IN RE ENCOMPASS SERVICES CORPORATION

JOHN C. AKARD, Bankruptcy Judge

WHEREAS, on June 28, 2001, 360networks (USA) inc. (the "360 Debtors") and certain of its affiliates filed voluntary petitions for relief under Title 11 of the United States Code (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Southern District of New York (the "New York Bankruptcy Court"); and

WHEREAS, on July 12, 2001, the Office of the United States Trustee for the Southern District of New York appointed the Official Committee of Unsecured Creditors (the "Committee") to represent all unsecured creditors of the 360 Debtors pursuant to Section 1102 of the Bankruptcy Code; and

WHEREAS, on August 14, 2002, the 360 Debtors and 360networks (Holdings) Ltd. filed their First Amended and Restated Plan of Reorganization (the "360 Plan"); and

WHEREAS, on October 1, 2002, the New York Bankruptcy Court signed and entered an order confirming the 360 Debtors' Plan; and

WHEREAS, on November 12, 2002, the 360 Debtors' Plan became effective; and

WHEREAS, Section 4.3 of the 360 Debtor's Plan specifically provides that the Committee is authorized and has the exclusive right to commence and prosecute actions on behalf of the 360 Debtors' bankruptcy estates seeking the avoidance, recovery and turnover of certain cash transfers or equipment returns made by the 360 Debtors on or within ninety (90) days of the Petition Date, pursuant to Rule 7001, et seq., of the Federal Rules of Bankruptcy Procedure, Sections 547, 548, 550 and 1107 of the Bankruptcy Code; and

WHEREAS, pursuant to the 360 Debtors' Plan and Confirmation Order, the Committee is deemed the representative of the 360 Debtors' estates under Section 1123(b) of the Bankruptcy Code solely for purposes of commencing and prosecuting the claims asserted in this action; and

WHEREAS, on November 19, 2002, Encompass Services Corporation and its subsidiaries (the "Encompass Debtors") filed their voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"); and

WHEREAS, on May 21, 2003, the Bankruptcy Court, entered an order confirming the Immaterially Modified Second Amended Joint Plan of Reorganization of Encompass Services Corporation and its Affiliated Debtors Under Chapter 11 of the Bankruptcy Code and supplemented by the Plan Supplement, the First Amended Plan Supplement, and the Second Amended Plan Supplement (collectively, the "Encompass Plan") which became effective on June 9, 2003; and

WHEREAS, as of the effective date of the Encompass Plan, and pursuant to Article 5.3 of the Encompass Plan, the Encompass Debtors' assets and liabilities were merged with and pooled with the assets and liabilities of each of the other Encompass Debtors, and each and every Claim filed or to be filed in the Chapter 11 case of any of the Encompass Debtors is deemed filed against the consolidated Encompass Debtors and is deemed one Claim against, and obligations of, the consolidated Encompass Debtors; and WHEREAS, on the effective date of the Encompass Plan, the Reorganized Encompass Debtors appointed Todd A. Matherne to serve as disbursing agent under the Encompass Plan (the "Disbursing Agent") with the consent of the holders of Existing Credit Agreement Claims, as defined in the Encompass Plan; and

WHEREAS, on the effective date of the Encompass Plan, the Disbursing Agent, pursuant to Article 9.1(b) of the Encompass Plan, became vested with "the rights and powers of a debtor-in-possession under Section 1107 of the Bankruptcy Code, and such other rights, powers and duties incident to causing the performance of the [Encompass] Debtors' obligations under [the Encompass] Plan, including, without limitation, the duty to assess the merits of Claims and object to those Claims that the Disbursing Agent determines to be, in whole, or in part, without merit, to prosecute such objections and defend Claims and counterclaims asserted in connection therewith, to prosecute causes of action, to liquidate [the Encompass Debtors'] Estate assets, to wind up the businesses, assets, properties and affairs of the [Encompass] Reorganized Debtors, to make distributions under [the Encompass] Plan and such other duties as are necessary to effectuate the terms and provisions of [the Encompass] Plan."

WHEREAS, on April 14, 2003, the Committee, through its prior counsel, filed proof of claim number 3105 in the Encompass Bankruptcy Case No. 02-43582 (the "Proof of Claim") alleging a general unsecured claim in the amount of $2,845,638.86, which represents the amount of certain alleged avoidable transfers made by 360 to Encompass on or within ninety (90) days of the Petition Date, pursuant to Sections 547 and 550 of the Bankruptcy Code (collectively, the "Avoidance Payments"); and WHEREAS, on February 26, 2004, the Disbursing Agent filed his Objection to the Proof of Claim; and

WHEREAS, on or about April 19, 2002, Encompass filed a proof of claim in the 360 Debtors' case in the amount of $3,081.95, which claim was assigned claim number 710 (the "Encompass Claim"); and

WHEREAS, other proofs of claim filed by Encompass in the 360 Debtors' case have been expunged; and

WHEREAS, the Committee and the Disbursing Agent, on behalf of the Encompass Debtors, engaged in settlement discussions and negotiations concerning the Avoidance Payments and wish to amicably resolve, settle and compromise the claims related to the Avoidance Payments as provided in this Stipulation of Settlement in order to avoid the uncertainty and expense of litigation.

NOW THEREFORE, in consideration of the promises and the mutual covenants contained herein, and for other good, adequate and sufficient consideration described herein, the receipt and sufficiency of which are hereby acknowledged, the Committee and the Disbursing Agent, on behalf of the Encompass Debtors, hereby agree as follows:

1. The Committee's Proof of Claim in the Encompass Bankruptcy proceeding shall be allowed as a general unsecured Class 6 claim in the amount of $1,200,000.00 in full satisfaction of the claims related to the Avoidance Payments (the "Settlement Amount").

2. The Disbursing Agent, on behalf of the Encompass Debtors, shall pay to the Committee, through its counsel, all pro rata distributions to which it is entitled under the Encompass Plan, at the same time and in accordance with the same procedures for payment to other Class 6 creditors.

3. Except as otherwise set forth herein, upon approval of this Stipulation of Settlement by the Bankruptcy Court, the Committee, the 360 Debtors and the Reorganized Debtors (by and through the Committee) hereby forever waive, release and discharge the Encompass Debtors and its successors, assigns, affiliates, heirs, executors, administrators, attorneys and present or former direct or indirect shareholders, of and from any and all manner of action and actions, cause and causes of action, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, variances, trespasses, judgments, executions, claims and demands whatsoever in law or in equity, whether known, unknown, or hereafter becoming known, or by reason of any matter, cause or thing arising under and/or related to the Committee's Proof of Claim in the Encompass Bankruptcy Proceeding or the Avoidance Payments.

4. Except as otherwise set forth herein, upon approval of this Stipulation of Settlement by the Bankruptcy Court, the Encompass Debtors, on behalf of itself and its stockholders, current and former officers, directors, agents, attorneys, successors, assigns, affiliates and the Disbursing Agent hereby fully and finally waives, releases and discharges the Committee and its members, the 360 Debtors and the 360 Reorganized Debtors, together with their estates, and the successors, assigns, affiliates, heirs, executors, administrators, attorneys and present or former, direct or indirect shareholders of the Committee and its members, the 360 Debtors and the 360 Reorganized Debtors, and their estates, of and from any and all manner of action and actions, cause and causes of action, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, variances, trespasses, judgments, executions, claims and demands whatsoever in law or in equity, whether known, unknown, or hereafter becoming known, or by reason of any matter, cause or thing arising under and/or related to the Proof of Claim or the Avoidance Payments.

5. Notwithstanding the payment to be made by the Disbursing Agent on behalf of the Encompass Debtors as specified herein (the "Settlement Amount"), the Disbursing Agent and the Encompass Debtors, on behalf of itself, its stockholders, current and former officers, directors, agents, attorneys, successors, assigns and affiliates, hereby fully and finally waives any and all rights to file, assert or obtain a distribution on any claim or interest against the 360 Debtors and the 360 Reorganized Debtors, together with their estates, and the successors, assigns, affiliates, heirs, executors or administrators in respect of the Settlement Amount the Encompass Claim, all other proofs of claim, scheduled claims or otherwise, if any, under any applicable statutes including, but not limited to, 11 U.S.C. sections 502(d), 502(h) and 502(j).

6. This Stipulation is subject to the approval of the Bankruptcy Court. In the event that the Bankruptcy Court does not approve this Stipulation, then it shall be deemed null and void and of no force or effect. Upon entry of the Order herein, the Claims Agent shall conform the official claims register to the forms of the Stipulation. The parties agree to promptly submit this Stipulation to the Bankruptcy Court for approval and, in connection therewith, to take all reasonable actions necessary.

7. This Stipulation shall be binding upon and inure to the benefit of the Committee, the 360 Debtors, the 360 Reorganized Debtors and the Encompass Debtors, the Disbursing Agent and their successors and assigns.

8. This Stipulation shall be governed by the laws of the State of New York and may not be altered, modified, terminated or any of its provisions waived except by written agreement signed by both the Disbursing Agent and the Committee.

9. The New York Bankruptcy Court shall retain jurisdiction over the subject matter of this Stipulation to resolve all disputes relating thereto and to enforce the settlement set forth herein.

10. Each party executing this Stipulation represents that such party has the full authority and legal power to do so. This Stipulation may be executed in counterparts and each such counterpart together with the others shall constitute one and the same instrument, and facsimile signatures herein shall be deemed to be original signatures.

11. This Stipulation contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all previous written or oral agreements, understandings, promises or negotiations. No party to this Stipulation has made or is relying on any representations, warranties, or promises not set forth in this Stipulation.

IT IS SO ORDERED.