursuant to an
employment agreement, as severance or in settlement of claims under an
employment agreement;
 
(b)         Payments pursuant to or in settlement of the Consulting Letter
Agreement;
 
(c)         Usual Directors’ fees paid per meeting, in an amount not to exceed,
in the aggregate $25,000;
 
(d)         Payment of equity of the Parent to the holders of the Seller Notes,
in accordance with the Seller Note Exchange Agreements and Schedule 4.1.6;
 
(e)         Premiums (including “tail payments”) with respect to Director and
Officers’ liability and employment practices insurances; and
 
(f)          Indemnification of directors and officers pursuant to the Sellers’
bylaws and Articles of Incorporation.
 
5.14.       Collection of Accounts Receivable. The Sellers agree that they shall
forward promptly (and no later than seven (7) Business Days after receipt of the
same) to the Buyer all funds arising from any monies, checks or instruments
received by the Sellers after the Closing Date with respect to accounts
receivable that are Acquired Assets hereunder or accounts receivable that arise
from or under any Acquired Asset.

 
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5.15.         Subordinated Notes.  At the Closing, as set forth in Section
2.6.2, the holders of the Subordinated Notes will contribute the Subordinated
Notes and cash to the Parent in exchange for equity of the Parent, substantially
in accordance with Schedule 4.1.6.  The Parent will then contribute or cause the
contribution of the Subordinated Notes and cash to the Buyer.
 
5.16.         Payment of Seller Notes. Immediately following the Closing,
Encompass agrees to perform its obligations under the Seller Note Exchange
Agreements.
 
5.17.         Release From Letter of Credit. On or prior to the Closing, the
Buyer shall cancel and replace that certain letter of credit between Harris,
N.A., as lender, Encompass, as applicant, and Sony Electronics, Inc., as
beneficiary, in the initial principal amount of $1,500,000, dated as of May 26,
2010 (the “Sony LC”) and terminate or cause to be terminated any and all
guaranties and reimbursement obligations in respect thereof undertaken by ACT-DE
LLC, H.I.G. Capital Partners III, L.P. and H.I.G. Investment Group III, L.P.
 
5.18.         Bulk Transfer Laws.   The parties do not intend to comply with the
bulk transfer laws of any jurisdiction with respect to the Contemplated
Transactions.
 
5.19.         Use of Trade Names.    On or immediately following the Closing,
Encompass shall take all steps necessary to cease use of any and all trade names
and names associated with the Business, including, without limitation, those
names set forth in Section 2.1.10 and on Schedule 3.16.2.
 
5.20.         Parent Stockholders’ Agreement.    Each of the Parent, the Buyer,
the Sellers shall use their best efforts (subject to, and in accordance with
applicable Law) to negotiate in good faith and agree to a reasonably acceptable
Stockholders’ Agreement, to be executed by and among the shareholders of Parent
(the “Parent Stockholders’ Agreement”).  The Parent Stockholders’ Agreement
shall include, among other provisions, the terms set forth on Schedule 5.20.
 
5.21.         Amendment to Parent Charter.    Subject to the terms and
conditions of this Agreement, the Certificate of Incorporation of the Parent
shall be amended and restated prior to the Closing to substantially reflect the
economic terms set forth on Schedule 4.1.6.
 
5.22.         Further Assurances. Subject to the conditions and upon the terms
of this Agreement, each of the Parent, the Buyer and the Sellers shall use
reasonable best efforts (subject to, and in accordance with, applicable Law) to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable under applicable Laws to carry out the
intent and purposes of this Agreement and to consummate the Contemplated
Transactions.  Without limiting the generality of the foregoing, subject to the
conditions and upon the terms of this Agreement, each Party to this Agreement
shall (a) reasonably cooperate with any of the other Parties, execute and
deliver such further documents, certificates, agreements, acts, assurances,
deeds, assignments, transfers, conveyances and instruments and take such other
actions as may be reasonably requested by any of the other Parties to evidence
or reflect the transactions contemplated by this Agreement (including the
execution and delivery of all documents, certificates, agreements and
instruments reasonably necessary for all filings hereunder), (b) give all
notices (if any) required to be made and given by such Party in connection with
the Contemplated Transactions and the other transactions contemplated by this
Agreement and (c) use reasonable best efforts to obtain each approval, consent,
ratification, permission, waiver of authorization (including any authorization
of a Governmental Authority) required to be obtained from Governmental Entities
and parties to any material Contracts  required to be obtained (pursuant to any
applicable Law or Contract, or otherwise) by such Party in connection with the
Contemplated Transactions or any of the other transactions contemplated by this
Agreement.

 
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6.         CONDITIONS TO THE PARENT AND THE BUYER’S OBLIGATIONS AT THE CLOSING.
 
The obligations of the Parent and the Buyer to consummate the Closing are
subject to the fulfillment of each of the following conditions prior to the
Closing:
 
6.1.           Representations and Warranties.  The representations and
warranties of the Sellers contained in this Agreement and in any document,
instrument or certificate delivered hereunder (a) that are not qualified by
materiality or Material Adverse Effect will be true and correct in all material
respects at and as of the Closing with the same force and effect as if made as
of the Closing and (b) that are qualified by materiality or Material Adverse
Effect will be true and correct in all respects at and as of the Closing with
the same force and effect as if made as of the Closing, in each case, other than
representations and warranties that expressly speak only as of a specific date
or time, which will be true and correct as of such specified date or time.
 
6.2.           Performance. The Sellers will have performed and complied in all
material respects with all agreements, obligations and covenants contained in
this Agreement that are required to be performed or complied with by them at or
prior to the Closing.
 
6.3.           Compliance Certificate. Each Seller will have delivered to the
Buyer a certificate to the effect that each of the conditions set forth in
Sections 6.1, 6.2 and 6.4, have been satisfied.
 
6.4.           Requisite Shareholder Approval.  The Requisite Shareholder
Approval shall have been obtained.
 
6.5.           Key Contracts. Each of Contracts listed on Schedule 6.5 shall
have been validly assigned to the Buyer.
 
6.6.           Key Real Property Leases. Each of the Real Property Leases listed
on Schedule 6.6 shall have been validly assigned to the Buyer.

 
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6.7.         Qualifications. No provision of any applicable Legal Requirement
and no Government Order will prohibit the consummation of any of the
Contemplated Transactions.
 
6.8.         Absence of Litigation. No Action will be pending which may result
in a Governmental Order (nor will there be any Governmental Order in effect) (a)
which would prevent consummation of any of the Contemplated Transactions, (b)
which would result in any of the Contemplated Transactions being rescinded
following consummation, (c) which would limit or otherwise adversely affect the
right of the Buyer to own the Acquired Assets or to operate all or any material
portion of either the Business or Acquired Assets or of the business or assets
of the Buyer or any of its Affiliates or (d) would compel the Buyer or any of
its Affiliates to dispose of all or any material portion of either the Business
or Acquired Assets or the business or assets of the Buyer or any of its
Affiliates.
 
6.9.         Consents, etc. All actions by (including any authorization, consent
or approval) or in respect of (including notice to), or filings with, any
Governmental Authority or other Person that are required to consummate the
Contemplated Transactions, as disclosed in Schedule 3.3 and Schedule 3.4, or as
otherwise reasonably requested by the Buyer, will have been obtained or made, in
a manner reasonably satisfactory in form and substance to the Buyer, and no such
authorization, consent or approval will have been revoked.
 
6.10.       FIRPTA Certificate. Each Seller will have delivered to the Buyer, in
a form as prepared by the Buyer, a properly completed and executed affidavit of
non-foreign status pursuant to Section 1.1445-2(b)(2) of the Treasury
Regulations.
 
6.11.       Proceedings and Documents.  All corporate and other proceedings in
connection with the Contemplated Transactions and all documents incident thereto
will be reasonably satisfactory in form and substance to the Buyer and its
counsel, and they will have received all such counterpart original and certified
or other copies of such documents as they may reasonably request.
 
6.12.       Ancillary Agreements. Each of the Ancillary Agreements will have
been executed and delivered to the Parent and the Buyer by each of the other
parties thereto.
 
6.13.       Affiliate Transactions Terminated. All of the affiliate transactions
set forth on Schedule 3.22.5 shall have been terminated and all amounts due
thereunder shall have been forgiven or otherwise discharged without payment, but
only if and to the extent that any such transactions would result in any
continuing Liability on the part of the Buyer or the Parent (each, an “Affiliate
Transaction”).
 
6.14.       Release From Certain Liabilities.  The Buyer shall have received a
release in favor of the Buyer of liability from each applicable party, in a form
reasonably acceptable to the Buyer, with respect to the following Liabilities of
the Sellers:
 
(a)         Eckert Note;
 
(b)         Any Liability set forth on Schedule 2.3.9;
 
(c)         Each Affiliate Transaction; and

 
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(d)         The Seller Notes.
 
6.15.       No Material Adverse Change. Since the Most Recent Balance Sheet
Date, there will have occurred no events nor will there exist circumstances
which singly or in the aggregate have resulted in a Material Adverse Effect.
 
6.16.       Execution of Non-Competition Agreement.   H.I.G. Capital, L.L.C.
shall have executed and delivered the Non-Competition Agreement and such
agreement shall remain in full force and effect as of the Closing Date.
 
6.17.       Seller Note Exchange Agreements.    The Seller Note Exchange
Agreements shall be executed with substantially the same terms and conditions as
set forth on Exhibit E, and the Seller Note Exchange Agreements shall remain in
full force and effect.
 
6.18.       Parent Stockholders’ Agreement.  The Parent Stockholders’ Agreement
shall have been executed by the appropriate parties thereto and shall remain in
full force and effect.
 
7.         CONDITIONS TO THE SELLERS’ OBLIGATIONS AT THE CLOSING.
 
The obligations of the Sellers to consummate the Closing are subject to the
fulfillment of each of the following conditions (unless waived by the Seller in
accordance with Section 11.3):
 
7.1.        Representations and Warranties. The representations and warranties
of the Parent and the Buyer contained in this Agreement and in any document,
instrument or certificate delivered hereunder (a) that are not qualified by
materiality or Material Adverse Effect will be true and correct in all material
respects at and as of the Closing with the same force and effect as if made as
of the Closing and (b) that are qualified by materiality or Material Adverse
Effect will be true and correct in all respects at and as of the Closing with
the same force and effect as if made as of the Closing, in each case, other than
representations and warranties that expressly speak only as of a specific date
or time, which will be true and correct as of such specified date or time.
 
7.2.        Performance. The Parent and the Buyer will have performed and
complied with, in all material respects, all agreements, obligations and
covenants contained in this Agreement that are required to be performed or
complied with by the Parent or the Buyer, as the case may be, at or prior to the
Closing.
 
7.3.        Compliance Certificate. The Parent and the Buyer will each have
delivered to the Seller a certificate to the effect that each of the conditions
set forth in Sections 7.1 and 7.2, have been satisfied.
 
7.4.        Qualifications. No provision of any applicable Legal Requirement and
no Government Order will prohibit the consummation of any of the Contemplated
Transactions.
 
7.5.        Absence of Litigation. No Action will be pending or threatened in
writing which may result in Governmental Order, nor will there be any
Governmental Order in effect, (a) which would prevent consummation of any of the
Contemplated Transactions or (b) which would result in any of the Contemplated
Transactions being rescinded following consummation (and no such Governmental
Order will be in effect).

 
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7.6.           Consents, etc. All actions by (including any authorization,
consent or approval) or in respect of (including notice to), or filings with,
any Governmental Authority or other Person that are required to consummate the
Contemplated Transactions, as disclosed in Schedule 4.1.3, Schedule 4.1.4,
Schedule 4.2.3 and Schedule 4.2.4, will have been obtained or made, in a manner
reasonably satisfactory in form and substance to the Seller, and no such
authorization, consent or approval will have been revoked.
 
7.7.           Proceedings and Documents. All corporate and other proceedings in
connection with the Contemplated Transactions and all documents incident thereto
will be reasonably satisfactory in form and substance to the Seller and to its
counsel, and the Seller will have received all such counterpart original and
certified or other copies of such documents as it may reasonably request.
 
7.8.           Ancillary Agreements. Each of the Ancillary Agreements to which
any Seller is a party will have been executed and delivered to such Seller by
each of the other parties thereto.
 
7.9.           Release From Letter of Credit. The Buyer shall have canceled and
replaced the Sony LC and terminated or caused to be terminated any and all
guaranties and reimbursement obligations in respect thereof undertaken by ACT-DE
LLC, H.I.G. Capital Partners III, L.P. and H.I.G. Investment Group III, L.P.
 
7.10.        Release From Certain Debt.
 
7.10.1           The Sellers shall have received a release from Liability from
the Buyer, in a form reasonably acceptable to the Sellers, with respect to the
Senior Notes, including any unpaid interest, fees and penalties.
 
7.10.2           The Sellers shall have received a release from Liability from
the Buyer, in a form reasonably acceptable to the Sellers, with respect to the
Subordinated Notes, including any unpaid interest, fees and penalties.
 
7.11.         Seller Note Exchange Agreements.    The Seller Note Exchange
Agreements shall be executed with substantially the same terms and conditions as
set forth on Exhibit E, and the Seller Note Exchange Agreements shall remain in
full force and effect.
 
7.12.         Requisite Shareholder Approval.  The Requisite Shareholder
Approval shall have been obtained.
 
7.13.         Amendment to Parent Charter.  The Parent’s Certificate of
Incorporation shall have been amended and restated to substantially reflect the
economic terms set forth on Schedule 4.1.6.
 
7.14.         Parent Stockholders’ Agreement.  The Parent Stockholders’
Agreement shall have been executed by the appropriate parties thereto and shall
remain in full force and effect.

 
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8.         INDEMNIFICATION.
 
8.1.           Indemnification by Sellers. 
 
8.1.1             Subject to the limitations set forth in this Section 8, the
Sellers (jointly and severally) will indemnify and hold harmless the Parent, the
Buyer and each of their Affiliates  and the representatives and Affiliates of
each of the foregoing Persons (each, a “Buyer Indemnified Person”) from, against
and in respect of any and all actions, Liabilities, liens, losses, damages,
bonds, dues, assessments, fines, penalties, Taxes, fees, costs (including costs
of investigation, defense and enforcement of this Agreement), expenses or
amounts paid in settlement (in each case, including reasonable attorneys’ and
experts fees and expenses), (collectively, “Losses”), incurred or suffered by
the Buyer Indemnified Persons or any of them as a result of, arising out of or
directly or indirectly relating to:
 
(a)         any breach of, or inaccuracy in, the representations and warranties
made by the Sellers in Sections 3.18 (Tax Matters) and 3.19 (Employee Benefit
Plans) of this Agreement or any breach or violation of the covenants and
agreements of the Sellers set forth in Section 10 (Tax Matters) of this
Agreement;
 
(b)         Excluded Liabilities; or
 
(c)         the following claims arising out of the Circuit City Bankruptcy
Action:  (i) Vance Baldwin prior to the Closing Date, or the Buyer following the
Closing Date, becoming obligated to make any payments to Circuit City or any
representative of the Circuit City estate, including, without limitation, on
account of asserted unearned advances, and (ii) Vance Baldwin prior to the
Closing Date, or the Buyer following the Closing Date, becoming obligated to
make any payments to Circuit City or any representative of the Circuit City
estate, including, without limitation, on account of avoidable preferential
transfers (collectively, the claims and potential liabilities referenced in
clauses (i) and (ii), the “Circuit City Claims”); provided, however, that any
amounts recovered by the Buyer with respect to Claim 1400 of the Circuit City
Bankruptcy Action shall be offset against any amounts owed by the Buyer in
respect to clauses (i) and (ii) above.
 
8.1.2             In the event the Buyer receives payment with respect to Claim
1400 after the Sellers have indemnified the Buyer for the Circuit City Claims,
and following the expiration of the indemnification period set forth below in
Section 8.2.1(c), the Buyer shall pay to the Sellers the difference between the
amount recovered and any non-indemnified amounts the Buyer paid with respect to
the Circuit City Claims, provided, however, that in no event shall such an
amount be more than the amount of indemnity paid by the Sellers. 
Notwithstanding anything to the contrary in the Section, in the event the
Sellers indemnify the Buyer for multiple obligations under Section 8.1.1, such
payments shall be allocated, in the last instance, to the Circuit City Claims
described in Section 8.1.1(c).

 
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8.1.3             The Sellers will have no obligation to indemnify the Buyer
Indemnified Persons pursuant to Section 8.1.1 in respect of Losses arising from
the breach of, or inaccuracy in, any representation or warranty described
therein unless the aggregate amount of all such Losses incurred or suffered by
the Buyer Indemnified Persons exceeds $50,000 (at which point the Sellers will
indemnify the Buyer Indemnified Persons for all such Losses).
 
8.2.           Time for Claims.
 
8.2.1             No claim may be made or suit instituted seeking
indemnification pursuant to Section 8.1.1 unless a written notice (a “Claim for
Indemnification”) describing such claim in reasonable detail and any Losses or
estimated Losses as a result thereof, in light of the circumstances then known
to the Buyer Indemnified Person, is provided to the Sellers:
 
(a)         at any time prior to the date that is the two-year anniversary of
the Closing Date, in the case of any claim for indemnification (i) under Section
8.1.1(a) relating to a breach of, or inaccuracy in, any representation or
warranty set forth in Section 3.19 (Employee Benefit Plans) or (ii) under
Section 8.1.1(b) relating to Excluded Liabilities;
 
(b)         at any time prior to the date that is sixty (60) days following the
expiration of the applicable statute of limitations (taking into account any
extensions thereof), in the case of any claim for indemnification under Section
8.1.1(a) relating to a breach or violation of any covenant or agreement set
forth in Section 10 or any breach of, or inaccuracy in, any representation or
warranty set forth in Section 3.18 (Tax Matters); and
 
(c)         at any time prior to the date that is the one-year anniversary of
the Closing Date, in the case of  claim for indemnification under Section
8.1.1(c) relating to the Circuit City Claims.
 
8.2.2             Notwithstanding anything herein to the contrary, a Buyer
Indemnified Party may make a Claim for Indemnification within the relevant time
period set forth in Section 8.2.1 with respect to potential Losses that may
result from any third-party allegation that has been made, or any audit,
inquiry, examination or other proceeding involving a Governmental Authority that
has been initiated, and any such Claim for Indemnification shall survive until
such time as such allegation, audit, inquiry, examination or proceeding has been
resolved.
 
8.3.           Indemnity Escrow.  Amounts payable by the Sellers to a Buyer
Indemnified Person will be paid in cash first out of the Escrow Account pursuant
to the Escrow Agreement, to the extent available, and thereafter from the
Sellers to the extent that such amounts do not exceed (i) the excess of Sellers’
cash and cash equivalents over the liabilities of the Sellers to third party
creditors of the Sellers (other than Affiliates or Affiliates of Affiliates,
subject to the exceptions set forth in Section 5.13) plus (ii) distributions
made or  any amounts paid to an Affiliate or Affiliate of an Affiliate in
violation of Section 5.13 (“Available Funds”).  Notwithstanding anything to the
contrary in this Agreement, any claim for indemnification to which Buyer
Indemnified Persons are entitled under this Agreement pursuant to Section 8.1
will be satisfied solely from the Escrow Funds (in accordance with the terms of
the Escrow Agreement) and the Available Funds, and Buyer Indemnified Persons
will not be entitled to any payment from any source other than the Escrow Funds
and the Available Funds for any such indemnification claim.

 
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8.4.           Seller Indemnification.
 
8.4.1             Buyer and Parent (jointly and severally) will indemnify and
hold harmless the Sellers and each of their Affiliates and the representatives
and Affiliates of each of the foregoing Persons (each, a “Seller Indemnified
Person”) from, against and in respect of any and all Losses, incurred or
suffered by the Seller Indemnified Persons or any of them as a result of,
arising out of or directly or indirectly relating to the Assumed Liabilities.
 
8.4.2             A Claim for Indemnification made by a Seller Indemnified
Person must be made pursuant to this Section 8.4 at any time prior to the date
that is the two-year anniversary of the Closing Date.
 
8.4.3             Notwithstanding anything herein to the contrary, a Seller
Indemnified Party may make a Claim for Indemnification within the relevant time
period set forth in Section 8.4.2 with respect to potential Losses that may
result from any third-party allegation that has been made, or any audit,
inquiry, examination or other proceeding involving a Governmental Authority that
has been initiated, and any such Claim for Indemnification shall survive until
such time as such allegation, audit, inquiry, examination or proceeding has been
resolved.
 
8.5.           Remedies Cumulative.  The rights of each Buyer Indemnified Person
under this Section 8 are cumulative, and each Buyer Indemnified Person will have
the right in any particular circumstance, in its sole discretion, to enforce any
provision of this Section 8 without regard to the availability of a remedy under
any other provision of this Section 8.
 
8.6.           Remedies.   After the Closing, the provisions of this Section 8
shall constitute the sole and exclusive remedy of the parties against each other
with respect to any Losses they may suffer arising from (i) the breach of, or
inaccuracy in, any representation or warranty under this Agreement and (ii) the
breach of any covenant or condition under this Agreement to be performed or
satisfied on or prior to Closing, except to the extent the Buyers have actual
knowledge of such breach on or prior to Closing.  Nothing in this Section 8
shall be construed as limiting the remedies available to the Buyers in the event
of a breach of this Agreement by Sellers, including but not limited to any
breach of Section 5.13, or for fraud.
 
8.7.           Survival.   All provisions of this Agreement, the Ancillary
Agreements and of any other agreement, certificate or instrument delivered
pursuant to this Agreement or any Ancillary Agreement, other than the conditions
in Section 6 and Section 7 hereof, will not merge on Closing but will survive
the execution, delivery and performance of this Agreement, the Closing and the
execution and delivery the Ancillary Agreements and all other agreements,
certificates and instruments delivered pursuant to this Agreement and the
Ancillary Agreements, in the case of Sections 8.1.1 (a), (b) or (c) for the same
period of time during which an obligation to indemnify with respect to a breach,
inaccuracy or violation of such provision exists hereunder.

 
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9.         TERMINATION.
 
9.1.         Termination of Agreement. This Agreement may be terminated (the
date on which the Agreement is terminated, the “Termination Date”), and the
transactions contemplated hereby may be abandoned:
 
(a)         at any time prior to the Closing, by the mutual written agreement of
the Parent, the Buyer and the Sellers;
 
(b)         at any time on or before the Closing, by the Parent or the Buyer (i)
if the representations, warranties or covenants of the Sellers contained in this
Agreement shall not have been true and correct in all material respects when
made, or (ii) upon any material breach by any Seller of its obligations
contained in this Agreement and the failure of such Seller to cure such breach,
if curable, within ten (10) days after written notice thereof is given by the
Buyer to such Seller;
 
(c)         at any time on or before the Closing, by the Sellers (i) if the
representations, warranties or covenants of the Parent or the Buyer contained in
this Agreement shall not have been true and correct in all material respects
when made, or (ii) upon any material breach by the Parent or the Buyer of its
obligations contained in this Agreement and the failure of the Parent or the
Buyer to cure such breach, if curable, within ten (10) days after written notice
thereof is given by the Sellers to the Parent or the Buyer, as the case may be;
 
(d)         at any time on or before the Closing, by the Sellers if they enter
into a binding agreement with respect to an Acquisition Proposal, provided,
however, that such Acquisition Proposal must include provisions reasonably
acceptable to the Buyer for the full payment, on or prior to the Termination
Date, of the amounts due in respect of the Sankaty Notes, and provided, further,
that the Sellers shall reimburse the Parent and the Buyer, on or prior to the
Termination Date, for all reasonable expenses incurred under this Agreement and
the Contemplated Transactions and provided further that until the termination of
this Agreement, nothing in this Section 9.1(d) shall relieve the Sellers of
their obligations under Section 5.1;
 
(e)         at any time, on or before June 7, 2011, by the Sellers upon written
notice to the Buyers, if (i) the Seller Note Exchange Agreements have not been
executed by the holders of the Seller Notes, with substantially the same terms
and conditions as set forth on Exhibit E, on or prior to May 27, 2011 or (ii)
the Parent is unable to make the representation set forth in Section 4.1.6;
provided, however, that termination under this Section 9.1 shall be the sole
remedy upon the occurrence of the events listed in clause (i) and (ii) hereof;
or
 
(f)          by any party hereto if the Closing is not consummated by August 31,
2011.

 
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9.2.           Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.1, this Agreement – other than the provisions of
Sections 3.29 and 4.1.8 and 4.2.8 (No Brokers), 5.8 (Expenses),
5.10 (Confidentiality), 5.11 (Publicity), 11.10 (Governing Law),
11.11 (Jurisdiction) and 11.13 (Waiver of Jury Trial) – will then be null and
void and have no further force and effect and all other rights and Liabilities
of the Parties hereunder will terminate without any Liability of any Party to
any other Party, except for Liabilities arising in respect of breaches under
this Agreement by any Party on or prior to the Termination Date.
 
9.2.1             Nothing in this section shall relieve the Parent, the Buyer or
the Sellers of any liability for a breach of any covenant in this Agreement
prior to the date of termination.
 
10.        TAX MATTERS
 
10.1.         Tax Treatment.  For U.S. federal, state and local income Tax
purposes, the parties agree to treat the transfer of the Acquired Assets to the
Buyer pursuant to this Agreement as a transaction described in and subject to
the requirements of Section 1060 of the Code and not as a transaction qualifying
in whole or in part under Section 351 or Section 368 of the Code.  Neither the
Buyer nor the Sellers shall take any position on any Tax Return, or before any
Governmental Authority involved in the administration of Tax Legal Requirements,
that is inconsistent with such treatment.
 
10.2.         Allocation of the Consideration.  The Acquired Assets will be
valued and the Consideration will, to the extent of the fair market value of the
Acquired Assets, be allocated among the Acquired Assets in accordance with a
Schedule provided by the Buyer to the Sellers prior to the Closing (the
“Allocation”). The Buyer shall act reasonably and in good faith in preparing the
Allocation and in considering whether to incorporate any comments on the
Allocation provided by the Sellers.  The Allocation, as finally determined by
the Buyer, shall be binding upon the Sellers and the Buyer and the Sellers and
their Affiliates shall report, act and file Tax Returns in all respects and for
all purposes in a manner consistent with the Allocation.  Neither the Buyer nor
the Sellers shall take any position (whether in Tax Returns, audits or
otherwise) that is inconsistent with such Allocation unless required to do so by
applicable Legal Requirements. The Sellers shall propose an allocation of the
Consideration among the Sellers (the “Inter-Seller Allocation”), and the Buyer
and the Sellers, acting reasonably and in good faith and consistently with the
Allocation, shall mutually agree on such an allocation prior to the Closing;
provided, that if the parties are unable to agree on the Inter-Seller
Allocation, they will refer any disputed matters to a mutually agreed third
party accounting or appraisal firm (the “Independent Accountant”), which shall
resolve such matters as promptly as practicable based on presentations and
submissions of the parties.  The expenses of the Independent Accountant shall be
shared equally between Buyer and the Sellers. Notwithstanding anything to the
contrary herein, the Equity Purchase Price shall be solely allocated to
Cyber-Test unless the Buyer determines, in its sole discretion, prior to the
Closing to allocate the Equity Purchase Price in whole or in part to one or more
of the other Sellers. The parties acknowledge that to the extent the
Consideration exceeds the fair market value of the Acquired Assets, the Sellers
may recognize income from discharge of indebtedness as a result of the
transactions contemplated by this Agreement, subject to any applicable
exclusions for such income as set forth in the Code.

 
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10.3.         Transfer Taxes. The Sellers shall prepare and file all necessary
Tax Returns and other documentation relating to Transfer Taxes that they are
required to file under applicable law.  The Seller and the Buyer shall bear and
pay any Transfer Taxes in equal amounts.  The Buyer and the Sellers shall
cooperate with each other to the extent legally permitted to minimize any such
Transfer Taxes.
 
10.4.         Cooperation.  The Buyer and the Sellers agree to cooperate, as and
to the extent reasonably requested by the other party, in connection with any
Tax matters related to the Contemplated Transactions, the Business and the
Acquired Assets (including by the provision, upon reasonable request, of
reasonably relevant records or information).  The Sellers shall promptly notify
the Buyer of, and promptly and fully inform the Buyer of developments in, any
Tax audit, examination or other proceedings relating to any of the Sellers
(including with respect to the Business or the Acquired Assets) for any Tax
period ending on or prior to the Closing Date or any Straddle Period (as defined
below).
 
10.5.         Non-Reliance.  The Sellers acknowledge they are relying solely on
their own Tax advisors with respect to the Tax consequences of this Agreement
and the transactions contemplated hereby.  The Parent and the Buyer make no
representations or warranties whatsoever to the Sellers or the shareholders of
Encompass regarding such Tax consequences.
 
10.6.         Payment of Taxes.  The Sellers shall pay all Taxes of the Sellers
and their Affiliates (including any such Taxes that may become a Liability of
the Buyer under any doctrine of de facto merger or transferee or successor
liability), and all Taxes attributable to the Business and the Acquired Assets
for all taxable periods or portions thereof ending on or before the Closing
Date. Without limiting the generality of the immediately preceding sentence, and
for the avoidance of doubt, the Sellers shall be responsible and pay for any
sales, use or similar Taxes imposed on or with respect to sales of goods or
services by any of the Sellers (or their predecessors) on or prior to the
Closing Date, including any such Taxes that may be applicable as a result of a
failure of the Sellers to obtain or retain documentation necessary or desirable
to establish an exemption from any such Taxes.
 
10.7.         Straddle Period.   Real property and personal property Taxes
imposed with respect to the Acquired Assets for any taxable period beginning
before the Closing Date and ending after the Closing Date (a “Straddle Period”)
shall be apportioned between the Sellers and the Buyer based on the number of
days in such taxable period ending on the Closing Date and the number of days in
such taxable period beginning after the Closing Date.  The Sellers shall be
responsible for the payment of any such Taxes for the portion of the period
ending on the Closing Date, and the Buyer shall be responsible for the payment
of any such Taxes for the portion of the period beginning after the Closing
Date.
 
10.8.         Payment of Principal.  The parties agree that none of the Acquired
Assets is or shall be treated as transferred in respect of accrued but unpaid
interest on the Subordinated Notes.

 
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10.9.       Intercompany Accounts.  Except in the case of (i) any Liability of
any Seller to Encompass Mexico or Encompass Canada that the Buyer designates and
agrees to treat as an Assumed Liability in a written notice to the Sellers prior
to the Closing, and (ii) any Intercompany Receivable due to any Seller from
Encompass Mexico or Encompass Canada that the Buyer designates and agrees to
treat as an Acquired Asset in a written notice to the Sellers prior to the
Closing, the Sellers shall prior to the Closing satisfy or cause to be
satisfied, in a manner reasonably acceptable to Buyer, any Liabilities the
Sellers or their Affiliates (including the Non-Seller Subsidiaries) have to
Encompass Mexico or Encompass Canada, and any Liabilities Encompass Mexico or
Encompass Canada have to the Sellers or any of their Affiliates (including the
Non-Seller Subsidiaries), including all Liabilities, Debts, or intercompany
payables or receivables, so that as of the Closing there will be no such
Liabilities outstanding.  Sellers shall provide to Buyer prior to the Closing
evidence reasonably satisfactory to Buyer of measures taken to comply with this
Section 10.9.
 
11.         MISCELLANEOUS.
 
11.1.       Notices. All notices, requests, demands, claims and other
communications required or permitted to be delivered, given or otherwise
provided under this Agreement must be in writing and must be delivered, given or
otherwise provided:
 
(a)         by hand (in which case, it will be effective upon delivery);
 
(b)         by facsimile (in which case, it will be effective upon receipt of
confirmation of good transmission); or
 
(c)         by overnight delivery by a nationally recognized courier service (in
which case, it will be effective on the Business Day after being deposited with
such courier service);
 
in each case, to the address (or facsimile number) listed below:
 
If to the Seller, to it at:
 
Encompass Group Affiliates, Inc.
775 Tipton Industrial Drive
Lawrenceville, GA 30046
Attention: Robert Gowens
Email: rgowens@phoenixmanagement.com

with a copy (which shall not itself constitute notice) to:
 
Eckert Seamans Cherin & Mellott, LLC
Two Liberty Place
50 South 16th Street, 22nd Floor
Philadelphia, PA 19102
Attention: Gary A. Miller
Facsimile: 215-851-8383

 
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and

c/o HIG Capital
855 Boylston Street, 11th Floor
Boston, MA 02116
Attention: William J. Nolan
Facsimile: 617-425-5668

and

Bingham McCutchen LLP
399 Park Avenue
New York, NY  10022
Attention: Neil Townsend, Esq.
Fascimile: 212-702-3644
 
If to the Parent or the Buyer, to it at:
 
Sancompass, Inc.
Encompass Supply Chain Solutions, Inc.
c/o Sankaty Advisors, LLC
111 Huntington Avenue
Boston, MA 02199
Attention:  Legal Department
Facsimile:  617-652-3661
 
with a copy (which shall not itself constitute notice) to:
 
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199
Attention:  Alyson Allen, Esq.
Facsimile:  617-235-0345

and

Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199
Attention:  David A. Fine, Esq.
Facsimile:  617-235-0030

 
Each of the Parties to this Agreement may specify different address or facsimile
number by giving notice in accordance with this Section 11.1 to each of the
other Parties hereto.

 
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11.2.        Succession and Assignment; No Third-Party Beneficiary. Subject to
the immediately following sentence, this Agreement will be binding upon and
inure to the benefit of the Parties hereto and their respective successors and
permitted assigns, each of which such successors and permitted assigns will be
deemed to be a Party hereto for all purposes hereof.  No Party may assign,
delegate or otherwise transfer either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other Parties; provided, however, that the Buyer may (a) assign any or all of
its rights and interests hereunder to one or more of its Affiliates and (b)
designate one or more of its Affiliates to perform its obligations hereunder, in
each case, so long as Buyer is not relieved of any Liability hereunder.  Except
as expressly provided herein, this Agreement is for the sole benefit of the
Parties and their permitted successors and assignees and nothing herein
expressed or implied will give or be construed to give any Person, other than
the Parties and such successors and assignees, any legal or equitable rights
hereunder.
 
11.3.        Amendments and Waivers. No amendment or waiver of any provision of
this Agreement will be valid and binding unless it is in writing and signed, in
the case of an amendment, by the Buyer and the Sellers, or in the case of a
waiver, by the Party against whom the waiver is to be effective.  No waiver by
any Party of any breach or violation or, default under or inaccuracy in any
representation, warranty or covenant hereunder, whether intentional or not, will
be deemed to extend to any prior or subsequent breach, violation, default of, or
inaccuracy in, any such representation, warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.  No delay or omission on the part of any Party in exercising any
right, power or remedy under this Agreement will operate as a waiver thereof.
 
11.4.        Entire Agreement. This Agreement, together with the other Ancillary
Agreements and any documents, instruments and certificates explicitly referred
to herein, constitutes the entire agreement among the Parties hereto with
respect to the subject matter hereof and supersedes any and all prior
discussions, negotiations, proposals, undertakings, understandings and
agreements, whether written or oral, with respect thereto.
 
11.5.        Counterparts. This Agreement may be executed in any number of
counterparts, including facsimile or electronic copies thereof, each of which
will be deemed an original, but all of which together will constitute but one
and the same instrument.  This Agreement will become effective when duly
executed by each Party hereto.
 
11.6.        Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction will not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.  In the event that any provision hereof
would, under applicable law, be invalid or unenforceable in any respect, each
Party hereto intends that such provision will be construed by modifying or
limiting it so as to be valid and enforceable to the maximum extent compatible
with, and possible under, applicable law.

 
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11.7.        Acknowledgment and Release. The Sellers acknowledge and agree that
the Buyer is the sole Person bound by, or liable with respect to, the
obligations and Liabilities of the Buyer under this Agreement, and that no
Affiliate of the Buyer or any of its Subsidiaries other than the Parent, or any
current or former officer, director, stockholder, agent, attorney, employee,
Affiliate, advisor or consultant of the Buyer or any such other entity shall be
bound by, or liable with respect to, any aspect of the Agreement.  The Sellers
acknowledge and agree that the Parent is the sole Person bound by, or liable
with respect to, the obligations and Liabilities of the Parent under this
Agreement, and that no Affiliate of the Parent or any of its Subsidiaries other
than the Buyer, or any current or former officer, director, stockholder, agent,
attorney, employee, Affiliate, advisor or consultant of the Parent or any such
other entity shall be bound by, or liable with respect to, any aspect of the
Agreement.  The Buyer acknowledges and agrees that the Sellers are the sole
Persons bound by, or liable with respect to, the obligations and Liabilities of
the Sellers under this Agreement, and that no Affiliate of the Sellers or any of
their Subsidiaries other than the Sellers, or any current or former officer,
director, stockholder, agent, attorney, employee, Affiliate, advisor or
consultant of the Sellers or any such other entity shall be bound by, or liable
with respect to, any aspect of the Agreement.
 
11.8.        Headings. The headings contained in this Agreement are for
convenience purposes only and will not in any way affect the meaning or
interpretation hereof.
 
11.9.        Construction.  The Parties have participated jointly in the
negotiation and drafting of this Agreement.  In the event an ambiguity or
question of intent or interpretation arises, this Agreement will be construed as
if drafted jointly by the Parties and no presumption or burden of proof will
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement.  Any reference to any federal, state, local,
or foreign statute or law will be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word “including” shall mean including without limitation.  The Schedules and
Exhibits referred to herein will be construed with and as an integral part of
this Agreement to the same extent as if they were set forth verbatim herein. 
Disclosure of any fact or item in the Schedules referenced by a particular
section in this Agreement will be deemed to have been disclosed with respect to
every other section in this Agreement to the extent readily relevant on the face
of such disclosure.  Neither the specification of any dollar amount in any
representation or warranty contained in this Agreement nor the inclusion of any
specific item in the Schedules is intended to imply that such amount, or higher
or lower amounts, or the item so included or other items, are or are not
material or are or are not in the ordinary course of business.  The Parties
intend that each representation, warranty and covenant contained herein will
have independent significance.  If any Party has breached or violated, or if
there is an inaccuracy in, any representation, warranty or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached or violated, or
in respect of which there is not an inaccuracy, will not detract from or
mitigate the fact that the Party has breached or violated, or there is an
inaccuracy in, the first representation, warranty or covenant.
 
11.10.      Governing Law.  This Agreement shall be construed and interpreted,
and the rights of the Parties shall be determined, in accordance with the
substantive laws of the State of New York, without giving effect to any
provision thereof that would require the application of the substantive laws of
any other jurisdiction.

 
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11.11.     Jurisdiction; Venue; Service of Process.
 
11.11.1          Jurisdiction.  Each of the parties hereto irrevocably submits
to the exclusive jurisdiction of the United States District Court for the
Southern District of New York located in the borough of Manhattan in the City of
New York, or if such court does not have jurisdiction, the Supreme Court of the
State of New York, New York County, for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby.
 
11.11.2          Venue.  Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (a) the United States District Court for the Southern District of New
York or (b) the Supreme Court of the State of New York, New York County, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
 
11.11.3          Service of Process.  Each Party hereby (a) consents to service
of process in any Action between the Parties arising in whole or in part under
or in connection with this Agreement in any manner permitted by New York law,
(b) agrees that service of process made in accordance with clause (a) or made by
registered or certified mail, return receipt requested, at its address specified
pursuant to Section 11.1, will constitute good and valid service of process in
any such Action and (c) waives and agrees not to assert (by way of motion, as a
defense, or otherwise) in any such Action any claim that service of process made
in accordance with clause (a) or (b) does not constitute good and valid service
of process.
 
11.12.     Specific Performance.  Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or are otherwise breached or violated.  Accordingly, each of the Parties
agrees that, without posting bond or other undertaking, each of the other
Parties will be entitled to an injunction or injunctions to prevent breaches or
violations of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any Action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter in addition to any other remedy to which it may be
entitled, at law or in equity.  Each Party further agrees that, in the event of
any action for specific performance in respect of such breach or violation, it
will not assert the defense that a remedy at law would be adequate.
 

 
-59-

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11.13.     Waiver of Jury Trial.  TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT
ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.  THE
PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT
AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG
THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY PROCEEDING
WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED
TRANSACTIONS WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE SITTING WITHOUT A JURY.
 
[Signature Pages Follow]

 
-60-

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IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as an
agreement under seal as of the date first above written.
 
THE BUYER:
ENCOMPASS SUPPLY CHAIN
 
SOLUTIONS, INC.
       
By: 
/s/ Ranesh Ramanathan
   
Name: Ranesh Ramanathan
   
Title:  Vice President
       
SANCOMPASS, INC.
       
By:
/s/_Ranesh Ramanathan
   
Name: Ranesh Ramanathan
   
Title: Vice President

 
 

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IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as an
agreement under seal as of the date first above written.
 
THE SELLERS:
ENCOMPASS GROUP AFFILIATES, INC.
       
By: 
/s/ Robert B. Gowens
   
Name: Robert B. Gowens
   
Title:  [Interim] President & CEO
       
ENCOMPASS PARTS DISTRIBUTION, INC.
       
By:
/s/ Robert B. Gowens
   
Name: Robert B. Gowens
   
Title:  [Interim] President & CEO
       
CYBER-TEST, INC.
       
By:
/s/ Robert B. Gowens
   
Name: Robert B. Gowens
   
Title:  [Interim] President & CEO
       
VANCE BALDWIN, INC.
       
By: 
/s/ Robert B. Gowens
   
Name: Robert B. Gowens
   
Title:  [Interim] President & CEO

 
 
 

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  TRITRONICS, INC.        
By:
/s/ Robert B. Gowens
   
Name: Robert B. Gowens
   
Title:  [Interim] President & CEO
        ENCOMPASS SERVICE SOLUTIONS, INC.        
By: 
/s/ Robert B. Gowens
   
Name: Robert B. Gowens
   
Title:  [Interim] President & CEO

 
 

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EXHIBIT A

Amendment to the Amended and Restated
Note Purchase Agreement

 
 

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SECOND AMENDMENT TO AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT

This SECOND AMENDMENT TO THE AMENDED AND RESTATED NOTE PURCHASE AGREEMENT (this
“Amendment”) is made and entered into as of [   ], 2011(the “Effective Date”),
by and among Encompass Parts Distribution, Inc., a Delaware corporation f/k/a
Encompass Group Affiliates, Inc., as issuer (“Company” or the “Issuer”), any
Subsidiary of Parent (as defined below) from time to time party hereto (each, a
“Subsidiary” and collectively, the “Subsidiaries”), Encompass Group Affiliates,
Inc., a Florida corporation (the “Parent”), SpectruCell, Inc., a Delaware
corporation (“SpectruCell”), Hudson Street Investments, Inc., a Delaware
corporation (“Hudson Street”), Cyber-Test, Inc., a Delaware corporation
(“Cyber-Test”), Vance Baldwin, Inc., a Florida corporation (“Vance Baldwin”),
Tritronics, Inc., a Maryland corporation (“Tritronics”), Encompass Service
Solutions, Inc., a Delaware corporation (“Encompass Service”), Encompass Parts
Distribution, S. de R.L. de C.V., a Mexico corporation (“Encompass Mexico”), and
Encompass Distribution Canada, Inc., a Canada corporation (“Encompass Canada”),
as guarantors (the Issuer, the Company, Parent, SpectruCell, Hudson Street,
Cyber-Test, Vance Baldwin, Tritronics, Encompass Service, Encompass Mexico,
Encompass Canada, and any subsidiary of Parent that executes a counterpart or
joinder of this Agreement together being referred to as the “Note Parties”, and
each such Person, a “Note Party”), Sankaty Advisors, LLC, as collateral agent
for the Senior Note Purchasers (the “First Lien Collateral Agent”) and
collateral agent for the Subordinated Note Purchasers (the “Second Lien
Collateral Agent”, and together with the First Lien Collateral Agent, “Agent”),
Sankaty Credit Opportunities II, L.P., a Delaware partnership, Sankaty Credit
Opportunities III, L.P., a Delaware partnership, Sankaty Credit Opportunities
IV, L.P., a Delaware partnership, Sankaty Credit Opportunities (Offshore Master)
IV, L.P., a Cayman limited partnership, and RGIP, LLC, a Delaware limited
liability company (together, the “Note Purchasers”), and amends certain
provisions of the Amended and Restated Note Purchase Agreement, dated as of
August 1, 2008, as amended January 12, 2009 (as otherwise amended, restated,
supplemented or otherwise modified from time to time, the “Agreement”) by and
among the Note Parties, Note Purchasers, and the Agent.  Capitalized terms used
herein without definition shall have the meanings assigned to such terms in the
Agreement.
 
WHEREAS, pursuant to the Original Note Purchase Agreement dated as of August 17,
2007 (the “Original Agreement”), the Note Purchasers agreed to acquire from the
Issuer Senior Secured Notes due 2012 (the “Senior Notes”) in the aggregate
principal amount of $12,690,355.00 and Senior Subordinated Notes due 2013 (the
“Series A Subordinated Notes” and, together with the Senior Notes, the “Initial
Notes”) in the aggregate principal amount of $10,714,286.00; and
 
WHEREAS, pursuant to the Agreement, the Issuer agreed to issue and sell to the
Note Purchasers, and the Note Purchasers agreed to purchase, additional Senior
Subordinated Notes due 2013 up to the aggregate principal amount of up to
$13,265,306.12 (the “Series B Subordinated Notes” and, together with the Initial
Notes, the “Notes”); and
 
 
 

--------------------------------------------------------------------------------

 

WHEREAS, in connection with the transactions contemplated by the Asset Purchase
Agreement dated as of May 13, 2011, between Sancompass, Inc., a Delaware
corporation, Encompass Supply Chain Solution, Inc., a Delaware corporation,
Encompass Group Affiliates, Inc., Encompass Parts Distribution, Inc.,
Cyber-Test, Inc., Vance Baldwin, Inc., Tritronics, Inc., and Encompass Service
Solutions, Inc., (the “Asset Purchase Agreement”), the Series A Subordinated
Notes and the Series B Subordinated Notes will be transferred to the Parent in
exchange for certain consideration, which shall then transfer such Notes to the
Buyer in exchange for certain consideration, which shall then transfer such
Notes to the Sellers (all as defined in the Asset Purchase Agreement), which
shall cancel such Notes and upon which such Notes shall cease to be outstanding;
and
 
WHEREAS, following the completion of the transactions contemplated by the Asset
Purchase Agreement, the Senior Notes shall remain outstanding; and
 
WHEREAS, the Note Parties and the Note Purchasers wish to amend the Agreement as
follows.
 
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Note Parties and the Note Purchasers hereby covenant and agree
as follows:
 
1.           Amendments to the Agreement.
 
(a)           Section 3.1.2 of the Agreement shall be amended and replaced in
its entirety with the following language:
 
Interest on the Notes shall accrue and be payable quarterly in arrears on the
last Business Day of each of March, June, September and December (each such
date, an “Interest Payment Date”).  Commencing on Closing under APA and for the
six (6) month period thereafter (the “PIK Interest Period”), the interest
accrued and payable on the unpaid principal amount of the Notes shall be
capitalized, compounded and added to the unpaid principal amount of the Notes on
the applicable Interest Payment Date (whereupon from and after such date such
additional amounts shall constitute principal for all purposes and shall accrue
interest) (such interest, “PIK Interest”).  Following the PIK Interest Period,
all accrued interest on the Notes shall be payable in cash (“Cash Interest”).
 
Any accrued and unpaid interest as of the Closing under the APA shall be added
to the principal amounts of the Notes and shall constitute principal for all
purposes thereafter
 
(b)           Annex I of the Agreement is hereby amended by adding the following
sentence to the end of the first paragraph of the definition “Applicable Rate”:
 
With respect to the Senior Notes, from and after Closing under APA, 2011, the
Applicable Rate shall be a rate equal to 12.5%.
 
2.           Effectiveness.  This Amendment only becomes effective in connection
with the Closing (as defined in the Asset Purchase Agreement).
 
 
 

--------------------------------------------------------------------------------

 
 
3.           Effect of this Amendment.
 
(a)           This Amendment is a Note Document.  The headings herein are for
convenience of reference only and shall not alter or otherwise affect the
meaning hereof.
 
(b)           This Amendment constitutes the entire agreement of the parties
with respect to the subject matter hereof, and supersedes all prior oral or
written communications, memoranda, proposals, negotiations, discussions, term
sheets and commitments with respect to the subject matter hereof.
 
(c)           Except as expressly provided herein, no other changes or
modifications to the Agreement or any of the other Note Documents, or waivers of
or consents under any provisions of any of the foregoing, are intended or
implied by this Amendment, and in all other respects the Note Documents are
hereby specifically ratified, restated and confirmed by all parties hereto as of
the date of this Amendment.  To the extent that any provision of the Agreement
or any of the other Note Documents conflicts with any provision of this
Amendment, the provision of this Amendment shall control.
 
(d)           On and after the effectiveness of this Amendment, each reference
in the Agreement to “this Agreement”, “hereunder”, “hereof” or words of like
import, and each reference in the other Note Documents to the Agreement shall
mean and be a reference to the Agreement as modified hereby.
 
(e)           The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of any Note Purchaser
under the Agreement or any other Note Document (including, without limitation,
the imposition of additional interest upon the occurrence and continuation of an
Event of Default provided therein), nor obligate any Note Purchaser to agree to
similar waivers, consents or releases in the future.
 
4.           Binding Effect.  This Amendment shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
assigns.
 
5.           Further Assurances.  The Note Parties shall execute and deliver
such additional documents and take such additional action as may be reasonably
requested by the Administrative Agent to effectuate the provisions and purposes
of this Amendment.
 
6.           Counterparts; Facsimile Delivery.  This Amendment may be executed
in counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.  Delivery of an executed counterpart of this Amendment by
facsimile transmission or electronic pdf shall be effective as delivery of a
manually executed counterpart hereof.
 
7.           Governing Law.  This Amendment shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of New York.
 
[This remainder of this page left intentionally blank.]

 
 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by the respective duly authorized officers of the undersigned and by the
undersigned as of the date first written above.
  
THE ISSUER:
ENCOMPASS PARTS DISTRIBUTION, INC.
 
a Delaware corporation
       
By:
   
   
Name:
   
Title:

 
 
 

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GUARANTORS:
ENCOMPASS GROUP AFFILIATES, INC.
 
a Florida corporation
       
By:
 
   
Name:
   
Title:
       
SPECTRUCELL, INC.
       
By:
   
   
Name:
   
Title:
       
HUDSON STREET INVESTMENTS, INC.
       
By:
   
   
Name:
   
Title:
       
CYBER-TEST, INC.
       
By:
 
   
Name:
   
Title:
       
VANCE BALDWIN, INC.
       
By:
 
   
Name:
   
Title:

 
 
 

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TRITRONICS, INC.
       
By:
   
   
Name:
   
Title:
       
ENCOMPASS SERVICE SOLUTIONS, INC.
       
By:
   
   
Name:
   
Title:
       
ENCOMPASS PARTS DISTRIBUTION, S.DE R.L. DE C.V.
       
By:
   
 
 
Name:   
 
Title:         
ENCOMPASS DISTRIBUTION CANADA, INC.
       
By:
   
   
Name:
   
Title:

 
 
 

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NOTE PURCHASERS:
SANKATY CREDIT OPPORTUNITIES II, L.P.
       
By:
   
   
Name:
   
Title:
        SANKATY CREDIT OPPORTUNITIES III, L.P.        
By:
   
   
Name:
   
Title:
       
SANKATY CREDIT OPPORTUNITIES IV, L.P.
       
By:
 
   
Name:
   
Title:
       
SANKATY CREDIT OPPORTUNITIES
 
(OFFSHORE MASTER) IV, L.P.
       
By:
 
   
Name:
   
Title:
       
RGIP, LLC
       
By:
 
   
Name:
   
Title:

 
 
 

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FIRST LIEN COLLATERAL AGENT:
SANKATY ADVISORS, LLC
       
By:
   
   
Name:
   
Title:
     
SECOND LIEN COLLATERAL AGENT:
SANKATY ADVISORS, LLC
       
By:
 
   
Name:
   
Title:

 
 
 

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EXHIBIT B

Bill of Sale and Assumption Agreement

 
 

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BILL OF SALE AND ASSUMPTION AGREEMENT

THIS BILL OF SALE AND ASSUMPTION AGREEMENT (this “Agreement”) is made, executed
and delivered as of [   ], 2011, by Encompass Group Affiliates, Inc., a Florida
corporation (“Encompass”), Encompass Parts Distribution, Inc. (f/k/a Encompass
Group Affiliates, Inc.), a Delaware corporation (“Encompass Parts”), Cyber-Test,
Inc., a Delaware corporation (“Cyber-Test”), Vance Baldwin, Inc., a Florida
corporation (“Vance Baldwin”), Tritronics, Inc., a Maryland corporation
(“Tritronics”), and Encompass Service Solutions, Inc., a Delaware Corporation
(“Encompass Service Solutions” and, together with Encompass, Encompass Parts,
Cyber-Test, Vance Baldwin, Tritronics, and Encompass Service Solutions, each a
“Seller” and, collectively, the “Sellers”) to Encompass Supply Chain Solutions,
Inc., a Delaware corporation (the “Buyer”).

 
WITNESSETH:
 
WHEREAS, the Buyer and the Sellers are parties to that certain Asset Purchase
Agreement dated as of May 13, 2011, (the “Asset Purchase Agreement”; capitalized
terms which are used but not defined herein shall have the meanings ascribed to
such terms in the Asset Purchase Agreement); and
 
WHEREAS, all of the terms and conditions precedent provided in the Asset
Purchase Agreement have been met and performed by the respective parties
thereto, and the Buyer and the Sellers now desire to carry out the intent and
purpose of the Asset Purchase Agreement by the Sellers’ execution and delivery
to the Buyer of this instrument evidencing the sale, conveyance, assignment,
transfer and delivery to the Buyer of the Acquired Assets and the assumption by
the Buyer of the Assumed Liabilities; provided, however, that any asset,
liability or obligation not assumed pursuant to the Asset Purchase Agreement
shall be excluded herefrom.
 
NOW THEREFORE, in connection with the Asset Purchase Agreement and in
consideration of the foregoing premises and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
 
Section 1.  Effective as of the Closing Date, the Sellers do hereby sell,
transfer, convey, assign and deliver to the Buyer, subject to and upon the terms
and conditions contained in the Asset Purchase Agreement, free and clear of any
and all Encumbrances (other than Encumbrances in favor of Sankaty and the
Permitted Encumbrances), all of the Sellers’ rights, titles and interests in and
to the Acquired Assets, and the Buyer hereby purchases from the Sellers the
Acquired Assets and assumes from the Sellers and agrees to perform and
discharge, effective as of the Closing Date, all of the Assumed Liabilities.
 
Section 2.  The Sellers hereby constitute and appoint the Buyer the true and
lawful agent and attorney in fact of the Sellers, with full power of
substitution and resubstitution, in whole or in part, in the name and stead of
the Sellers but on behalf and for the benefit of the Buyer and its successors
and assigns, from time to time to: (a) demand, receive and collect any and all
of the Acquired Assets and to give receipts and releases for and with respect to
the same, or any part thereof; (b) institute and prosecute, in the name of any
Seller or otherwise, any and all proceedings at law, in equity or otherwise,
that the Buyer or its successors and assigns may deem proper in order to collect
or reduce to possession any of the Acquired Assets and in order to collect or
enforce any claim or right of any kind hereby assigned or transferred, or
intended so to be; and (c) do all things legally permissible, required or
reasonably deemed by the Buyer to be required to recover and collect the
Acquired Assets and to use any Seller’s name in such manner as the Buyer may
reasonably deem necessary for the collection and recovery of same.  The Sellers
hereby declare that the foregoing powers are coupled with an interest and are
and shall be irrevocable by the Sellers.
 
 
 

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Section 3.  Nothing in this Agreement, express or implied, is intended or shall
be construed to confer upon, or give to, any person, firm or corporation other
than the Buyer and its successors and assigns any remedy or claim under or by
reason of this instrument or any terms, covenants or conditions hereof, and all
of the terms, covenants, conditions, promises and agreements contained in this
instrument shall be for the sole and exclusive benefit of the Buyer and its
successors and assigns.
 
Section 4.  This Agreement is executed by, and shall be binding upon, each
Seller and the Buyer and their respective successors and assigns, for the uses
and purposes set forth and referred to above, effective immediately upon the
Closing Date.  This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
 
Section 5.  In the event that any provision of this Agreement is construed to
conflict with any provision in the Asset Purchase Agreement, the provision in
the Asset Purchase Agreement shall control.
 
Section 6.  Each of the Sellers and the Buyer hereby acknowledges and agrees
that none of the representations, warranties, covenants, rights or remedies of
any party under the Asset Purchase Agreement shall be deemed to be enlarged,
modified or altered in any way by the execution and acceptance of this
instrument.
 
Section 7.  This Agreement, the rights of the parties and all Actions arising in
whole or in part under or in connection herewith, will be governed by and
construed in accordance with the domestic substantive laws of the State of New
York, without giving effect to any choice or conflict of law provision or rule
that would cause the application of the laws of any other jurisdiction.
 
[Remainder of page intentionally left blank.]

 
 

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IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
signed by its duly authorized officer as of the date first written above.

ENCOMPASS GROUP AFFILIATES, INC.
 
By:
   
Name:
 
Title:
   
ENCOMPASS PARTS DISTRIBUTION, INC.
 
By:
   
Name:
 
Title:
   
CYBER-TEST, INC.
 
By:
   
Name:
 
Title:
   
VANCE BALDWIN, INC.
 
By:
   
Name:
 
Title:

 
 
 

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TRITRONICS, INC.
 
By:
   
Name:
 
Title:
   
ENCOMPASS SERVICE SOLUTIONS, INC.
 
By:
   
Name:
 
Title:
   
ENCOMPASS DISTRIBUTION CANADA,
INC.
   
By:
   
Name:
 
Title:
   
ENCOMPASS PARTS DISTRIBUTION S. de
R.L. de C.V.
 
By:
   
Name:
 
Title:

 
 
 

--------------------------------------------------------------------------------

 
 
ACCEPTED:
 
ENCOMPASS SUPPLY CHAIN SOLUTIONS, INC.
   
By: 
 
Name:
Title:

 
 
 

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EXHIBIT C

Escrow Agreement
 
 
 

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ESCROW AGREEMENT

This ESCROW AGREEMENT (the “Escrow Agreement”) is dated as of [  ], 2011 and is
being entered into by and among Encompass Supply Chain Solutions, Inc. (the
“Buyer”), Encompass Group Affiliates, Inc., Encompass Parts Distribution, Inc.,
Cyber-Test, Inc., Vance Baldwin, Inc., Tritronics, Inc., and Encompass Service
Solutions, Inc. (together, the “Sellers”), and [the escrow agent], as escrow
agent (the “Escrow Agent”).  Capitalized terms used and not otherwise defined in
this Escrow Agreement are used herein as defined in the Purchase Agreement (as
defined below).

RECITALS
 
WHEREAS, pursuant to an Asset Purchase Agreement dated as of May 13, 2011 (the
“Purchase Agreement”) among the Buyer, the Sellers and the other parties
thereto, the Buyer will acquire substantially all of the assets and contractual
rights (and assume certain of the liabilities) of the business of the Sellers;
 
WHEREAS, the parties to the Purchase Agreement have agreed that a portion of
the purchase price will be delivered to the Escrow Agent, to such account as the
Escrow Agent specifies, for purposes of satisfying any obligation of the Sellers
under Section 8 of the Purchase Agreement; and
 
WHEREAS, the Buyer and the Sellers desire to appoint the Escrow Agent to act as
escrow agent hereunder in the manner hereinafter set forth, and the Escrow Agent
is willing to act in such capacity.
 
AGREEMENT
 
NOW THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Buyer, the Sellers
and the Escrow Agent hereby agree as follows:
 
1.         Appointment of the Escrow Agent.  The Buyer and the Sellers jointly
appoint the Escrow Agent to receive, hold, administer and deliver the Escrow
Funds (as defined below) in accordance with this Escrow Agreement and the Escrow
Agent accepts such appointment, all subject to the terms and conditions set
forth in this Escrow Agreement.
 
 
 

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2.         Establishment of Escrow Account.  The Buyer herewith delivers to the
Escrow Agent cash in the amount of three hundred fifty thousand Dollars
($350,000) for purposes of satisfying any obligation under Section 8 of the
Purchase Agreement from the Escrow Fund (as defined below) (the “Escrow
Amount”).  The Escrow Amount, delivered to the Escrow Agent, together with any
and all interest or profit thereon, or proceeds therefrom, from time to time
held by the Escrow Agent pursuant to the terms hereof are herein referred to as
the “Escrow Funds.”  The Escrow Agent hereby agrees to hold and invest the
Escrow Funds in a separate account (the “Escrow Account”) as provided in this
Escrow Agreement.  The Buyer shall have the rights of a secured party in the
Escrow Funds and the Escrow Account, and none of the Escrow Funds and the Escrow
Account shall be subject to any security interest, lien or attachment of any
party or of any creditor of any party other than the Buyer or a successor or
permitted assign of the Buyer.
 
3.         Investment of the Escrow Funds.  The Escrow Agent shall invest the
Escrow Funds in any combination of the following investments at the written
direction of the Buyer and the Sellers:
 
(a)           marketable obligations of, or fully and directly guaranteed by,
the United States, which obligations have a maturity of not more than 90 days;
 
(b)           repurchase obligations with a term of not more than ten days for
underlying securities of the types described in Section 3(a) entered into with
any bank organized under the laws of the United States or any state thereof, the
commercial paper of which bank is rated A-2 or better by Standard & Poor’s
Ratings Group or Prime-2 or better by Moody’s Investors Service, Inc.;

(c)           money market funds (including tax-free funds) registered under the
Investment Company Act of 1940, as amended from time to time (the “1940 Act”),
the portfolios of which are limited to Government Securities (as defined in the
1940 Act);

(d)           investment grade bonds (including tax-free bonds) with maturity
dates prior to the Final Disbursement Date (as defined below); or

(e)           such other investments as the Buyer and the Sellers may jointly
authorize the Escrow Agent to make from time to time.

4.         Disposition of the Escrow Funds.

(a)           Disbursements.

(i)          The Escrow Agent will hold the Escrow Funds in its possession in
the Escrow Account, until authorized hereunder to deliver amounts from such
Escrow Funds as follows:

(A)         the Escrow Agent shall pay to the Sellers an amount equal to
one-half of the Escrow Funds on the date that is the one-year anniversary of the
Closing Date (the “One Year Disbursement Date”), less any amounts subject to a
Claim or a Disputed Claim (both as defined below) on or prior to the One Year
Disbursement Date; and

 
 

--------------------------------------------------------------------------------

 
 
(B)         the Escrow Agent shall pay to the Sellers the remainder of the
Escrow Funds on the date that is the two-year anniversary of the Closing Date
(the “Final Disbursement Date”), less any amounts subject to a Claim or a
Disputed Claim (as defined below) on or prior to the Final Disbursement Date.

(ii)          Except as set forth in clause (c) of this Section 4 below, such
amounts subject to, and withheld for a Claim or Disputed Claim on the One Year
Disbursement Date or the Final Disbursement Date shall be paid to the Sellers
following full and complete resolution of such Claim or Disputed Claim.

(b)           Claims and Demands for Payment.
 
(i)          In the event that the Buyer or any other Buyer Indemnified Person
has suffered or may suffer a Loss for which it believes it is entitled to or may
be entitled to payment from the Escrow Funds pursuant to Section 8 of the
Purchase Agreement (a “Claim”), the Buyer shall send a written demand (a “Demand
for Payment”) to the Escrow Agent and to the Sellers setting forth in reasonable
detail the basis of such Demand for Payment and the amount sought to be paid
from the Escrow Funds or an estimate of the amount that the Buyer or other Buyer
Indemnified Party believes it is or may be entitled to be paid from the Escrow
Funds.  Unless the Escrow Agent and the Buyer receive a timely Notice of
Contention as described below, the Escrow Agent shall pay the party or parties
specified in such Demand for Payment (whether or not Buyer) the amount set forth
in the Demand for Payment within thirty (30) days after delivery of such Demand
for Payment to the Escrow Agent from the Escrow Funds.
 
(ii)          Upon receipt of a Demand for Payment, the Sellers, if it elects to
dispute the Claim, shall deliver, within thirty (30) days after delivery by the
Buyer of a Demand for Payment to the Escrow Agent, a written notice (a “Notice
of Contention”) to the Escrow Agent and to the Buyer of its intent to dispute
the Claim, in which case such Claim shall be a “Disputed Claim.”
 
(iii)          If any Disputed Claim or any other dispute which may arise under
this Escrow Agreement with respect to the rights of the Buyer or any other Buyer
Indemnified Person or the Sellers to the Escrow Fund is not settled by mutual
agreement of the Buyer and the Sellers (evidenced by joint written instructions
signed by the Buyer and the Sellers and delivered to the Escrow Agent), then
upon receipt of a copy of a final and nonappealable order of a court of
competent jurisdiction with respect to payment of all or any portion of the
Escrow Funds, accompanied by a certificate from the presenting party to the
effect that the order is final and nonappealable, the Escrow Agent shall deliver
the portion of the Escrow Funds specified in such award or order to the  Buyer
(or other Buyer Indemnified Person) or the Sellers as directed in such award or
order.
 
 
 

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(c)           Sellers’ Disbursement Request.   At any time while any portion of
the Escrow Funds remain on deposit with the Escrow Agent hereunder, the Sellers
may provide written notice to the Buyer of any Designated Liability (such notice
to be substantially in the form attached as Exhibit A hereto, a “Seller
Liability Notice”).  Within five (5) days of delivery of the Seller Liability
Notice to the Buyer, the Buyer shall make a reasonable good faith determination
as to whether such liabilities constitute Designated Liabilities.  In the event
that the Buyer reasonably and in good faith determines such liabilities
constitute Designated Liabilities, the Buyer shall execute and deliver such
Seller Liability Notice as a joint written instruction to the Escrow Agent to
release to the Sellers the amount of such Designated Liability or, if less, the
remaining amount of the Escrow Funds (after taking into account any Demand for
Payment amounts for any Claims or Pending Claims made by a Buyer Indemnified
Person that, in each case, are outstanding on the date on which the Seller
Liability Notice is delivered).  Such joint instruction shall be executed and
delivered to the Sellers (for submission to the Escrow Agent) not later than ten
(10) days after delivery of the Seller Liability Notice to Buyer.  In the event
that Buyer reasonably and in good faith determines such liabilities do not
constitute Designated Liabilities, the Buyer shall provide written notice of
such determination to the Sellers (including a reasonably detailed description
thereof) not later than six (6) days after delivery of the Seller Liability
Notice to Buyer the Buyer shall have no further obligation to pay such amounts
from the Escrow Funds.
 
For purposes hereof, the term “Designated Liability” means any expense or
liability (other than an Assumed Liability) of one or more of the Sellers which,
when taken together with all of the Sellers’ other expenses and liabilities
satisfied or to be satisfied in connection with the wind down of the Sellers’
operations and businesses, the Sellers would reasonably be expected to have
insufficient cash assets to satisfy.
 
5.         Tax Treatment and Distributions.
 
The Escrow Agent does not have any interest in the Escrow Funds deposited
hereunder but is serving as escrow holder only and having only possession
thereof.  The Sellers, on the one hand, and the Buyer, on the other hand, shall
each pay or reimburse the Escrow Agent upon request for 50% of any transfer
taxes or other taxes, if any, relating to the Escrow Funds incurred in
connection herewith and shall indemnify and hold harmless the Escrow Agent for
50% of any amounts that it is obligated to pay in the way of such taxes.  The
Buyer and the Sellers shall timely provide the Escrow Agent with valid IRS Forms
W-9 or applicable IRS Forms W-8, as appropriate.  For purposes of U.S. federal
and other taxes based on income, any and all income with respect to the Escrow
Funds (“Escrow Income”) shall be considered owned by the Buyer until distributed
pursuant to the terms hereof, and shall be reported as such for all tax
reporting purposes.  Not later than thirty (30) calendar days after the end of
each calendar quarter, the Escrow Agent shall distribute to the Buyer, in
accordance with wire instructions provided to the Escrow Agent in writing by the
Buyer, an amount equal to 40% of the Escrow Income earned during such quarter,
as determined for tax purposes.  At the end of each calendar year, the Escrow
Agent shall duly and timely prepare and file the appropriate IRS Forms 1099 and
shall promptly deliver copies of such forms to Buyer.  Unless as otherwise
required by applicable law, no party shall take any position in connection with
the preparation, filing or audit of any Tax Returns that is inconsistent with
the foregoing.
 
 
 

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6.         Certain Additional Agreements.
 
(a)           The Buyer and the Sellers will execute and deliver to the Escrow
Agent such additional instructions and certificates hereunder as may be required
to give effect to the provisions of this Escrow Agreement.
 
(b)           Whenever the Escrow Agent shall be required to make a payment from
the Escrow Account, the Escrow Agent shall pay such amounts by liquidating such
investments in its discretion unless otherwise directed in joint written
instructions signed by the Sellers and the Buyer.
 
7.         Escrow Agent.
 
(a)           The Escrow Agent shall have only the duties and responsibilities
specified in this Escrow Agreement, and shall not have any duty to review or
interpret the Purchase Agreement.
 
(b)           If the Escrow Agent shall be uncertain as to its duties or rights
hereunder or shall receive instructions from any of the undersigned with respect
to the Escrow Accounts, which, in its opinion, are in conflict with any of the
provisions of this Escrow Agreement, it shall be entitled to refrain from taking
any action until it shall be directed otherwise in joint written instructions
signed by the Buyer and the Sellers or by a final nonappealable order of a court
of competent jurisdiction.  The Escrow Agent shall be protected in acting upon
any notice, request, waiver, consent, receipt or other document reasonably
believed by the Escrow Agent to be signed by the proper party or parties.
 
(c)           The Escrow Agent shall not be liable for any error or judgment or
for any act done or step taken or omitted by it in good faith or for any mistake
of fact or law, or for anything that it may do or refrain from doing in
connection herewith, except its own bad faith, gross negligence or willful
misconduct, and the Escrow Agent shall have no duties to anyone except those
parties signing this Escrow Agreement.  In no event shall the Escrow Agent be
liable for special, indirect, punitive or consequential loss or damage of any
kind whatsoever (including lost profits) for (i) the acts or omissions of its
nominees, correspondents, designees, subagents or subcustodians selected by the
Escrow Agent in its reasonable judgment and in good faith with the prior consent
of the Buyer and the Sellers or (ii) an amount in excess of the value of the
amount deposited in the Escrow Funds, valued as of the date of deposit.
 
 
 

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(d)         The Escrow Agent may consult legal counsel in the event of any
dispute or question as to the construction of this Escrow Agreement, or the
Escrow Agent’s duties hereunder, and the Escrow Agent shall incur no liability
and shall be fully protected with respect to any action taken or omitted in good
faith in accordance with the opinion and instructions of such counsel.
 
      (e)           In the event of any disagreement between the undersigned or
any of them, and/or any other person, resulting in adverse claims and demands
being made in connection with or for all or any portion of the Escrow Funds, the
Escrow Agent shall be entitled at its option to refuse to comply with any such
claim or demand, so long as such disagreement shall continue, and in so doing
the Escrow Agent shall not be or become liable for damages or interest to the
undersigned or any of them or to any person named herein for its failure or
refusal to comply with such conflicting or adverse demands.  The Escrow Agent
shall be entitled to continue to so refrain and refuse to so act until all
differences with respect thereto shall have been resolved by agreement of the
Buyer and the Sellers and the Escrow Agent shall have been notified thereof in
joint written instructions signed by the Buyer and the Sellers.  In the event of
such disagreement which continues for ninety (90) days or more, the Escrow Agent
in its discretion may file a suit in interpleader for the purpose of having the
respective rights of the claimants adjudicated, if the Escrow Agent determines
such action to be appropriate under the circumstances, and may deposit with the
court all documents and property held hereunder.  The Buyer and the Sellers
agree to pay all reasonable out-of-pocket costs and expenses incurred by the
Escrow Agent in such action, including reasonable attorney’s fees, it being
understood that the parties will use reasonable efforts to cause such costs and
expenses to be included and apportioned between the Buyer and the Sellers in the
judgment in any such action (and absent such apportionment, the Buyer and the
Sellers shall bear equal shares of such costs and expenses).
 
(f)           The Buyer and the Sellers shall jointly and severally indemnify,
defend and save harmless the Escrow Agent from all loss, liability or expense
arising out of or in connection with (i) the Escrow Agent's execution and
performance of this Escrow Agreement, except to the extent that such loss,
liability or expense is due to the bad faith, gross negligence or willful
misconduct of the Escrow Agent, (ii) the Escrow Agent’s reliance upon and
compliance with instructions or directions given by electronic transmission,
except to the extent that such loss, liability or expense is due to the gross
negligence or willful misconduct of the Escrow Agent, it being understood that
the failure of the Escrow Agent to verify or confirm that the person giving the
instructions or directions, is, in fact, an authorized person does not
constitute gross negligence or willful misconduct or (iii) its following any
instructions or other directions from the Buyer or the Sellers, except to the
extent that its following any such instruction or direction is expressly
forbidden by the terms hereof. Such indemnification shall survive termination of
this Escrow Agreement until extinguished by any applicable statute of
limitations.

 
 

--------------------------------------------------------------------------------

 
 
(g)         The Escrow Agent does not own or have any interest in the Escrow
Accounts or the Escrow Funds but is serving as escrow holder only, having only
possession thereof and agreeing to hold and distribute the Escrow Funds in
accordance with the terms and conditions of this Escrow Agreement.  This
paragraph shall survive notwithstanding any termination of this Escrow Agreement
or the resignation of the Escrow Agent.
 
      (h)           The Escrow Agent (and any successor escrow agent) may at any
time resign as such by delivering the Escrow Funds to (i) any banking
corporation or trust company organized under the laws of the United States or of
any state, which corporation or company is jointly designated by the other
parties hereto in writing as successor escrow agent and consents in writing to
act as successor escrow agent or (ii) any court of competent jurisdiction;
whereupon the Escrow Agent shall be discharged of and from any and all further
obligations arising in connection with this Escrow Agreement.  The resignation
of the Escrow Agent will take effect on the earlier of (x) the appointment of a
successor escrow agent by designation by the other parties to this Escrow
Agreement and delivery of the Escrow Funds to such successor escrow agent (or
delivery of the Escrow Funds to any court of competent jurisdiction) or (y) the
day that is sixty (60) days after the date of delivery of its written notice of
resignation to the other parties hereto.  If at the time of effectiveness of
resignation the Escrow Agent has not received a designation of a successor
escrow agent, the Escrow Agent’s sole responsibility after that time shall be to
safekeep the Escrow Funds until the earlier of receipt of a designation of
successor escrow agent, a joint written instruction as to disposition of the
Escrow Funds by the other parties hereto, or a final order of a court of
competent jurisdiction mandating disposition of the Escrow Funds.
 
      (i)           The Escrow Agent hereby accepts its appointment and agrees
to act as escrow agent under the terms and conditions of this Escrow Agreement
and acknowledges receipt of the Escrow Funds.  The Buyer and the Sellers shall
pay to the Escrow Agent as payment in full for its services hereunder the Escrow
Agent’s compensation set forth in Schedule I  hereto.  The Buyer and the Sellers
further agree to reimburse the Escrow Agent for all reasonable out-of-pocket
expenses, disbursements and advances incurred or made by the Escrow Agent in the
performance of its duties hereunder (including reasonable fees and out-of-pocket
expenses and disbursements of its counsel). The amounts required to be paid
under this Section 7(i) shall be paid from the Escrow Funds.
 
      (j)           The Escrow Agent shall not incur any liability for not
performing any act or fulfilling any duty, obligation or responsibility
hereunder by reason of any occurrence beyond the control of the Escrow Agent
(including but not limited to any act or provision of any present or future law
or regulation or governmental authority, any act of God or war, or the
unavailability of the Federal Reserve Bank wire or telex or other wire or
communication facility).
 
 
 

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8.         Notices.  All certificates, instructions, notices, requests, demands,
claims and other communications required or permitted to be delivered, given or
otherwise provided under this Escrow Agreement must be in writing and must be
delivered, given or otherwise provided:
 
(a)           by hand (in which case, it will be effective upon delivery);
 
(b)           by facsimile (in which case, it will be effective on the first
business day after receipt of confirmation of good transmission);
 
(c)           by overnight delivery by a nationally recognized courier service
(in which case, it will be effective on the first business day after being
deposited with such courier service); or
 
(d)           by electronic transmission receipt confirmed (e.g., via “PDF” via
email);
 
in each case, to the address (or facsimile number) listed below:
 
If to the Escrow Agent, to it at:
[             ]

If to the Sellers, to it at:

Encompass Group Affiliates, Inc.
775 Tipton Industrial Drive
Lawrenceville, GA 30046
Attention: Robert Gowens
Email: rgowens@phoenixmanagement.com

with a copy (which shall not itself constitute notice) to:
Eckert Seamans Cherin & Mellott, LLC
Two Liberty Place
50 South 16th Street, 22nd Floor
Philadelphia, PA 19102
Attention: Gary A. Miller
Facsimile: 215-851-8383

and

c/o HIG Capital
855 Boylston Street, 11th Floor
Boston, MA 02116
Attention: William J. Nolan
Facsimile: 617-425-5668

and

 
 

--------------------------------------------------------------------------------

 
 
Bingham McCutchen LLP
399 Park Avenue
New York, NY  10022
Attention: Neil Townsend, Esq.
Fascimile: 212-702-3644

If to the Buyer, to it at:

Encompass Supply Chain Solutions, Inc.
c/o Sankaty Advisors, LLC
111 Huntington Avenue
Boston, MA 02199
Attention:  Legal Department
Facsimile:  617-652-3661

with a copy (which shall not itself constitute notice) to:

Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199
Attention:  Alyson Allen, Esq.
Facsimile:  617-235-0345

and

Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199
Attention:  David A. Fine, Esq.
Facsimile:  617-235-0030

(or to such other addresses and facsimile numbers as a party may designate as to
itself by notice to the other parties given pursuant to this Section 8). 
Notwithstanding any of the foregoing, any computation of a time period which is
to begin after receipt of a notice by the Escrow Agent shall run from the date
of receipt by it.
 
9.         Termination.  This Escrow Agreement shall automatically terminate
upon the final distribution of the Escrow Fund in accordance with the terms
hereof; provided, however, that the provisions of Sections 5, 7(f) and 7(g)
shall survive such termination of this Escrow Agreement and/or the resignation
or removal of the Escrow Agent.
 
 
 

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10.         Successors and Assigns.  This Escrow Agreement shall be binding upon
and inure to the benefit of the respective successors and permitted assigns of
the parties hereto, provided that this Escrow Agreement may not be assigned by
any party without the prior written consent of the other parties, which consent
shall not be unreasonably withheld.  Notwithstanding the foregoing, the Buyer
may, without the necessity of obtaining any such consent, (a) make a collateral
assignment of this Escrow Agreement to its lenders which, under certain
circumstances, would permit such lenders to enforce this Escrow Agreement on
behalf of the Buyer and (b) assign this Escrow Agreement to any entity which
acquires substantially all of the assets of the Buyer and agrees to be bound
hereto as successor to the Buyer.
 
11.         Severability.  Any term or provision of this Escrow Agreement that
is invalid or unenforceable in any situation in any jurisdiction will not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.  In the event that any provision hereof
would, under applicable law, be invalid or unenforceable in any respect, each
party hereto intends that such provision will be construed by modifying or
limiting it so as to be valid and enforceable to the maximum extent compatible
with, and possible under, applicable law.
 
12.         Entire Agreement.  This Escrow Agreement, together with any
documents, instruments and certificates explicitly referred to herein, including
the Purchase Agreement, constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes any and all
prior discussions, negotiations, proposals, undertakings, understandings and
agreements, whether written or oral, with respect thereto.
 
13.         Amendments.  This Escrow Agreement may not be amended or modified at
any time except in such manner as may be agreed upon by a written instrument
executed by each of the Buyer, the Sellers and the Escrow Agent.
 
14.         Waiver.  No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party.  The failure of any party to
require the performance of any term or obligation of this Escrow Agreement, or
the waiver by any party of any breach of this Escrow Agreement, shall not
prevent any subsequent enforcement of such term or obligation or be deemed a
waiver of any subsequent breach.
 
15.         Headings.  The headings contained in this Escrow Agreement are for
convenience purposes only and will not in any way affect the meaning or
interpretation hereof.
 
16.         Governing Law.  This Escrow Agreement, the rights of the parties and
all actions arising in whole or in part under or in connection herewith, will be
governed by and construed in accordance with the domestic substantive laws of
the State of New York, without giving effect to any choice or conflict of law
provision or rule that would cause the application of the laws of any other
jurisdiction.
 
 
 

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17.         Consent to Jurisdiction; Venue.  Each of the parties hereby (a)
irrevocably submits to the exclusive jurisdiction of the state courts of the
State of New York or the United States District Court located in the Southern
District of the State of New York for the purpose of any claim or action between
the parties arising in whole or in part under or in connection with this Escrow
Agreement, (b) waives to the extent not prohibited by applicable law, and agrees
not to assert, by way of motion, as a defense or otherwise, in any such action,
any claim that it is not subject personally to the jurisdiction of the
above-named courts, that its property is exempt or immune from attachment or
execution, that any such action brought in one of the above-named courts should
be dismissed on grounds of forum non conveniens, should be transferred or
removed to any court other than one of the above-named courts, or should be
stayed by reason of the pendency of some other proceeding in any court other
than one of the above-named courts, or that this Escrow Agreement or the subject
matter hereof may not be enforced in or by such court and (c) agrees not to
commence any such action other than before one of the above-named courts. 
Notwithstanding the previous sentence, a party may commence any action in a
court other than the above-named courts solely for the purpose of enforcing an
order or judgment issued by one of the above-named courts.  Each party agrees
that for any claim or action between the parties arising in whole or in part
under or in connection with this Escrow Agreement, such party will bring actions
only in the Borough of Manhattan.  Each party further waives any claim and will
not assert that venue should properly lie in any other location within the
selected jurisdiction.  Each party hereby (x) consents to service of process in
any action between the parties arising in whole or in part under or in
connection with this Escrow Agreement, (y) waives personal service of process
and agrees that service of process made in accordance with clause (x) or made by
registered or certified mail, return receipt requested, at its address specified
pursuant to Section 8 and such service shall be deemed completed ten (10)
calendar days after the same is so mailed, will constitute good and valid
service of process in any such action and (z) waives and agrees not to assert
(by way of motion, as a defense, or otherwise) in any such action any claim that
service of process made in accordance with clause (x) or (y) does not constitute
good and valid service of process.
 
18.         Waiver of Jury Trial.  TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL
NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS
ESCROW AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.  THE
PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT
AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED FOR AGREEMENT AMONG
THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY PROCEEDING
WHATSOEVER BETWEEN THEM RELATING TO THIS ESCROW AGREEMENT OR ANY OF THE
CONTEMPLATED TRANSACTIONS AND THAT ANY SUCH PROCEEDING WILL INSTEAD BE TRIED IN
A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
 
 
 

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19.         Counterparts.  This Escrow Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute but one and the same instrument.  This Escrow Agreement
will become effective when duly executed by each party hereto.
 
[The remainder of this page is intentionally left blank.  Signatures follow.]
 
 
 

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           IN WITNESS WHEREOF, the undersigned have executed this Escrow
Agreement as of the date first written above.
 
Escrow Agent:
[ESCROW AGENT]
     
By: 
  
 
Name:
 
Title:

 
 

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Buyer:
ENCOMPASS SUPPLY CHAIN
 
SOLUTIONS, INC.
     
By: 
  
 
Name:
 
Title:

 
 

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Sellers:
ENCOMPASS GROUP AFFILIATES, INC.
       
By: 
  
   
Name:
   
Title:
       
ENCOMPASS PARTS DISTRIBUTION, INC.
       
By:
  
   
Name:
   
Title:
       
CYBER-TEST, INC.
       
By:
  
   
Name:
   
Title:
       
VANCE BALDWIN, INC.
       
By:
  
   
Name:
   
Title:
       
TRITRONICS, INC.
       
By:
  
   
Name:
   
Title:
     

 
 
 

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ENCOMPASS SERVICE SOLUTIONS, INC.
       
By: 
     
Name:
   
Title:

 
 
 

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Schedule I

Compensation of the Escrow Agent

See attached.

 
 

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Exhibit A

Seller Liability Notice

[Date]

To Whom it May Concern:

Pursuant to Section 4(c) of the Escrow Agreement dated as of [   ], 2011 as now
in effect (the “Escrow Agreement”), by and among Encompass Supply Chain
Solutions, Inc. (“Buyer”), Encompass Group Affiliates, Inc., Encompass Parts
Distribution, Inc., Cyber-Test, Inc., Vance Baldwin, Inc., Tritronics, Inc., and
Encompass Service Solutions, Inc. (together, the “Sellers”), and [the escrow
agent], as escrow agent (the “Escrow Agent”), the Sellers request that a payment
in the amount of [        ] be made on [          ], from the Escrow Funds (as
defined in the Escrow Agreement) (the “Seller Liability Notice”).

The purpose(s) of this Seller Liability Notice is to notify the Buyer of the
following Designated Liabilities:

[1. Describe Designated Liabilities;] and

[2. Detail amount of Designated Liabilities, including the extent to which
remaining cash assets are insufficient.]

In connection with this Seller Liability Notice, the Sellers agree that no
distributions or payments made to any affiliates of any Seller have been made
since [DATE].

The Sellers and the Buyer hereby instruct the Escrow Agent to remit the amounts
requested under this Seller Liability Notice by wire transfer as follows:

[Insert Wire Instructions]

 
Sincerely,
     
 
 
Name:
 
As representative for the Sellers

Acknowledged and Agreed:
     
 
 
Encompass Supply Chain Solutions, Inc.

 
 
 

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EXHIBIT D
 
Non-Competition Agreement

 
 

--------------------------------------------------------------------------------

 
 
Non-Competition Agreement

This Non-Competition Agreement (this “Agreement”) is dated as of [   ], 2011, by
and among Encompass Supply Chain Solutions, Inc., a Delaware corporation
(“Newco”) and H.I.G. Capital, L.L.C. (“HIG”).

WHEREAS, Sancompass, Inc., Newco, Encompass Group Affiliates, Inc., a Florida
corporation (“Encompass”), and Encompass’ direct and indirect subsidiaries
(Encompass, together with its direct and indirect subsidiaries, the “Sellers”)
are parties to an Asset Purchase Agreement, dated as of May 13, 2011 (the “Asset
Purchase Agreement”);

WHEREAS, pursuant to the Asset Purchase Agreement, Newco will purchase
substantially all of the assets of, and assume certain of the liabilities of,
the Sellers in exchange for consideration described therein (the “Transaction”);

WHEREAS, and as a condition to the closing of the transactions contemplated by
the Asset Purchase Agreement, Section 6.16 of the Asset Purchase Agreement
requires that HIG enter into a non-competition agreement with Newco in form and
substance satisfactory to Newco;

WHEREAS, as an inducement to Newco to enter into and to consummate the
Transactions, and in order to preserve the value of the goodwill of the
Encompass business, HIG has agreed to enter into this Agreement.

NOW, THEREFORE, in consideration of the foregoing, Newco and HIG hereby agree as
follows:

1.           Subject to the last sentence of this paragraph 1., until the
earlier of (a) of the  fourth (4th) anniversary of the date hereof in the case
of the Class A Competitor Companies (as defined below), and the one (1) year
anniversary of the date hereof in the case of the Class B Competitor Companies
(as defined below), and (b) in each case, the first date on which funds managed
or advised by Sankaty Advisors, LLC ceases to be the majority shareholder in
Newco, neither HIG nor any investment fund that is currently or in the future
managed by HIG or any of its affiliated entities (collectively, the “HIG
Parties”), shall, directly or indirectly, acquire or own any equity securities
of, or securities convertible or exchangeable for equity securities of, or any
debt securities or other evidences of indebtedness of any of the Competitor
Companies.  The “Class A Competitor Companies” shall consist of: (i) Andrews
Electronics, (ii) Herman Electronics, Inc. and (iii) Union Electronic
Distributors. The “Class B Competitor Companies” shall consist of: (A)
Marcone,  (B) Parts Now!, LLC., (C)  1st Source Parts, and (D) Depot
International (together with the Class A Competitor Companies, the “Competitor
Companies”).  Anything in this paragraph 1 to the contrary notwithstanding, (y)
any HIG Party may own less than 5% of the common equity of any Competitor
Company that is or becomes publicly traded and (z) Bayside Capital, Inc. or any
investment funds managed by it, may make investments in, own or acquire
non-convertible debt securities, debt instruments and/or other evidences of
indebtedness (each, a  “Debt Interest”) of any of the Competitor Companies other
than with respect to Andrews Electronics with respect to which all of the
restrictions of paragraph 1 shall apply without regard to subsections (y) and
(z); provided, however, that in no event may Bayside Capital, Inc. invest in,
own or acquire a Debt Interest to the extent that such Debt Interest would
directly or indirectly, by virtue of their acquisition of a Debt Interest ,
enable Bayside Capital to vote or direct the voting of any equity interest in
a  Competitor Company.

 
 

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2.           HIG agrees that a monetary remedy for a breach of the agreement set
forth in Section 1 hereof may be inadequate and impracticable and further agrees
that such a breach would cause Newco irreparable harm, and that Newco shall be
entitled to permanent injunctive relief without the necessity of proving actual
damages.  In the event of such a breach, HIG agrees that Newco may be entitled
to such injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions as a court of competent jurisdiction shall
determine.

3.           If any provision of this Agreement is invalid in part, it shall be
curtailed, including with respect to time limitations, to the minimum extent
required for its validity and shall be binding and enforceable with respect to
HIG as so curtailed.

This Agreement shall be construed and interpreted, and the rights of the parties
shall be determined, in accordance with the substantive laws of the State of New
York, without giving effect to any provision thereof that would require the
application of the substantive laws of any other jurisdiction.

 
H.I.G. Capital, L.L.C.
           
By:
  
     
Name:
     
Title:
 

 
 
 

--------------------------------------------------------------------------------

 
 
Acknowledged and Agreed:
 
ENCOMPASS SUPPLY CHAIN SOLUTIONS, INC.
   
By:
 
  
 
Name:
 
Title:

 
 

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EXHIBIT E
 
Seller Note Exchange Agreements

 
 

--------------------------------------------------------------------------------

 

SELLER NOTE EXCHANGE AGREEMENT
 
This agreement regarding the Baldwin Promissory Note (as defined below), dated
as of [   ], 2011 (this “Agreement”), is by and between Encompass Group
Affiliates, Inc. (“Encompass”) and Fred V. Baldwin (the “Note Holder”).

RECITALS

WHEREAS, Encompass issued a certain subordinated promissory note in favor of the
Note Holder in the initial principal amount of one million dollars ($1,000,000),
dated as of August 17, 2007 (the “Baldwin Promissory Note”);

WHEREAS, as of the date hereof, the amounts owed under the Baldwin Promissory
Note is currently $[1,017,260.30], which includes accrued and unpaid interest
since January 31, 2011;

WHEREAS, a certain Asset Purchase Agreement, dated as of May 13, 2011 (the
“Asset Purchase Agreement”) was entered into by and between Sancompass, Inc.
(the “Parent”) and Encompass Supply Chain Solutions, Inc. (the “Buyer”) and
Encompass, Encompass Parts Distribution, Inc. (“Encompass Parts”), Cyber-Test,
Inc. (“Cyber-Test”), Vance Baldwin, Inc. (“Vance Baldwin”), Tritronics, Inc.
(“Tritronics”) and Encompass Service Solutions, Inc. (“Encompass Service
Solutions” and with Encompass, Encompass Parts, Cyber-Test, Vance Baldwin,
Tritronics and Encompass Service Solutions, collectively, the “Sellers”); and

WHEREAS, in connection with Asset Purchase Agreement and the transactions
contemplated thereby, it is contemplated that Encompass will transfer certain
equity (as described below) of the Parent that it receives as consideration for
the sale of assets under the Asset Purchase Agreement in exchange and in full
satisfaction of the Baldwin Promissory Note.

AGREEMENT
 
NOW THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Note Holder and
Encompass hereby agree as follows:

 
1.
Seller Note Exchange.

 
 
a.
Contingent upon and immediately following the closing of the transactions
contemplated by the Asset Purchase Agreement and the transfer by Encompass to
the Note Holders of the Baldwin Equity (as defined below), the Note Holder shall
transfer the Baldwin Promissory Note to Encompass, including all claims to
accrued and unpaid interest associated therewith.  Such exchange shall be in
full satisfaction of the Baldwin Promissory Note (including all claims on
accrued and unpaid interest).

 
 
 

--------------------------------------------------------------------------------

 
 
 
b.
The Note Holder shall be obligated to exchange the Baldwin Promissory Note in
exchange for non-participating preferred equity of the Parent having the
economic terms and liquidation preferences as set forth in Exhibit A (the
“Baldwin Equity”).

 
 
2.
Miscellaneous.

 
 
a.
This Agreement may be executed in any number of counterparts, including
facsimile or electronic copies thereof, each of which will be deemed an
original, but together will constitute one in the same instrument.

 
 
b.
This Agreement shall become effective only upon the occurrence of (i) this
Agreement being duly executed by each party hereto and (ii) the Asset Purchase
Agreement being duly executed by each party thereto.

 
[Signatures on Following Page.]

 
 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by the respective duly authorized officers of the undersigned and by the
undersigned as of the date first written above.
 
ENCOMPASS GROUP AFFILIATES, INC.
   
 
Name:
Title:
 
BALDWIN PROMISSORY NOTE HOLDER
   
 
Name: Fred V. Baldwin
Title:

 
 
 

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Exhibit A
 
Summary of Equity Waterfall

Introductory Notes:

Set forth below is the proposed allocation of net proceeds to equity upon a
liquidity event.  Note that:

1.             Any indebtedness of the Buyer and its subsidiaries (including the
approximately $10mm in current amount of Senior Notes and any refinancings of
the same) will have priority over equity, and will be paid off in connection
with a liquidity event (or, if not paid, taken into account in the establishment
of the net proceeds payable to equity).   As such, the payment of the Senior
Notes is not reflected in the equity waterfall described below.

2.             In order to incentivize management appropriately going forward,
it will be important to provide management incentive arrangements that align the
interests of management and shareholders.  Accordingly, the economic
participation of the management in equity or equity-related compensation is
currently envisioned to be as set forth below.  However, the arrangements will
be finalized following discussions with management and will be documented as
determined by the Buyer following discussions with management and legal counsel
regarding structure.  For example, management may receive deferred compensation
arrangements, rather than actual options or restricted stock to the extent that
such an arrangement is determined by the Buyer to be a preferable structure. 
For purposes of this Summary of Equity Waterfall, the management incentive
arrangements are included as part of the equity waterfall, recognizing that such
arrangements may be documented differently.  Parent fully reserves the right to
alter the Management Incentives in any manner, including in a manner
inconsistent with this Summary of Equity Waterfall, and fully reserves the
rights to provide modified or additional incentive arrangements for members of
management following the Closing.

3.             While the equity is currently envisioned to be issued by a
corporation, Parent reserves the right to restructure the equity interests to be
issued by a limited liability company with substantially the same economic
characteristics as those set forth.  In addition, while the Seller Equity, the
Tritronics Equity and the Baldwin Equity are all contemplated to be non voting,
Parent reserves the right to provide that such equity shall be voting equity
and, in such event, Parent further reserves the right to provide in the
Stockholders Agreement that such equity shall be required to vote as directed by
Sankaty on any or all matters on which such equity is entitled to vote.

 
 

--------------------------------------------------------------------------------

 
 
4.             The waterfall deals with the allocation of net proceeds among the
equity to be issued and outstanding as of the Closing, including the Management
Incentives.  It does not address the preferences or amounts to which holders of
subsequently issued equity or incentive arrangements may be entitled; provided
that with respect to any management incentive arrangements other than the
Management Incentives, Parent agrees that (i) the Management Incentives shall be
fully awarded prior to any awards being made that dilute the percentage of
common participation to which holders of Seller Equity are entitled under
paragraph 5 below; and (ii) only an additional 10% of fully diluted common
equity participation rights (or management incentives that have the same
economics as common equity) may dilute the participation rights of the Seller
Equity described in paragraph 5, it being understood that nothing in this
proviso is intended to limit that Parent’s ability to issue non participating
preferred equity or the preference rights of participating preferred or
incentives with a similar economic effect.  In addition, Parent reserves the
right to structure the Management Incentives in its discretion, subject to
maintaining the percentage of Available Proceeds allocated to the Seller Equity
in paragraph 5 below.

Defined Terms:

“Sankaty Equity” is the voting participating preferred and voting common equity
of Parent to be held by Sankaty and RGIP as of the Closing Date.  The Sankaty
Equity will have a liquidation preference equal to 120% of its Adjusted Issue
Price (the “Sankaty Preference Amount”); provided, that the Sankaty Preference
Amount shall be reduced by $1 million solely if and to the extent that there are
Available Proceeds (defined below) sufficient to generate distributions pursuant
to paragraph 5 below after giving effect to such reduction.  The initial issue
price of the Sankaty Equity will equal the sum of (x) the principal and interest
owing under the Subordinated Notes immediately prior to the Closing (anticipated
to be approximately $28 million) plus (y) the amount of Sankaty’s initial
capital contribution to Parent (anticipated to be approximately $3 million),
which issue price will increase at the rate of 8% per annum, compounded
quarterly (the “Adjusted Issue Price”).  The Sankaty Equity will be subject to
dilution for the Management Incentives as set forth below.

“Tritronics Equity” is the non participating preferred equity to be issued to
Tritronics in full satisfaction of the subordinated promissory note issued in
favor of Tritronics in the initial principal amount of $1 million by Encompass,
issued on August 1, 2008 (the “Tritronics Note”).  The Tritronics Equity will
have an initial liquidation preference equal to the accrued and unpaid principal
and interest under the Tritronics Note as of the Closing, which liquidation
preference will increase at the rate of 3% per annum, compounded quarterly (the
“Tritronics Preference Amount” and, together with the Sankaty Preference Amount,
the “Senior Preference Amount”).  The Tritronics Preference Amount will rank
pari passu with the Sankaty Preference Amount.

“Baldwin Equity” is the non participating preferred equity to be issued to the
former majority stockholder of Vance Baldwin in full satisfaction of the
subordinated promissory note issued in favor of such stockholder in the initial
principal amount of $1 million by Encompass, issued on August 17, 2007 (the
“Baldwin Note”).  The Baldwin Equity will have an initial liquidation preference
equal to the accrued and unpaid principal and interest under the Baldwin Note as
of the Closing, which liquidation preference will increase at the rate of 10%
per annum, compounded quarterly (the “Junior Preference Amount”).  The Junior
Preference Amount will rank junior in priority to the Senior Preference Amount.

“Management Incentives” is the management incentive arrangements to be
established by Parent at or immediately following the Closing.  Pursuant to
these arrangements, it is contemplated that, subject to terms and conditions to
be determined, management will have the opportunity to participate pari passu
with the Senior Preference Amount as set forth below, and will further have the
benefit of participation as set forth below.

 
 

--------------------------------------------------------------------------------

 

“Seller Equity” is the non voting common equity of Parent to be issued to the
Sellers as a portion of the Purchase Price.  The Seller Equity will not be
subject to dilution on account of any distributions in respect of the Management
Incentives and will entitle its holders to 15% of the distributions made
pursuant to paragraph 5 below.

Waterfall:

Upon a liquidity event, net proceeds available for distribution to equity of
Parent issued as of the Closing and to the Management Incentives (the “Available
Proceeds”) will be distributed as follows:

1.  First, the initial $8 million of Available Proceeds will be distributed to
the Sankaty Equity and the Tritronics Equity, pro rata relative to their
respective remaining unpaid portions of the Senior Preference Amount.

2.  Second, following completion of the distributions in paragraph 1, the next
$15 million of Available Proceeds will be distributed: (i) 10% to the Management
Incentives1; and (ii) 90% to the Sankaty Equity and the Tritronics Equity, pro
rata relative to their respective remaining unpaid portions of the Senior
Preference Amount.

3.  Third, following completion of the distributions in paragraphs 1 and 2, any
remaining Available Proceeds until the Senior Preference Amount has been paid in
full will be distributed: (i) 15% to the Management Incentives2; and (ii) 85% to
the Sankaty Equity and the Tritronics Equity, pro rata relative to their
respective remaining unpaid portions of the Senior Preference Amount.

4.  Fourth, following completion of the distributions in paragraphs 1, 2 and 3,
any remaining Available Proceeds will be distributed to the Baldwin Equity until
the Junior Preference Amount is paid in full.

5.  Finally, following completion of the distributions in paragraphs 1 through
4, any remaining Available Proceeds will be distributed: (i) 15% to the
Management Incentives3; (ii) 15% to the Seller Equity and (iii) 70% to the
Sankaty Equity.
 

--------------------------------------------------------------------------------

1   To the extent that the Management Incentives are not fully vested or have
not been fully awarded as of a Liquidity Event, this percentage may be reduced,
in which event the percentage allocated to the Senior Preference Amount in this
step would increase proportionately. 
2   To the extent that the Management Incentives are not fully vested or have
not been fully awarded as of a Liquidity Event, this percentage may be reduced,
in which event the percentage allocated to the Senior Preference Amount in this
step would increase proportionately. 
3   To the extent that the Management Incentives are not fully vested or have
not been fully awarded as of a Liquidity Event, this percentage may be reduced,
in which event the percentage allocated to the Sankaty Equity (not the Seller
Equity) would increase proportionately.

 
 

--------------------------------------------------------------------------------

 

SELLER NOTE EXCHANGE AGREEMENT
 
This agreement regarding the Tritronics Promissory Note (as defined below),
dated as of [   ], 2011 (this “Agreement”), is by and between Encompass Group
Affiliates, Inc. (“Encompass”) and Tritronics, LLC (the “Note Holder”).

RECITALS

WHEREAS, Encompass issued a certain subordinated promissory note in favor of the
Note Holder in the initial principal amount of one million dollars ($1,000,000),
dated as of August 1, 2008 (the “Tritronics Promissory Note”);

WHEREAS, as of the date hereof, the amounts owed under the Tritronics Promissory
Note is currently $[1,017,260.30], which includes accrued and unpaid interest
since January 31, 2011;

WHEREAS, a certain Asset Purchase Agreement, dated as of May 13, 2011 (the
“Asset Purchase Agreement”) was entered into by and between Sancompass, Inc.
(the “Parent”) and Encompass Supply Chain Solutions, Inc. (the “Buyer”) and
Encompass, Encompass Parts Distribution, Inc. (“Encompass Parts”), Cyber-Test,
Inc. (“Cyber-Test”), Vance Baldwin, Inc. (“Vance Baldwin”), Tritronics, Inc.
(“Tritronics”) and Encompass Service Solutions, Inc. (“Encompass Service
Solutions” and with Encompass, Encompass Parts, Cyber-Test, Vance Baldwin,
Tritronics and Encompass Service Solutions, collectively, the “Sellers”); and

WHEREAS, in connection with Asset Purchase Agreement and the transactions
contemplated thereby, it is contemplated that Encompass will transfer certain
equity (as described below) of the Parent that it receives as consideration for
the sale of assets under the Asset Purchase Agreement in exchange and in full
satisfaction of the Tritronics Promissory Note.

AGREEMENT
 
NOW THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Note Holder and
Encompass hereby agree as follows:

 
3.
Seller Note Exchange.

 
 
a.
Contingent upon and immediately following the closing of the transactions
contemplated by the Asset Purchase Agreement and the transfer by Encompass to
the Note Holder of the Tritronics Equity (as defined below), the Note Holder
shall transfer the Tritronics Promissory Note to Encompass, including all claims
to accrued and unpaid interest associated therewith.  Such exchange shall be in
full satisfaction of the Tritronics Promissory Note (including all claims on
account of accrued and unpaid interest).

 
 
 

--------------------------------------------------------------------------------

 
 
 
b.
The Note Holder shall be obligated to exchange the Tritronics Promissory Note in
exchange for authorized and duly issued shares of non-participating preferred
equity of the Parent having the economic terms and liquidation preferences as
set forth in Exhibit A (the “Tritronics Equity”), provided, however, the Note
Holder shall not be obligated to exchange the Tritronics Promissory Note if the
final charter document of the Parent (taken together with the Management
Incentives defined in Exhibit A) provides for terms of the Tritronics Equity
that are inconsistent with the economic terms and liquidation preferences set
forth in Exhibit A, including the “Waterfall” provisions set forth therein.

 
 
4.
Miscellaneous.

 
 
a.
This Agreement may be executed in any number of counterparts, including
facsimile or electronic copies thereof, each of which will be deemed an
original, but together will constitute one in the same instrument.

 
 
b.
This Agreement shall become effective only upon the occurrence of (i) this
Agreement being duly executed by each party hereto and (ii) the Asset Purchase
Agreement being duly executed by each party thereto.

 
[Signatures on Following Page.]
 
 
 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by the respective duly authorized officers of the undersigned and by the
undersigned as of the date first written above.
 
ENCOMPASS GROUP AFFILIATES, INC.
   
 
Name:
Title:
 
TRITRONICS, LLC
   
 
Name:
Title:

 
 
 

--------------------------------------------------------------------------------

 

Exhibit A
 
Summary of Equity Waterfall

Introductory Notes:

Set forth below is the proposed allocation of net proceeds to equity upon a
liquidity event.  Note that:

1.            Any indebtedness of the Buyer and its subsidiaries (including the
approximately $10mm in current amount of Senior Notes and any refinancings of
the same) will have priority over equity, and will be paid off in connection
with a liquidity event (or, if not paid, taken into account in the establishment
of the net proceeds payable to equity).   As such, the payment of the Senior
Notes is not reflected in the equity waterfall described below.

2.             In order to incentivize management appropriately going forward,
it will be important to provide management incentive arrangements that align the
interests of management and shareholders.  Accordingly, the economic
participation of the management in equity or equity-related compensation is
currently envisioned to be as set forth below.  However, the arrangements will
be finalized following discussions with management and will be documented as
determined by the Buyer following discussions with management and legal counsel
regarding structure.  For example, management may receive deferred compensation
arrangements, rather than actual options or restricted stock to the extent that
such an arrangement is determined by the Buyer to be a preferable structure. 
For purposes of this Summary of Equity Waterfall, the management incentive
arrangements are included as part of the equity waterfall, recognizing that such
arrangements may be documented differently.  Parent fully reserves the right to
alter the Management Incentives in any manner, including in a manner
inconsistent with this Summary of Equity Waterfall, and fully reserves the
rights to provide modified or additional incentive arrangements for members of
management following the Closing.

3.             While the equity is currently envisioned to be issued by a
corporation, Parent reserves the right to restructure the equity interests to be
issued by a limited liability company with substantially the same economic
characteristics as those set forth.  In addition, while the Seller Equity, the
Tritronics Equity and the Baldwin Equity are all contemplated to be non voting,
Parent reserves the right to provide that such equity shall be voting equity
and, in such event, Parent further reserves the right to provide in the
Stockholders Agreement that such equity shall be required to vote as directed by
Sankaty on any or all matters on which such equity is entitled to vote.

 
 

--------------------------------------------------------------------------------

 
 
4.             The waterfall deals with the allocation of net proceeds among the
equity to be issued and outstanding as of the Closing, including the Management
Incentives.  It does not address the preferences or amounts to which holders of
subsequently issued equity or incentive arrangements may be entitled; provided
that with respect to any management incentive arrangements other than the
Management Incentives, Parent agrees that (i) the Management Incentives shall be
fully awarded prior to any awards being made that dilute the percentage of
common participation to which holders of Seller Equity are entitled under
paragraph 5 below; and (ii) only an additional 10% of fully diluted common
equity participation rights (or management incentives that have the same
economics as common equity) may dilute the participation rights of the Seller
Equity described in paragraph 5, it being understood that nothing in this
proviso is intended to limit that Parent’s ability to issue non participating
preferred equity or the preference rights of participating preferred or
incentives with a similar economic effect.  In addition, Parent reserves the
right to structure the Management Incentives in its discretion, subject to
maintaining the percentage of Available Proceeds allocated to the Seller Equity
in paragraph 5 below.

Defined Terms:

“Sankaty Equity” is the voting participating preferred and voting common equity
of Parent to be held by Sankaty and RGIP as of the Closing Date.  The Sankaty
Equity will have a liquidation preference equal to 120% of its Adjusted Issue
Price (the “Sankaty Preference Amount”); provided, that the Sankaty Preference
Amount shall be reduced by $1 million solely if and to the extent that there are
Available Proceeds (defined below) sufficient to generate distributions pursuant
to paragraph 5 below after giving effect to such reduction.  The initial issue
price of the Sankaty Equity will equal the sum of (x) the principal and interest
owing under the Subordinated Notes immediately prior to the Closing (anticipated
to be approximately $28 million) plus (y) the amount of Sankaty’s initial
capital contribution to Parent (anticipated to be approximately $3 million),
which issue price will increase at the rate of 8% per annum, compounded
quarterly (the “Adjusted Issue Price”).  The Sankaty Equity will be subject to
dilution for the Management Incentives as set forth below.

“Tritronics Equity” is the non participating preferred equity to be issued to
Tritronics in full satisfaction of the subordinated promissory note issued in
favor of Tritronics in the initial principal amount of $1 million by Encompass,
issued on August 1, 2008 (the “Tritronics Note”).  The Tritronics Equity will
have an initial liquidation preference equal to the accrued and unpaid principal
and interest under the Tritronics Note as of the Closing, which liquidation
preference will increase at the rate of 3% per annum, compounded quarterly (the
“Tritronics Preference Amount” and, together with the Sankaty Preference Amount,
the “Senior Preference Amount”).  The Tritronics Preference Amount will rank
pari passu with the Sankaty Preference Amount.

“Baldwin Equity” is the non participating preferred equity to be issued to the
former majority stockholder of Vance Baldwin in full satisfaction of the
subordinated promissory note issued in favor of such stockholder in the initial
principal amount of $1 million by Encompass, issued on August 17, 2007 (the
“Baldwin Note”).  The Baldwin Equity will have an initial liquidation preference
equal to the accrued and unpaid principal and interest under the Baldwin Note as
of the Closing, which liquidation preference will increase at the rate of 10%
per annum, compounded quarterly (the “Junior Preference Amount”).  The Junior
Preference Amount will rank junior in priority to the Senior Preference Amount.

“Management Incentives” is the management incentive arrangements to be
established by Parent at or immediately following the Closing.  Pursuant to
these arrangements, it is contemplated that, subject to terms and conditions to
be determined, management will have the opportunity to participate pari passu
with the Senior Preference Amount as set forth below, and will further have the
benefit of participation as set forth below.

 
 

--------------------------------------------------------------------------------

 

“Seller Equity” is the non voting common equity of Parent to be issued to the
Sellers as a portion of the Purchase Price.  The Seller Equity will not be
subject to dilution on account of any distributions in respect of the Management
Incentives and will entitle its holders to 15% of the distributions made
pursuant to paragraph 5 below.

Waterfall:

Upon a liquidity event, net proceeds available for distribution to equity of
Parent issued as of the Closing and to the Management Incentives (the “Available
Proceeds”) will be distributed as follows:

1.  First, the initial $8 million of Available Proceeds will be distributed to
the Sankaty Equity and the Tritronics Equity, pro rata relative to their
respective remaining unpaid portions of the Senior Preference Amount.

2.  Second, following completion of the distributions in paragraph 1, the next
$15 million of Available Proceeds will be distributed: (i) 10% to the Management
Incentives4; and (ii) 90% to the Sankaty Equity and the Tritronics Equity, pro
rata relative to their respective remaining unpaid portions of the Senior
Preference Amount.

3.  Third, following completion of the distributions in paragraphs 1 and 2, any
remaining Available Proceeds until the Senior Preference Amount has been paid in
full will be distributed: (i) 15% to the Management Incentives5; and (ii) 85% to
the Sankaty Equity and the Tritronics Equity, pro rata relative to their
respective remaining unpaid portions of the Senior Preference Amount.

4.  Fourth, following completion of the distributions in paragraphs 1, 2 and 3,
any remaining Available Proceeds will be distributed to the Baldwin Equity until
the Junior Preference Amount is paid in full.

5.  Finally, following completion of the distributions in paragraphs 1 through
4, any remaining Available Proceeds will be distributed: (i) 15% to the
Management Incentives6; (ii) 15% to the Seller Equity and (iii) 70% to the
Sankaty Equity.

--------------------------------------------------------------------------------

4   To the extent that the Management Incentives are not fully vested or have
not been fully awarded as of a Liquidity Event, this percentage may be reduced,
in which event the percentage allocated to the Senior Preference Amount in this
step would increase proportionately. 
5   To the extent that the Management Incentives are not fully vested or have
not been fully awarded as of a Liquidity Event, this percentage may be reduced,
in which event the percentage allocated to the Senior Preference Amount in this
step would increase proportionately. 
6   To the extent that the Management Incentives are not fully vested or have
not been fully awarded as of a Liquidity Event, this percentage may be reduced,
in which event the percentage allocated to the Sankaty Equity (not the Seller
Equity) would increase proportionately.

 
 

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