8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  September 5, 2008

BPO MANAGEMENT SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-28560	22-2356861
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1290 N. Hancock Street, Suite 200, Anaheim, California 92807

(Address of principal executive offices)    (Zip Code)

Registrant’s telephone number, including area code:  (714) 974-2670

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

x Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

SECTION 1 – REGISTRANT’S BUSINESS AND OPERATIONS

ITEM 1.01  Entry into a Material Definitive Agreement.

Merger Agreement

On September 5, 2008, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Healthaxis Inc., a Pennsylvania corporation (“Healthaxis”), and Outsourcing Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Healthaxis (“Merger Sub”), providing for the merger of Merger Sub with and into us.

In connection with the Merger Agreement, Healthaxis will issue shares of its common stock (“Common Stock”) and shares of a new series of its preferred stock, designated as Healthaxis Series B Convertible Preferred Stock (“Series B Preferred Stock”), in exchange for the outstanding stock and certain warrants held by our stockholders.  Healthaxis has also agreed with us that all of our outstanding options and certain warrants will become exercisable for shares of Healthaxis’ Common Stock.  Based on the fixed exchange ratios contained in the Merger Agreement, it is expected that immediately following the closing of the Merger, our current security holders will own approximately80% of Healthaxis and current Healthaxis security holders will own approximately 20% of Healthaxis, on a fully-diluted basis.  Following the Merger, our preferred stockholders will, through their ownership of Healthaxis Series B Preferred Stock, hold a liquidation preference of $0.84 per share.  The surviving public company will be re-named “BPO Management Services, Inc.”

Each of Healthaxis and we have made various representations, warranties and covenants to the other in the Merger Agreement, including, among others, not to (a) solicit proposals relating to alternative business combination or acquisition transactions or (b) subject to certain exceptions which permit each respective company’s board of directors to comply with its fiduciary duties, enter into discussions concerning, or provide confidential information in connection with, alternative business combination or acquisition transactions. Subject to certain exceptions that permit each company’s board of directors to comply with its fiduciary duties, Healthaxis board of directors has agreed to recommend that its stockholders vote in favor of the Merger, as contemplated by the Merger Agreement.  The Merger Agreement also includes covenants pertaining to the operation of each company’s business and other matters between execution of the Merger Agreement and the closing of the Merger.  Finally, the Merger Agreement contemplates that we will enter into an employment agreement with each of the top four members of Healthaxis management, which employment agreements will become effective upon the closing of the Merger.

Consummation of the Merger is subject to various conditions, including, among others, the completion of certain pre-merger steps by Healthaxis, the approval of the transactions contemplated by the Merger Agreement by the stockholders of both companies, and the absence of certain legal impediments to consummation of the Merger.

The Merger Agreement contains certain termination rights and provides that, upon the termination of the Merger Agreement under specified circumstances, either Healthaxis or we may be required to pay the other a termination fee of $500,000.

Healthaxis Pre-Merger Steps

As a condition to the closing of the Merger , Healthaxis is required to complete the following pre-merger steps: (1) termination of agreements with, and warrants issued to, Tak Investments, Inc.; (2) conversion of all currently outstanding shares of Healthaxis Series A Convertible Preferred Stock (the “Series A Preferred Stock”) into shares of Common Stock, termination of a warrant issued to LB I Group, Inc., and termination of the agreements entered into with LB I Group Inc. and other former holders of the Series A Preferred Stock; (3) termination of a warrant held by Lewis Opportunity Fund, L.P.; (4) amendment of the Remote Resourcing Agreement with Healthcare BPO Partners, L.P.; (5) creation of a new series of preferred stock, to be designated the “Series B Convertible Preferred Stock”; (6) authorization and approval of an additional 3,000,000 shares of Common Stock (without giving effect to the reverse split referenced in section (7) below) to the Healthaxis Inc. 2005 Stock Incentive Plan (or a new Healthaxis plan); (7) the effectuation of a reverse split of Healthaxis’ shares of Common Stock, and (8) the change of Healthaxis’ corporate name to “BPO Management Services,  Inc.”

Terms of New Series B Convertible Preferred Stock

Subject to the successful consummation of the Merger, the holders of the new Healthaxis Series B Preferred Stock will be entitled to receive dividends pari passu with dividends paid to holders of Healthaxis Common Stock.  Dividends will be payable in cash upon a conversion, or in shares of Common Stock if certain conditions are met.  Dividends will be payable upon a preferred stock redemption, the liquidation of the Healthaxis and upon other fundamental changes.

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The holders of Series B Preferred Stock will not be entitled to general voting rights.  However, for so long as a specified number of shares of Series B Preferred Stock are outstanding, the holders of Series B Preferred Stock will be entitled to vote as a class, and therefore have veto rights on the sale of the Healthaxis, changes in capitalization, repurchases of stock, and other matters.  For so long as a specified number of shares of Series B Preferred Stock are outstanding, the holders of Series B Preferred Stock will have the right to elect one director.

Upon liquidation, the holders of Series B Preferred Stock will be entitled to receive $0.84 per share prior to the receipt of any value by the holders of the Healthaxis’ Common Stock or other junior stock.  The holders of Series B Preferred Stock will also be entitled to a preferential redemption equal to the liquidation preference amount plus dividends in the event of a “major transaction” or a “triggering event,” as defined in the Certificate of Designation relating to the Series B Preferred Stock.

Holders of Series B Preferred Stock will be able to convert their shares into shares of Common Stock at any time.  Initially, the Series B Preferred Stock will convert on a one-to-one basis, subject to adjustment.

The Series B Preferred Stock will be redeemable by the Healthaxis and at the option of the holders in certain circumstances.

Exempt Issuance of Merger Securities

We expect that the securities to be issued by Healthaxis as consideration in the Merger (the “Merger Securities”) will be issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended.  In this regard, Healthaxis has agreed to pursue approval of the terms of the Merger through a California fairness hearing, which approval, if obtained, would provide an exemption from the registration requirements of the Securities Act of 1933.  Pursuant to such exemption, the Merger Securities would not be considered “restricted securities” for purposes of Rule 144 promulgated under the Securities Act.  In the event that such California approval is not obtained, Healthaxis has agreed that, at its election, it shall use commercially reasonable efforts to prepare and file with the SEC a registration statement on Form S-4 or other comparable form in which a proxy statement to solicit and obtain the approval of our stockholders as contemplated by the Merger Agreement will be included.

Listing on Nasdaq Capital Market

In accordance with the rules of The Nasdaq Stock Market, the Merger will be deemed a “reverse merger” because Healthaxis will be combining its operations with ours and, accordingly, will experience a “change of control.”  As a consequence, in order for the post-Merger entity to retain its listing on the Nasdaq Capital Market, the post-merger entity will be required to submit an Initial Listing Application and satisfy the “initial listing standards” of the Nasdaq Capital Market.  At this time, it is not clear whether post-Merger Healthaxis will be able to satisfy these standards.  Obtaining the listing is not a condition to closing the Merger.

The foregoing descriptions of the Merger Agreement and other documents referenced hereinabove and herein below do not purport to be complete and are qualified in their entirety by reference to the full text of the Merger Agreement and such other documents, which are filed as Exhibits hereto.  The Merger Agreement and other documents are included to provide investors and security holders with information regarding the terms of the Merger and related transactions. The Merger Agreement and such other documents are not intended to provide any other factual information about us or the other parties thereto. The Merger Agreement contains representations and warranties the parties thereto made to each other and are solely for the benefit of each other. The assertions embodied in those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the Merger Agreement. Accordingly, investors and security holders should not rely on the representations and warranties as characterizations of the actual state of facts, since they were only made as of the date of the Merger Agreement and are modified by the underlying disclosure schedules. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Healthaxis’ public disclosures. We agree to furnish supplementally a copy of any omitted disclosure schedule to the Merger Agreement to the Securities and Exchange Commission upon request.

Other Recent Transactions

We amended the Certificate of Designation of the Relative Rights and Preferences of our Series D Convertible Preferred Stock (the “Series D Certificate of Designation”), the Certificate of Designation of the Relative Rights and Preferences of our Series D-2 Convertible Preferred Stock (the “Series D-2 Certificate of Designation”), and the Certificate of Designation of the Relative Rights and Preferences of our Series F Convertible Preferred (the “Series F Certificate of Designation” and, together with the Series D Certificate of Designation, and the Series D-2 Certificate of Designation, the “Certificates of Designation”), to provide that the “Conversion Restrictions” (as more particularly described in the Certificates of Designation) apply to the affiliates of each of the holders of shares in each such series of Convertible Preferred Stock.

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On June 13, 2007, we privately placed shares of our Series D Convertible Preferred Stock and various common stock and Series D-2 preferred stock purchase warrants to a limited number of institutional investors for gross proceeds of approximately $14,000,000. C.E. Unterberg, Towbin, Inc., acted as our placement agent. The private placement was exempt from registration under the Securities Act of 1933, as amended, in reliance upon Rule 506 of Regulation D or Section 4(2) for transactions not involving a public offering.

We intend to use the proceeds to complete previously announced acquisitions, fund additional growth in accordance with our business plan, and for general working capital requirements.

Copies of the transaction documents referenced herein and our June 14, 2007, press release announcing these transactions are attached as Exhibits to this Current Report and are incorporated herein by reference.

Preferred Stock and Warrants

The shares of Series D Convertible Preferred Stock that we issued and sold are convertible into approximately 23.3 million shares of our common stock. The three-year Series A Warrants that we granted (initial exercise price of $.90 per share) are exercisable for the purchase of up to approximately 11.7 million shares of our common stock. The five-year Series B Warrants that we granted (initial exercise price of $1.25 per share) are exercisable for the purchase of up to approximately 23.3 million shares of our common stock. If exercised in full, the aggregate Series A Warrant and Series B Warrant proceeds will be approximately $40 million.

One-year Purchase Option

We also granted the investors a one-year option (in the form of Series J Warrants) to purchase up to $21 million of Series D-2 Convertible Preferred Stock, which is convertible into approximately 23.3 million shares of our common stock. At the closing and in connection with such option, we granted the investors three-year Series C warrants (initial exercise price of $1.35 per share), which are exercisable for the purchase of up to approximately 11.7 million shares of our common stock, and five-year Series D Warrants (initial exercise price of $1.87 per share), which are exercisable for the purchase of up to approximately 23.3 million shares of our common stock. The Series C Warrants and the Series D warrants vest only upon the exercise of the Series J Warrants. If exercised in full, the aggregate Series C Warrant and Series D Warrant proceeds will be approximately $60 million. There can be no assurance that any or all of the warrants will be exercised.

On June 13, 2007, we entered into a Series D Convertible Preferred Stock Purchase Agreement (the “Series D Purchase Agreement”), pursuant to which certain investors purchased shares of our Series D Convertible Preferred Stock and warrants to purchase shares of our Series D-2 Convertible Preferred Stock and common stock.  Subsequent thereto, we amended the Series D Purchase Agreement.  On August 29, 2008, we again amended its terms this time to increase the number of shares of our common stock underlying the permitted options further and amended it to eliminate certain financial covenants contained therein.

We previously amended each of our then-outstanding Series A Warrants to Purchase Shares of Common Stock (“Series A Warrants”), Series B Warrants to Purchase Shares of Common Stock (“Series B Warrants”), Series C Warrants to Purchase Shares of Common Stock (“Series C Warrants”), and Series D Warrants to Purchase Shares of Common Stock Warrants (“Series D”).  Pursuant to certain Second Amendments to Series A Warrants and to Series B Warrants, and Fourth Amendments to Series C Warrants and to Series D Warrants, on August 29, 2008, we made such additional amendments to each of such currently-outstanding warrants so as to eliminate certain provisions of the same regarding anti-dilution and registration rights.  Pursuant to an Amended and Restated Warrant Acknowledgement Agreement signed on August 29, 2008 by the holders of warrants exercisable for at least a majority of the shares of our stock underlying all of the currently outstanding Series A Warrants, Series B Warrants, Series C Warrants, and Series D Warrants, each of such Warrants has been amended and restated.

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We previously entered into a Registration Rights Agreement with certain investors to provide said investors with certain registration rights for certain of our securities owned by them.  We filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission on July 13, 2007, pursuant to such Registration Rights Agreement, but such Registration Statement has not yet been declared effective.  The investors no longer require that the Registration Statement become effective due to provisions of Rule 144 and certain other legal and business agreements.  As a result, on August 29, 2008, we entered into a Waiver and Amendment Agreement with certain of the investors waiving any rights to any damages owed or potentially owed by the corporation to any of the investors resulting from certain provisions of the Registration Rights Agreement, including without limitation any liquidated damages owed or potentially owed by us to any of the investors, and amending and restating the Registration Rights Agreement to reflect the same.

Conditional upon the closing of the Merger, on August 29, 2008, we made certain additional amendments to the terms of the Series D Convertible Stock Purchase Agreement to eliminate any and all of our duties and/or obligations under such Agreement.

We gave each of the seven institutional investors who purchased shares of our Series D Convertible Preferred Stock on June 13, 2007, the opportunity to exchange all of their outstanding Series A Warrants, Series B Warrants, and Series D Warrants (if such Series D Warrants have a warrant price of $1.10 per share) for shares of our Series F Convertible Preferred Stock.  On August 29, 2008, six of said investors took said opportunity and, as a result, 40,666,676 shares of our Series A Warrants, Series B Warrants, and Series D Warrants have been exchanged into 894,942 shares of our Series F Convertible Preferred Stock. Following a series of communications with the seventh and final such institutional investor, we declared the exchange opportunity closed on September 5, 2008.

Forward-Looking Statements

This Report contains forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, particularly those statements regarding the effects of the proposed Merger and those preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” or similar expressions.  Forward-looking statements relating to expectations about future results or events are based upon information available as of today’s date, and there is no assumed obligation to update any of these statements.  The forward-looking statements are not guarantees of future performance, and actual results may vary materially from the results and exceptions discussed.  For instance, although Healthaxis and we have signed an agreement to merge, there is no assurance that the proposed Merger will close.  The Merger Agreement will terminate if the parties do not receive necessary approvals from Healthaxis’ stockholders and our stockholders or if either Healthaxis or we fail to satisfy other conditions to closing.  Other risks and uncertainties to which the parties are subject are discussed in the parties respective reports filed with the Securities and Exchange Commission (the “SEC”) under the caption “Risk Factors” and elsewhere, including, without limitation, in Healthaxis’ Annual Report on Form 10-KSB for the year ended December 31, 2007 and subsequent Quarterly Reports on Forms 10-QSB and 10-QSB, and in our Annual Report on Form 10-KSB for the year ended December 31, 2007 and subsequent Quarterly Reports on Form 10-QSB.  Copies of Healthaxis’ and our filings with the SEC can be obtained on our respective websites, or at the SEC’s website at www.sec.gov.  One or more of these factors have affected, and could affect Healthaxis’ and our business and financial results in future periods, and could cause actual results related to the Merger to differ materially from plans and projections.  Any forward-looking statement is qualified by reference to these risks, uncertainties and factors.  Forward-looking statements speak only as of the date of the documents in which they are made.  These risks, uncertainties and factors are not exclusive, and we undertake no obligation to publicly update or review any forward-looking statements to reflect events or circumstances that may arise after the date of this report, except as required by law.

Additional Information and Where to Find It

In connection with the proposed Merger, we will be filing a proxy statement and relevant documents concerning the transaction with the Securities and Exchange Commission.  OUR INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders may obtain free copies of the proxy statement and other documents when they become available by contacting us by mail at 1290 N Hancock St., Ste 200, Anaheim Hills, CA 92807, or by telephone at (714) 974-2670. In addition, documents filed with the SEC by us are available free of charge at the Securities and Exchange Commission’s website at http://www.sec.gov.

Our directors, executive officers, other members of our management and employees may be deemed to be participants in the solicitation of proxies from our stockholders in connection with the proposed transaction. Information concerning the special interests of these directors, executive officers and other members of our management and employees in the proposed transaction will be included in our proxy statement described above. Information regarding our directors and executive officers is also available in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007. This document is available free of charge at the SEC’s website at www.sec.gov and from us, as described above.

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SECTION 9 – FINANCIAL STATEMENTS AND EXHIBITS

Item 9.01  Financial Statements and Exhibits.

(d)           Exhibits.

Exhibit No.	Description of Exhibit
3.10*	Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock of BPO Management Services, Inc., as filed with the Secretary of State of the State of Delaware on June 30, 2008
3.11*	Certificate of Amendment to Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock of BPO Management Services, Inc., as filed with the Secretary of State of the State of Delaware on August 28, 2008
3.12*	Certificate of Amendment to Certificate of Designation of the Relative Rights and Preferences of the Series D-2 Convertible Preferred Stock of BPO Management Services, Inc., as filed with the Secretary of State of the State of Delaware on August 28, 2008
3.13*	Certificate of Amendment to Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock of BPO Management Services, Inc., as filed with the Secretary of State of the State of Delaware on August 28, 2008
10.64*	Agreement and Plan of Merger dated September 5, 2008, among Healthaxis, Inc., Outsourcing Merger Sub., Inc., and BPO Management Services, Inc.
10.65*	Amendment to Series D Convertible Stock Purchase Agreement dated August 28, 2009 between BPO Management Services, Inc. and certain investors
10.66*	Second Amendment to Series D Convertible Stock Purchase Agreement dated August 28, 2009 between BPO Management Services, Inc. and certain investors
10.67*	Second Amendment to Series A Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.68*	Second Amendment to Series B Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.69*	Fourth Amendment to Series C Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.70*	Fourth Amendment to Series D Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.71*	Waiver and Amendment Agreement dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.72*	Amended and Restated Warrant Acknowledgement Agreement dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.73*	Third Amendment to Series D Convertible Stock Purchase Agreement dated as of August 29, 2008 between BPO Management Services, Inc. and certain investors
10.74*	Series F Convertible Preferred Stock Issuance Agreement dated as of August 29, 2008, between BPO Management Services, Inc. and certain investors

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* filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:  September 11, 2008	BPO MANAGEMENT SERVICES, INC.
	By:	/s/  James Cortens
		James Cortens
		President

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Exhibit Index

Exhibit No.	Description of Exhibit
3.10	Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock of BPO Management Services, Inc., as filed with the Secretary of State of the State of Delaware on June 30, 2008
3.11	Certificate of Amendment to Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock of BPO Management Services, Inc., as filed with the Secretary of State of the State of Delaware on August 28, 2008
3.12	Certificate of Amendment to Certificate of Designation of the Relative Rights and Preferences of the Series D-2 Convertible Preferred Stock of BPO Management Services, Inc., as filed with the Secretary of State of the State of Delaware on August 28, 2008
3.13	Certificate of Amendment to Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock of BPO Management Services, Inc., as filed with the Secretary of State of the State of Delaware on August 28, 2008
10.64	Agreement and Plan of Merger dated September 5, 2008, among Healthaxis, Inc., Outsourcing Merger Sub., Inc., and BPO Management Services, Inc.
10.65	Amendment to Series D Convertible Stock Purchase Agreement dated August 28, 2009 between BPO Management Services, Inc. and certain investors
10.66	Second Amendment to Series D Convertible Stock Purchase Agreement dated August 28, 2009 between BPO Management Services, Inc. and certain investors
10.67	Second Amendment to Series A Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.68	Second Amendment to Series B Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.69	Fourth Amendment to Series C Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.70	Fourth Amendment to Series D Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.71	Waiver and Amendment Agreement dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.72	Amended and Restated Warrant Acknowledgement Agreement dated August 29, 2008 between BPO Management Services, Inc. and certain investors
10.73	Third Amendment to Series D Convertible Stock Purchase Agreement dated as of August 29, 2008 between BPO Management Services, Inc. and certain investors
10.74	Series F Convertible Preferred Stock Issuance Agreement dated as of August 29, 2008, between BPO Management Services, Inc. and certain investors

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EX-3.10

EXHIBIT 3.10

CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES

OF THE

SERIES F CONVERTIBLE PREFERRED STOCK

OF

BPO MANAGEMENT SERVICES, INC.

The undersigned, the Chief Executive Officer of BPO Management Services, Inc., a Delaware corporation (the “Company”), in accordance with the provisions of the Delaware General Corporation Law, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Company, the following resolution creating a series of preferred stock, designated as Series F Convertible Preferred Stock, was duly adopted on April 4, 2008, as follows:

RESOLVED, that, pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Certificate of Incorporation of the Company (the “Certificate of Incorporation”), there hereby is created out of the shares of the Company’s preferred stock, par value $0.01 per share, authorized in Article III of the Certificate of Incorporation (the “Preferred Stock”), a series of Preferred Stock of the Company, to be named “Series F Convertible Preferred Stock,” consisting of One Million Three Hundred Thousand (1,300,000) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:

1.Designation and Rank.  The designation of such series of the Preferred Stock shall be the Series F Convertible Preferred Stock, par value $0.01 per share (the “Series F Preferred Stock”).  The maximum number of shares of Series F Preferred Stock shall be One Million Three Hundred Thousand (1,300,000) shares.  The Series F Preferred Stock shall rank senior to the Company’s common stock, par value $0.01 per share (the “Common Stock”), but junior to all other classes and series of equity securities of the Company, including, without limitation, the Company’s Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series D-2 Preferred Stock, unless any such other class or series, by its express terms, ranks junior to the Series F Preferred Stock (which class or series of preferred stock, with, as appropriate, the Common Stock, is hereinafter referred to as the “Junior Stock”).

2.Dividends.

(a)Payment of Dividends.  Commencing on the date of the initial issuance (the “Issuance Date”) of the Series F Preferred Stock, the holders of record of shares of Series F Preferred Stock shall be entitled to receive, out of any assets at the time legally available therefor and as declared by the Board of Directors, dividends in an amount and as of the same record and payment dates as any dividends in respect of the Common Stock that shall have been declared by the Board of Directors (the “Dividend Payment”), and no more, payable in cash (on an as-converted basis then calculated in accordance with Section 5(a) hereof).  Dividends on the Series F Preferred Stock shall not be cumulative.  Dividends on the Series F Preferred Stock are prior to and in preference of any declaration or payment of any distribution on any outstanding shares of Junior Stock, except for the Common Stock in respect of which dividends on the Series F Preferred Stock shall be pari passu.

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(b)In the event of a dissolution, liquidation, or winding up of the Company pursuant to Section 4 hereof, all declared and unpaid dividends on the Series F Preferred Stock shall be payable on the date of payment of the preferential amount to the holders of Series F Preferred Stock.  In the event of a voluntary conversion pursuant to Section 5(a) hereof, all declared and unpaid dividends on the Series F Preferred Stock being converted shall be payable on the Voluntary Conversion Date (as defined in Section 5(b)(i) hereof).

(c)For purposes hereof, unless the context otherwise requires, “distribution” shall mean the transfer of cash or property without consideration, whether by way of dividend or otherwise, payable other than in shares of Common Stock or other equity securities of the Company, or the purchase or redemption of shares of the Company (other than repurchases of Common Stock held by employees or consultants of the Company upon termination of their employment or services pursuant to agreements providing for such repurchase or upon the cashless exercise of options held by employees or consultants) for cash or property.

(d)If the Company shall at any time or from time to time after the Issuance Date make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and concurrently therewith, then the Company shall make or issue or set an equivalent record date for the determination of holders of Series F Preferred Stock entitled to receive a dividend or other distribution payable in shares of Series F Preferred Stock and, concurrently with any such declaration in respect of the Common Stock, shall make an equivalent declaration in respect of the Series F Preferred Stock in an amount equivalent (on an as-converted basis) to the relevant Common Stock per-share dividend or distribution.

3.Voting Rights.  Except as required by Delaware law, the Series F Preferred Stock shall have no voting rights.  The Common Stock into which the Series F Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company, and none of the rights of the Preferred Stock.

4.Liquidation Preference.

(a)In the event of the liquidation, dissolution, or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of shares of Series F Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, an amount equal to $4.25 per share (the “Liquidation Preference Amount”) of the Series F Preferred Stock before any payment shall be made or any assets distributed to the holders of the Common Stock or any other Junior Stock.  The Liquidation Preference Amount shall not include any declared and unpaid dividends, as such dividends shall be paid pari passu with the Common Stock in accordance with the provisions of Section 2(a), above.  If the assets of the Company are not sufficient to pay in full the Liquidation Preference Amount payable to the holders of outstanding shares of the Series F Preferred Stock and any series of Preferred Stock or any other class of stock ranking pari passu, as to rights on liquidation, dissolution, or winding up with the Series F Preferred Stock, then all of said assets will be distributed among the holders of the Series F Preferred Stock and the other classes of stock ranking pari passu with the Series F Preferred Stock, if any, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.  The liquidation payment with respect to each outstanding fractional share of Common Stock issuable upon conversion of the Series F Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of Common Stock issuable upon conversion of the Series F Preferred Stock.  All payments for which this Section 4(a) provides shall be in cash, property (valued at its fair market value as determined by an independent appraiser reasonably acceptable to the holders of a majority of the Series F Preferred Stock), or a combination thereof; provided, however, that no cash shall be paid to holders of Junior Stock unless each holder of the outstanding shares of Series F Preferred Stock has been paid in cash the full Liquidation Preference Amount to which such holder is entitled as provided herein.  After payment of the full Liquidation Preference Amount to which each holder is entitled, such holders of shares of Series F Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company, except in respect of any declared and unpaid dividends, as provided hereinabove.

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(b)A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting shares of the Company are disposed of or conveyed, shall not be deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4.  In the event of the merger or consolidation of the Company with or into another corporation or corporations, the Series F Preferred Stock shall maintain its relative powers, designations, and preferences provided for herein and no merger shall result which is inconsistent therewith.

(c)Written notice of any voluntary or involuntary liquidation, dissolution. or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than thirty (30) days prior to the payment date stated therein, to the holders of record of the Series F Preferred Stock at their respective addresses as the same shall appear on the books of the Company.

5.Conversion.  The holder of Series F Preferred Stock shall have the following conversion rights (the “Conversion Rights”):

(a)Right to Convert.  At any time on or after the Issuance Date, the holder of any such shares of Series F Preferred Stock may, at such holder’s option, subject to the limitations set forth in Section 7 herein, elect to convert (a “Voluntary Conversion”) all or any portion of the shares of Series F Preferred Stock held by such person into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of the shares of Series F Preferred Stock being converted divided by (ii) the Conversion Price (as defined in Section 5(d) below) then in effect as of the date of the delivery by such holder of its notice of election to convert.  In the event of a liquidation, dissolution, or winding up of the Company, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series F Preferred Stock.  In the event of such a liquidation, dissolution, or winding up, the Company shall provide to each holder of shares of Series F Preferred Stock notice of such liquidation, dissolution, or winding up, which notice shall (i) be sent at least fifteen (15) days prior to the termination of the Conversion Rights (or, if the Company obtains lesser notice thereof, then as promptly as possible after the date that it has obtained notice thereof) and (ii) state the amount per share of Series F Preferred Stock that will be paid or distributed on such liquidation, dissolution, or winding up, as the case may be.

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(b)Mechanics of Voluntary Conversion.  The Voluntary Conversion of Series F Preferred Stock shall be conducted in the following manner:

(i)Holder’s Delivery Requirements.  To convert Series F Preferred Stock into full shares of Common Stock on any date (the “Voluntary Conversion Date”), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”), to the Company at (714) 974-2670, Attention:  Chief Financial Officer, and (B) surrender to a common carrier for delivery to the Company as soon as practicable following such Voluntary Conversion Date the original certificates representing the shares of Series F Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the “Preferred Stock Certificates”) and the originally executed Conversion Notice.

(ii)Company’s Response.  Upon receipt by the Company of a facsimile copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder.  Upon receipt by the Company of a copy of the fully executed Conversion Notice, the Company or its designated transfer agent (the “Transfer Agent”), as applicable, shall, within three (3) business days following the date of receipt by the Company of the fully executed Conversion Notice, issue and deliver to the Depository Trust Company (“DTC”) account on the Holder’s behalf via the Deposit Withdrawal Agent Commission (“DWAC”) System as specified in the Conversion Notice, registered in the name of the holder or its designee, the number of shares of Common Stock to which the holder shall be entitled.  Notwithstanding the foregoing to the contrary, the Company or its Transfer Agent shall only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if such conversion is in connection with a sale and the Company and the Transfer Agent are participating in DTC through the DWAC system.  If the number of shares of Preferred Stock represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of shares of Series F Preferred Stock being converted, then the Company shall, as soon as practicable and in no event later than three (3) business days after receipt of the Preferred Stock Certificate(s) and at the Company’s expense, issue and deliver to the holder a new Preferred Stock Certificate representing the number of shares of Series F Preferred Stock not converted.

(iii)Dispute Resolution.  In the case of a dispute as to the arithmetic calculation of the number of shares of Common Stock to be issued upon conversion, the Company shall cause its Transfer Agent to issue promptly to the holder the number of shares of Common Stock that is not disputed and shall submit the arithmetic calculations to the holder via facsimile as soon as possible, but in no event later than three (3) business days after receipt of such holder’s Conversion Notice.  If such holder and the Company are unable to agree upon the arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion within five (5) business days of such disputed arithmetic calculation being submitted to the holder, then the Company shall within three (3) business days submit via facsimile the disputed arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion to the Company’s independent, outside accountant.  The Company shall cause the accountant to perform the calculations and notify the Company and the holder of the results no later than ten (10) business days from the time it receives the disputed calculations.  Such accountant’s calculation shall be binding upon all parties absent manifest error.  The reasonable expenses of such accountant in making such determination shall be paid by the Company, in the event the holder’s calculation was correct, or by the holder, in the event the Company’s calculation was correct, or equally by the Company and the holder in the event that neither the Company’s or the holder’s calculation was correct.  The period of time in which the Company is required to effect conversions under this Certificate of Designation shall be tolled with respect to the subject conversion pending resolution of any dispute by the Company made in good faith and in accordance with this Section 5(b)(iii).  In the case of a dispute as

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to the occurrence of a subsequent issuance or other event which would trigger a reset of the Conversion Price pursuant to Section 5(e), below, or the adjusted value of the Conversion Price, the Company shall submit the disputed determinations via facsimile within three (3) business days of receipt, or deemed receipt, of the Conversion Notice or other event giving rise to such dispute, as the case may be, to the holder.  If the holder and the Company are unable to agree upon such determination or calculation within five (5) business days of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall within three (3) business days submit via facsimile a copy of (a) the disputed agreement or other documentation of an event or occurrence which the holder believes may trigger a reset of the Conversion Price to an independent law firm (having at least 400 attorneys) selected by the Company and approved by the holder or (b) the disputed arithmetic calculation of the Conversion Price to the Company’s independent, outside accountant (which shall be ranked in the top 10 accounting firms nationally, by revenue).  The Company, at the Company’s expense, shall cause the law firm or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) business days from the time it receives the disputed determinations or calculations.  Such law firm’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

(iv)Record Holder.  The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series F Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

(c)Intentionally omitted.

(d)Conversion Price.  The term “Conversion Price” shall mean the price per share of the Common Stock issuable upon conversion of the Series F Preferred Stock, which price shall be $0.17, subject to adjustment under Section 5(e) hereof.  Notwithstanding any adjustment hereunder, at no time shall the Conversion Price be greater than such price per share except if it is adjusted pursuant to Section 5(e)(i).

(e)Adjustments of Conversion Price.

(i)Adjustments for Stock Splits and Combinations.  If the Company shall at any time or from time to time after the Issuance Date effect a stock split of the outstanding Common Stock, the Conversion Price shall be proportionately decreased.  If the Company shall at any time or from time to time after the Issuance Date combine the outstanding shares of Common Stock, the Conversion Price shall be proportionately increased.  Any adjustments under this Section 5(e)(i) shall be effective at the close of business on the date the stock split or combination becomes effective.

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(ii)Intentionally Omitted.

(iii)Adjustment for Other Dividends and Distributions.  If the Company shall at any time or from time to time after the Issuance Date make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of Series F Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series F Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series F Preferred Stock; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions; and provided, further, however, that no such adjustment shall be made if the holders of Series F Preferred Stock simultaneously receive (i) a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series F Preferred Stock had been converted into Common Stock on the date of such event or (ii) a dividend or other distribution of shares of Series F Preferred Stock which are convertible, as of the date of such event, into such number of shares of Common Stock as is equal to the number of additional shares of Common Stock being issued with respect to each share of Common Stock in such dividend or distribution.

(iv)Adjustments for Reclassification, Exchange, or Substitution.  If the Common Stock issuable upon conversion of the Series F Preferred Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution, or otherwise (other than by way of a stock split or combination of shares or distributions provided for in Sections 5(e)(i) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series F Preferred Stock shall have the right thereafter to convert such share of Series F Preferred Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such share of Series F Preferred Stock might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

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(v)Adjustments for Reorganization, Merger, Consolidation, or Sales of Assets.  If at any time or from time to time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or distributions provided for in Sections 5(e)(i) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the Company with or into another corporation where the holders of outstanding voting securities prior to such merger or consolidation do not own over 50% of the outstanding voting securities of the merged or consolidated entity, immediately after such merger or consolidation, or the sale of all or substantially all of the Company’s properties or assets to any other person (an “Organic Change”), then as a part of such Organic Change an appropriate revision to the Conversion Price shall be made if necessary and provision shall be made if necessary (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series F Preferred Stock shall have the right thereafter to convert such share of Series F Preferred Stock into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from Organic Change.  In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5(e)(v) with respect to the rights of the holders of the Series F Preferred Stock after the Organic Change to the end that the provisions of this Section 5(e)(v) (including any adjustment in the Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of the Series F Preferred Stock) shall be applied after that event in as nearly an equivalent manner as may be practicable.

(vi)Consideration for Stock.  In case any shares of Common Stock or Convertible Securities other than the Series F Preferred Stock, or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold:

(1)in connection with any merger or consolidation in which the Company is the surviving corporation (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Company shall be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefor shall be, deemed to be the fair value, as determined reasonably and in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board may determine to be attributable to such shares of Common Stock, Convertible Securities, rights or warrants or options, as the case may be; or

(2)in the event of any consolidation or merger of the Company in which the Company is not the surviving corporation or in which the previously outstanding shares of Common Stock of the Company shall be changed into or exchanged for the stock or other securities of another corporation, or in the event of any sale of all or substantially all of the assets of the Company for stock or other securities of any corporation, the Company shall be deemed to have issued a number of shares of its Common Stock for stock or securities or other property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated, and for a consideration equal to the fair market value on the date of such transaction of all such stock or securities or other property of the other corporation.  If any such calculation results in adjustment of the applicable Conversion Price, or the number of shares of Common Stock issuable upon conversion of the Series F Preferred Stock, the determination of the applicable Conversion Price or the number of shares of Common Stock issuable upon conversion of the Series F Preferred Stock immediately prior to such merger, consolidation or sale, shall be made after giving effect to such adjustment of the number of shares of Common Stock issuable upon conversion of the Series F Preferred Stock.  In the event any consideration received by the Company for any securities consists of property other than cash, the fair market value thereof at the time of issuance or as otherwise applicable shall be as determined in good faith by the Board of Directors of the Company.  In the event Common Stock is issued with other shares or securities or other assets of the Company for consideration which covers both, the consideration computed as provided in this Section (5)(e)(viii) shall be allocated among such securities and assets as determined in good faith by the Board of Directors of the Company.

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(vii)Record Date.  In case the Company shall take record of the holders of its Common Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.

(viii)Certain Issues Excepted.  Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment to the Conversion Price upon (i) securities issued (other than for cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date hereof (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the holders), (iii) securities issued in connection with bona fide strategic license agreements or other partnering arrangements so long as such issuances are not for the purpose of raising capital, (iv) Common Stock issued or the issuance or grants of options to purchase Common Stock pursuant to the Issuer’s stock option plans and employee stock purchase plans that either (x) exist on the date hereof and are duly approved by the Company’s Board of Directors or (y) are permitted under Section 9.15 of the Purchase Agreement, and (v) Common Stock issued as payment of dividends on the Series F Preferred Stock or any series of Preferred Stock that ranks superior to or pari passu with the Series F Preferred Stock.

(f)No Impairment.  The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series F Preferred Stock against impairment.  In the event a holder shall elect to convert any shares of Series F Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or any one associated or affiliated with such holder has been engaged in any violation of law, unless (i) an order from the Securities and Exchange Commission prohibiting such conversion or (ii) an injunction from a court, on notice, restraining and/or adjoining conversion of all or of said shares of Series F Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in an amount equal to 120% of the Liquidation Preference Amount of the Series F Preferred Stock such holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains judgment.

(g)Certificates as to Adjustments.  Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion of the Series F Preferred Stock pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series F Preferred Stock a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based.  The Company shall, upon written request of the holder of such affected Series F Preferred Stock, at any time, furnish or cause to be furnished to such holder a like certificate setting forth such adjustments and readjustments, the Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of a share of such Series F Preferred Stock.  Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent of such adjusted amount.

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(h)Issue Taxes.  The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series F Preferred Stock pursuant hereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

(i)Notices.  All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or e-mail or three (3) business days following being mailed by certified or registered mail, postage prepaid, return-receipt requested, addressed to the holder of record at its address appearing on the books of the Company.  The Company will give written notice to each holder of Series F Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock, or (III) for determining rights to vote with respect to any Organic Change, dissolution, liquidation, or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public.  The Company will also give written notice to each holder of Series F Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation, or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.

(j)Fractional Shares.  No fractional shares of Common Stock shall be issued upon conversion of the Series F Preferred Stock.  In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall round the number of shares to be issued upon conversion up to the nearest whole number of shares.

(k)Reservation of Common Stock.  The Company shall, so long as any shares of Series F Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series F Preferred Stock, such number of shares of Common Stock equal to at least one hundred twenty percent (120%) of the aggregate number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series F Preferred Stock then outstanding.  The initial number of shares of Common Stock reserved for conversions of the Series F Preferred Stock and any increase in the number of shares so reserved shall be allocated pro rata among the holders of the Series F Preferred Stock based on the number of shares of Series F Preferred Stock held by each holder of record at the time of issuance of the Series F Preferred Stock or increase in the number of reserved shares, as the case may be.  In the event a holder shall sell or otherwise transfer any of such holder’s shares of Series F Preferred Stock, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor.  Any shares of Common Stock reserved and which remain allocated to any person or entity which does not hold any shares of Series F Preferred Stock shall be allocated to the remaining holders of Series F Preferred Stock, pro rata based on the number of shares of Series F Preferred Stock then held by such holder.

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(l)Retirement of Series F Preferred Stock.  Conversion of Series F Preferred Stock shall be deemed to have been effected on the Conversion Date.  Upon conversion of only a portion of the number of shares of Series F Preferred Stock represented by a certificate surrendered for conversion, the Company shall issue and deliver to such holder at the expense of the Company, a new certificate covering the number of shares of Series F Preferred Stock representing the unconverted portion of the certificate so surrendered as required by Section 5(b)(ii).

(m)Regulatory Compliance.  If any shares of Common Stock to be reserved for the purpose of conversion of Series F Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.

6.No Preemptive Rights.  No holder of the Series F Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable.

7.Conversion Restriction.  Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series F Preferred Stock convert shares of the Series F Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would cause the number of shares of Common Stock owned by such holder at such time to exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 4.99% of the then issued and outstanding shares of Common Stock outstanding at such time; provided, however, that upon a holder of Series F Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the “Waiver Notice”) that such holder would like to waive Section 7 of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series F Preferred Stock, this Section 7 shall be of no force or effect with regard to those shares of Series F Preferred Stock referenced in the Waiver Notice.

8.Intentionally Omitted.

9.Negative Covenants.  So long as any shares of Series F Preferred Stock are outstanding, without the consent of the holders owning of record not less than 66% of the shares of Series F Preferred Stock then outstanding, this Company will not and will not permit any of its Subsidiaries to directly or indirectly:

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(a)Amend its certificate of incorporation, bylaws, or other charter documents so as to affect any rights of any Holder (for the avoidance of doubt, the filing of amendments to the Company’s certificate of incorporation to file a certificate of designation for any Series F Preferred Stock), is specifically permitted); or

(b)Enter into any agreement with respect to the foregoing.

10.Inability to Fully Convert.

(a)Holder’s Option if Company Cannot Fully Convert.  If, upon the Company’s receipt of a Conversion Notice, the Company cannot issue shares of Common Stock for any reason, the holder, solely at such holder’s option, can elect, within five (5) business days after receipt of notice from the Company thereof to:

(i)void its Conversion Notice and retain or have returned, as the case may be, the shares of Series F Preferred Stock that were to be converted pursuant to such holder’s Conversion Notice (provided that a holder’s voiding of its Conversion Notice shall not effect the Company’s obligations to make any payments which have accrued prior to the date of such notice); or

(ii)require the Company to redeem from such holder those shares of Series F Preferred Stock for which the Company is unable to issue Common Stock in accordance with such holder’s Conversion Notice (“Mandatory Redemption”) at a price per share equal to one hundred ten percent (110%) of the Liquidation Preference Amount, plus any declared but unpaid dividends as of such Conversion Date (the “Mandatory Redemption Price”).

(b)Mechanics of Fulfilling Holder’s Election.  The Company shall immediately send via facsimile to a holder of Series F Preferred Stock, upon receipt of a facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as described in Section 10(a), above, a notice of the Company’s inability to fully satisfy such holder’s Conversion Notice (the “Inability to Fully Convert Notice”).  Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder’s Conversion Notice, (ii) the number of Series F Preferred Stock which cannot be converted, and (iii) the applicable Mandatory Redemption Price.  Such holder shall notify the Company of its election pursuant to Section 10(a), above, by delivering written notice via facsimile to the Company (the “Notice in Response to Inability to Convert”).

(c)Payment of Redemption Price.  If such holder shall elect to have its shares redeemed pursuant to Section 10(a)(i) above, the Company shall pay the Mandatory Redemption Price to such holder within thirty (30) days of the Company’s receipt of the holder’s Notice in Response to Inability to Convert, provided that, prior to the Company’s receipt of the holder’s Notice in Response to Inability to Convert, the Company has not delivered a notice to such holder stating, to the satisfaction of the holder, that the event or condition resulting in the Mandatory Redemption has been cured and all Conversion Shares issuable to such holder can and will be delivered to the holder in accordance with the terms hereof.  If the Company shall fail to pay the applicable Mandatory Redemption Price to such holder on a timely basis as described in this Section 10(c) (other than pursuant to a dispute as to the determination of the arithmetic calculation of the Redemption Price), in addition to any remedy such holder of Series F Preferred Stock may have under this Certificate of Designation, such unpaid amount shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full.  Until the full Mandatory Redemption Price is paid in full to such holder, such holder may (i) void the Mandatory Redemption with respect to those Series F Preferred Stock for which the full Mandatory Redemption Price has not been paid and (ii) receive back such Series F Preferred Stock.

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(d)Pro-rata Conversion and Redemption.  In the event the Company receives a Conversion Notice from more than one holder of Series F Preferred Stock on the same day and the Company can convert and redeem some, but not all, of the Series F Preferred Stock pursuant to this Section 10, the Company shall convert and redeem from each holder of Series F Preferred Stock electing to have Series F Preferred Stock converted and redeemed at such time an amount equal to such holder’s pro-rata amount (based on the number shares of Series F Preferred Stock held by such holder relative to the number shares of Series F Preferred Stock outstanding) of all shares of Series F Preferred Stock being converted and redeemed at such time.

11.Vote to Change the Terms of or Issue Preferred Stock.  The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting of the holders of not less than sixty-six percent (66%) of the then outstanding shares of Series F Preferred Stock (in addition to any other corporate approvals then required to effect such action) shall be required for any change to this Certificate of Designation or the Company’s Certificate of Incorporation which would amend, alter, change, or repeal any of the powers, designations, preferences and rights of the Series F Preferred Stock.

12.Lost or Stolen Certificates.  Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of any Preferred Stock Certificates representing the shares of Series F Preferred Stock, and, in the case of loss, theft, or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided, however, the Company shall not be obligated to re-issue Preferred Stock Certificates if the holder contemporaneously requests the Company to convert such shares of Series F Preferred Stock into Common Stock.

13.Remedies, Characterizations, Other Obligations, Breaches, and Injunctive Relief.  The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder’s right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation.  Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series F Preferred Stock and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Series F Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

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14.Specific Shall Not Limit General; Construction.  No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein.  This Certificate of Designation shall be deemed to be jointly drafted by the Company and all initial purchasers of the Series F Preferred Stock and shall not be construed against any person as the drafter hereof.

15.Failure or Indulgence Not Waiver.  No failure or delay on the part of a holder of Series F Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

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IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate and does affirm the foregoing as true this 30th day of June, 2008.

BPO MANAGEMENT SERVICES, INC.
By:	/s/ James Cortens
	James Cortens, President

- 14 - -

EXHIBIT I

BPO MANAGEMENT SERVICES, INC.

CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock of BPO Management Services, Inc. (the “Certificate of Designation”).  In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series F Convertible Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of BPO Management Services, Inc., a Delaware corporation (the “Company”), indicated below into shares of Common Stock, par value $0.01 per share (the “Common Stock”), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

	Date of Conversion:
	Number of Preferred Shares to be converted:
	Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
	Conversion Price:
	Number of shares of Common Stock to be issued:
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion:
Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:
	Issue to:
	Facsimile Number:
	Authorization:
		By:
		Title:
Dated:

- 15 - - 

EX-3.11

EXHIBIT 3.11

CERTIFICATE OF AMENDMENT

TO

THE CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND

PREFERENCES OF THE SERIES D CONVERTIBLE PREFERRED STOCK

OF

BPO MANAGEMENT SERVICES, INC.

FILED IN THE OFFICE OF THE

SECRETARY OF STATE OF DELAWARE

on June 12, 2007

BPO Management Services, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify that:

FIRST:  The Board of Directors of the Corporation, pursuant to a written consent dated August 25, 2008, duly adopted resolutions setting forth proposed amendments to the Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock of the Corporation, filed with the Secretary of State of Delaware on June 13, 2007, and amended April 25, 2008, declaring said amendments to be advisable and directing the same to be submitted to the holders of the Series D Convertible Preferred Stock of the Corporation for consideration thereof.  The resolutions setting forth the proposed amendments are as follows:

RESOLVED, that, subject to approval of holders of the Series D Convertible Preferred Stock of the Corporation, Section 7 of the Series D Convertible Preferred Stock of the Corporation is deleted in its entirety and is replaced by the following:

“Conversion Restriction.  Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series D Preferred Stock convert shares of the Series D Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would cause the number of shares of Common Stock owned by such holder and its affiliates at such time to exceed, when aggregated with all other shares of Common Stock owned by such holder and its affiliates at such time, the number of shares of Common Stock which would result in such holder and its affiliates beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.99% of the then issued and outstanding shares of Common Stock outstanding at such time; provided, however, that upon a holder of Series D Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the “Waiver Notice”) that such holder would like to waive Section 7 of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series D Preferred Stock, this Section 7 shall be of no force or effect with regard to those shares of Series A Preferred Stock referenced in the Waiver Notice.  Notwithstanding the foregoing, these conversion restrictions shall not be applicable to Renaissance Capital Group, Inc. and its affiliates (collectively “Renn”), if Renn so notifies the Company (either in writing or by email) prior to the date of issuance of the securities to which this paragraph is applicable.”

SECOND:  Thereafter, pursuant to a resolution of the Board of Directors of the Corporation, and in lieu of a meeting and vote of such holders, the holders of the Series D Convertible Preferred Stock of the Corporation have given written consent to said amendments in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware as also required by the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock of the Corporation, filed with the Secretary of State of Delaware on June 13, 2007, as amended April 25, 2008, and written notice of the adoption of the amendments has been given as provided in Section 228 of the General Corporation Law of the State of Delaware to every holder of the Series D Convertible Preferred Stock of the Corporation entitled to such notice.

THIRD:  The aforesaid amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, BPO MANAGEMENT SERVICES, INC. has caused this Certificate to be executed by its duly authorized officers on this 28th day of August, 2008.

BPO MANAGEMENT SERVICES, INC., a Delaware corporation
By:	/s/ Patrick A. Dolan
	Patrick A. Dolan, Chief Executive Officer
By:	/s/ James Cortens
	James Cortens, Secretary

EX-3.12

EXHIBIT 3.12

CERTIFICATE OF AMENDMENT

TO

THE CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND

PREFERENCES OF THE SERIES D-2 CONVERTIBLE PREFERRED STOCK

OF

BPO MANAGEMENT SERVICES, INC.

FILED IN THE OFFICE OF THE

SECRETARY OF STATE OF DELAWARE

on June 12, 2007

BPO Management Services, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify that:

FIRST:  The Board of Directors of the Corporation, pursuant to a written consent dated August 25, 2008, duly adopted resolutions setting forth proposed amendments to the Certificate of Designation of the Relative Rights and Preferences of the Series D-2 Convertible Preferred Stock of the Corporation, filed with the Secretary of State of Delaware on June 13, 2007, and amended April 25, 2008, declaring said amendments to be advisable and directing the same to be submitted to the holders of the Series D-2 Convertible Preferred Stock of the Corporation for consideration thereof.  The resolutions setting forth the proposed amendments are as follows:

RESOLVED, that, subject to approval of holders of the Series D-2 Convertible Preferred Stock of the Corporation, Section 7 of the Series D-2 Convertible Preferred Stock of the Corporation is deleted in its entirety and is replaced by the following:

“Conversion Restriction.  Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series D Preferred Stock convert shares of the Series D-2 Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would cause the number of shares of Common Stock owned by such holder and its affiliates at such time to exceed, when aggregated with all other shares of Common Stock owned by such holder and its affiliates at such time, the number of shares of Common Stock which would result in such holder and its affiliates beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.99% of the then issued and outstanding shares of Common Stock outstanding at such time; provided, however, that upon a holder of Series D Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the “Waiver Notice”) that such holder would like to waive Section 7 of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series D-2 Preferred Stock, this Section 7 shall be of no force or effect with regard to those shares of Series A Preferred Stock referenced in the Waiver Notice.  Notwithstanding the foregoing, these conversion restrictions shall not be applicable to Renaissance Capital Group, Inc. and its affiliates (collectively “Renn”), if Renn so notifies the Company (either in writing or by email) prior to the date of issuance of the securities to which this paragraph is applicable.”

SECOND:  Thereafter, pursuant to a resolution of the Board of Directors of the Corporation, and in lieu of a meeting and vote of such holders, the holders of the Series D-2 Convertible Preferred Stock of the Corporation have given written consent to said amendments in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware as also required by the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series D-2 Convertible Preferred Stock of the Corporation, filed with the Secretary of State of Delaware on June 13, 2007, as amended April 25, 2008, and written notice of the adoption of the amendments has been given as provided in Section 228 of the General Corporation Law of the State of Delaware to every holder of the Series D-2 Convertible Preferred Stock of the Corporation entitled to such notice.

THIRD:  The aforesaid amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, BPO MANAGEMENT SERVICES, INC. has caused this Certificate to be executed by its duly authorized officers on this 28th day of August, 2008.

BPO MANAGEMENT SERVICES, INC., a Delaware corporation
By:	/s/ Patrick A. Dolan
	Patrick A. Dolan, Chief Executive Officer
By:	/s/ James Cortens
	James Cortens, Secretary

EX-3.13

EXHIBIT 3.13

CERTIFICATE OF AMENDMENT

TO

THE CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND

PREFERENCES OF THE SERIES F CONVERTIBLE PREFERRED STOCK

OF

BPO MANAGEMENT SERVICES, INC.

FILED IN THE OFFICE OF THE

SECRETARY OF STATE OF DELAWARE

on June 30, 2008

BPO Management Services, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify that:

FIRST:  The Board of Directors of the Corporation, pursuant to a written consent dated August 25, 2008, duly adopted resolutions setting forth proposed amendments to the Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock of the Corporation, filed with the Secretary of State of Delaware on June 30, 2007, declaring said amendments to be advisable and directing the same to be submitted to the holders of the Series F Convertible Preferred Stock of the Corporation for consideration thereof.  The resolutions setting forth the proposed amendments are as follows:

RESOLVED, that Section 7 of the Series F Convertible Preferred Stock of the Corporation is deleted in its entirety and is replaced by the following:

“Conversion Restriction.  Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series D Preferred Stock convert shares of the Series F Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would cause the number of shares of Common Stock owned by such holder and its affiliates at such time to exceed, when aggregated with all other shares of Common Stock owned by such holder and its affiliates at such time, the number of shares of Common Stock which would result in such holder and its affiliates beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.99% of the then issued and outstanding shares of Common Stock outstanding at such time; provided, however, that upon a holder of Series D Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the “Waiver Notice”) that such holder would like to waive Section 7 of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series F Preferred Stock, this Section 7 shall be of no force or effect with regard to those shares of Series A Preferred Stock referenced in the Waiver Notice.  Notwithstanding the foregoing, these conversion restrictions shall not be applicable to Renaissance Capital Group, Inc. and its affiliates (collectively “Renn”), if Renn so notifies the Company (either in writing or by email) prior to the date of issuance of the securities to which this paragraph is applicable.”

SECOND:  Section 242 General Corporation Law of the State of Delaware requires that any amendment that affects the powers, preferences, or special rights of a class or series of capital stock shall be approved by the holders of the outstanding shares of such class, and since, as of the date hereof, there are no holders of Series F Convertible Preferred Stock, no such vote is required.

THIRD:  The aforesaid amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, BPO MANAGEMENT SERVICES, INC. has caused this Certificate to be executed by its duly authorized officers on this 28th day of August, 2008.

BPO MANAGEMENT SERVICES, INC., a Delaware corporation
By:	/s/ Patrick A. Dolan
	Patrick A. Dolan, Chief Executive Officer
By:	/s/ James Cortens
	James Cortens, Secretary

EX-10.64

EXHIBIT 10.64

AGREEMENT AND PLAN OF MERGER

HealthAxis Inc.,

Outsourcing Merger Sub, Inc.,

and

BPO Management Services, Inc.

Dated as of September 5, 2008

TABLE OF CONTENTS

		Page
ARTICLE 1 DEFINITIONS, SCHEDULES AND EXHIBITS		2
1.1	Definitions	2
1.2	Schedules	4
1.3	Exhibits	5
ARTICLE 2 DESCRIPTION OF THE TRANSACTIONS		5
2.1	BPOMS Pre-Merger Steps	5
2.2	HealthAxis Pre-Merger Steps	6
2.3	The Merger	8
2.4	Effects of the Merger	8
2.5	The Closing	8
2.6	Effective Time	8
2.7	Corporate Organization	8
2.8	Directors and Officers of Surviving Corporation and HealthAxis	9
2.9	Tax Consequences	9
ARTICLE 3 CONVERSION OF SECURITIES		9
3.1	Conversion of Merger Sub Shares	9
3.2	Conversion of BPOMS Common Stock	9
3.3	Conversion of BPOMS Preferred Stock	10
3.4	Conversion of BPOMS Investor Warrants	11
3.5	Conversion of BPOMS Employee Stock Options and Non-Investor Warrants	12
3.6	Adjustments	13
3.7	Reservation of Shares	15
3.8	Dissenting BPOMS Stockholders	16
ARTICLE 4 EXCHANGE OF SHARES		16
4.1	Exchange of Common Stock Certificates	16
4.2	Exchange of Preferred Stock Certificates and Penny Warrants	18
4.3	Withholding Rights	19
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BPOMS		19
5.1	Organization; Good Standing; Authority; Compliance with Law	20

i

TABLE OF CONTENTS

(continued)

		Page
5.2	Authorization, Validity and Effect of Agreements	21
5.3	Capitalization	21
5.4	Subsidiaries	23
5.5	Other Interests	24
5.6	No Violation	24
5.7	SEC Filings; Financial Statements	25
5.8	Litigation	26
5.9	Absence of Certain Changes	26
5.10	Taxes	28
5.11	Books and Records	30
5.12	Properties	31
5.13	Environmental Matters	31
5.14	Brokers	32
5.15	Related Party Transactions	32
5.16	Contracts and Commitments	32
5.17	Employee Matters and Benefit Plans	34
5.18	Intellectual Property	38
5.19	Anti-Takeover Plan	42
5.20	Shareholder Vote Required	42
5.21	Undisclosed Liabilities	42
5.22	Insurance	42
5.23	Financial Forecast and Relationships with Suppliers, Licensors and Customers	43
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF HEALTHAXIS AND MERGER SUB		43
6.1	Organization; Good Standing; Authority; Compliance with Law	43
6.2	Authorization, Validity and Effect of Agreements	44
6.3	Capitalization	45
6.4	Subsidiaries	47
6.5	Other Interests	47
6.6	No Violation	47

ii

TABLE OF CONTENTS

(continued)

		Page
6.7	SEC Filings; Financial Statements	48
6.8	Litigation	49
6.9	Absence of Certain Changes	49
6.10	Taxes	52
6.11	Books and Records	54
6.12	Properties	54
6.13	Environmental Matters	54
6.14	No Brokers	55
6.15	Related Party Transactions	55
6.16	Contracts and Commitments	55
6.17	Employee Matters and Benefit Plans	57
6.18	Intellectual Property and Products; HIPAA Compliance	60
6.19	Anti-Takeover Matters	63
6.20	Shareholder Vote Required	64
6.21	Undisclosed Liabilities	64
6.22	Insurance	64
6.23	Financial Forecast and Relationships with Suppliers, Licensors and Customers	64
6.24	Continuity of Business Enterprise	64
6.25	Ownership of BPOMS Shares	65
ARTICLE 7 COVENANTS AND OTHER AGREEMENTS		65
7.1	Conduct of Businesses	65
7.2	BPOMS Stockholders Meeting	70
7.3	HealthAxis Fairness Hearing; Stockholders Meeting	71
7.4	Approvals; Other Action	73
7.5	Access to Information; Confidentiality	74
7.6	Publicity	74
7.7	Listing of HealthAxis Common Stock	75
7.8	Further Action	75
7.9	Tax Treatment	75

iii

TABLE OF CONTENTS

(continued)

		Page
7.10	No Solicitation	75
7.11	Notice of Certain Events	78
7.12	Directors and Officers	79
7.13	Indemnification and Insurance	79
7.14	Restrictions on Transfer	81
ARTICLE 8 CONDITIONS		81
8.1	Conditions to Each Party’s Obligation to Effect the Merger	81
8.2	Conditions to Obligations of BPOMS to Effect the Merger	81
8.3	Conditions to Obligations of HealthAxis and Merger Sub to Effect the Merger	82
ARTICLE 9 TERMINATION		83
9.1	Termination	83
9.2	Effect of Termination	85
9.3	Expenses and Termination Fee	85
9.4	Extension; Waiver	86
ARTICLE 10 GENERAL PROVISIONS		87
10.1	Nonsurvival of Representations, Warranties and Agreements	87
10.2	Notices	87
10.3	Assignment; Binding Effect; Benefit	88
10.4	Entire Agreement	88
10.5	Confidentiality	88
10.6	Amendment	89
10.7	Governing Law; Attorneys’ Fees	89
10.8	Counterparts	89
10.9	Headings	89
10.10	Waivers	89
10.11	Incorporation	90
10.12	Severability	90
10.13	Interpretation	90
10.14	Specific Performance	90

iv

TABLE OF CONTENTS

(continued)

SCHEDULES
Schedule 2.1(b)	BPOMS Cap Table
Schedule 2.2(b)	HealthAxis Cap Table
EXHIBITS
Exhibit A	HealthAxis Voting Agreement
Exhibit B	BPOMS Voting Agreement
Exhibit C	BPOMS Series F Certificate of Designation
Exhibit D	BPOMS Series F Convertible Preferred Stock Issuance Agreement
Exhibit E	HealthAxis/Tak Termination Agreement
Exhibit F	HealthAxis/Preferred Conversion and Termination Agreement
Exhibit G	Lewis Warrant Termination Agreement
Exhibit H	Amendment to the Remote Resourcing Agreement
Exhibit I	HealthAxis Articles of Amendment
Exhibit J	HealthAxis Series B Certificate of Designation

v

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into as of September 5, 2008, among HealthAxis Inc., a Pennsylvania corporation (“HealthAxis”), Outsourcing Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of HealthAxis (“Merger Sub”) and BPO Management Services, Inc., a Delaware corporation (“BPOMS”).  Each of HealthAxis, Merger Sub and BPOMS are sometimes referred to herein as a “Party” or, collectively, the “Parties”.

RECITALS

A.HealthAxis, Merger Sub and BPOMS intend to effect a merger of Merger Sub into BPOMS (the “Merger”) in accordance with this Agreement and the Delaware General Corporation Law (“DGCL”), as a result of which Merger Sub will cease to exist, and BPOMS will become a wholly owned subsidiary of HealthAxis.

B.BPOMS, HealthAxis and Merger Sub intend that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code.

C.The Board of Directors of HealthAxis, after consideration of the fairness opinion rendered by its investment advisor and other relevant factors: (i) has determined that this Agreement and the transactions and other matters contemplated hereby are advisable and in the best interests of HealthAxis and its stockholders, (ii) has approved this Agreement and the transactions and other matters contemplated hereby, including the issuance of shares of HealthAxis Common Stock and HealthAxis Preferred Stock to the stockholders of BPOMS pursuant to the terms of this Agreement, the HealthAxis Pre-Merger Steps (as hereinafter defined) and the other actions contemplated by this Agreement and (iii) has determined to recommend that the stockholders of HealthAxis vote to approve this Agreement and the transactions and other matters contemplated by this Agreement.

D.The Board of Directors of Merger Sub: (i) has determined that this Agreement and the Merger are advisable and in the best interests of Merger Sub and its sole stockholder, (ii) has approved this Agreement, the Merger, and the other actions contemplated by this Agreement, (iii) has adopted this Agreement and (iv) has determined to recommend that the stockholder of Merger Sub vote to adopt this Agreement and to approve the Merger and such other actions as are contemplated by this Agreement.

E.The Board of Directors of BPOMS: (i) has determined that the proposed Merger is advisable and is in the best interests of BPOMS and its stockholders, (ii) has approved this Agreement, the Merger, the BPOMS Pre-Merger Steps (as hereinafter defined) and the other actions contemplated by this Agreement, (iii) has adopted this Agreement and (iv) has determined to recommend that the stockholders of BPOMS vote to adopt this Agreement and to approve the Merger and such other transactions as are contemplated by this Agreement.

F.As a condition and inducement to the Parties entering into this Agreement and incurring the obligations set forth herein, concurrently with the execution and delivery of this Agreement (i) certain HealthAxis stockholders are entering into the HealthAxis Voting Agreement in the form attached as Exhibit A and certain BPOMS stockholders are entering into the BPOMS Voting Agreement in the form attached as Exhibit B with respect to the voting of their shares of HealthAxis and BPOMS, respectively, in connection with the transactions contemplated by this Agreement, and (ii) certain HealthAxis security holders are entering into the agreements referenced in Section 2.2(a) below in connection with the HealthAxis Pre-Merger Steps and BPOMS has entered into certain agreements and taken other steps, as referenced in Section 2.1(a) below in connection with the BPOMS Pre-Merger Steps.

1

AGREEMENT

In consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows:

ARTICLE 1

DEFINITIONS, SCHEDULES AND EXHIBITS

1.1Definitions

In this Agreement, the following terms shall have the meanings set out in the paragraphs indicated below:

“Additional Financing”	7.10(a)
“Affiliate”	5.17(a)(i)
“BPOMS Cap Table”	2.1(b)
“BPOMS Common Share” and collectively “BPOMS Common Shares”	3.2(a)
“BPOMS Common Stock”	3.2(a)
“BPOMS Contracts”	5.16(a)
“BPOMS Convertible Preferred Stock”	3.6(d)
“BPOMS Designees	7.12
“BPOMS Disclosure Letter”	Article 5
“BPOMS Forecast”	5.23
“BPOMS Intellectual Property”	5.18(a)(ii)
“BPOMS Investor Warrants	3.4
“BPOMS Material Adverse Effect”	5.1(a)
“BPOMS Meeting”	7.2(a)
“BPOMS Non-Investor Warrants”	3.5(a)
“BPOMS Option”	3.5(a)
“BPOMS Outstanding Investor Warrants”	3.4(c)
“BPOMS Penny Warrants	4.2(a)
“BPOMS Pre-Merger Steps	2.1(a)
“BPOMS Products”	5.18(e)
“BPOMS Proxy Statement”	7.2(b)
“BPOMS Registered Intellectual Property”	5.18(a)(iii)
“BPOMS SEC Documents”	5.7(a)
“BPOMS Series A Preferred Shares”	5.3(a)

2

“BPOMS Series B Preferred Shares”	5.3(a)
“BPOMS Series C Preferred Shares”	5.3(a)
“BPOMS Series D Preferred Shares”	5.3(a)
“BPOMS Series D-2 Preferred Shares”	5.3(a)
“BPOMS Series F Preferred Shares”	2.1(a)(ii)
“BPOMS Subsidiaries” and, individually, a “BPOMS Subsidiary”	5.4
“California Permit”	7.3(a)
“Cancelled BPOMS Common Shares”	3.2(b)
“Certificates”	4.1(b)
“Certifications”	5.7(a) and 6.7(a)
“Closing”	2.5
“Closing Date”	2.5
“Code”	2.9
“Delaware Courts”	10.7
“Dissenting Common Stock”	3.8
“Domain Names”	5.18(l)
“Effective Time”	2.6
“Employee”	5.17(a)(ii)
“Employee Agreement”	5.17(a)(iii)
“Employee Plan”	5.17(a)(iv)
“Environmental Laws”	5.13
“ERISA”	5.17(a)(v)
“Exchange Act”	5.6, 7.2(b) and 7.3(d)
“Exchange Agent”	4.1(a)
“Exchange Merger Consideration”	4.1(b)
“Exchange Ratio”	3.2(a) and 3.3(b)
“Exchange Ratios”	3.6(a)
“Fairness Hearing”	7.3(a)
“GAAP”	5.7(c)
“Government Agencies”	5.1(c)
“Government Approvals”	5.1(c)
“HealthAxis Cap Table”	2.2(b)
“HealthAxis Contracts”	6.16(a)
“HealthAxis Common Shares”	3.2(a)
“HealthAxis Common Stock”	3.2(a)
“HealthAxis Disclosure Letter”	Article 6
“HealthAxis Domain Names”	6.18(k)
“HealthAxis Forecast”	6.23
“HealthAxis Intellectual Property”	6.18(a)
“HealthAxis Material Adverse Effect”	6.1(a)
“HealthAxis Meeting”	7.3(c)
“HealthAxis Pre-Merger Steps”	2.2(a)
“HealthAxis Products”	6.18(d)
“HealthAxis Proxy Statement”	7.3(d)

3

“HealthAxis SEC Documents”	6.7(a)
“HealthAxis Series A Preferred Shares”	6.3(a)
“HealthAxis Series B Preferred Shares”	2.2(a)(vi)
“HealthAxis Subsidiaries” and, individually, a “HealthAxis Subsidiary”	6.1(b) and 6.4
“HealthAxis Registered Intellectual Property”	6.18(b)
“HealthAxis/Preferred Investor Rights Agreement”	2.2(a)(ii)
“HealthAxis/Preferred Registration Rights Agreement”	2.2(a)(ii)
“HealthAxis/Tak Investor Rights Agreement”	2.2(a)(i)
“HealthAxis/Tak Registration Rights Agreement”	2.2(a)(i)
“HIPPA”	6.18(m)
“Indemnified Parties”	7.13(b)
“Intellectual Property”	5.18(a)(i)
“IRS”	5.17(vi)
“Merger”	2.3
“Multiemployer Plan”	5.17(a)(vii)
“Non-Disclosure Agreement”	10.5
“Pension Plan”	5.17(a)(viii)
“Preferred Certificates”	4.2(a)
“PTO”	5.18(b)
“Regulatory Filings”	5.6
“Representative”	7.10(c)(2)
“Reporting Tail Coverage”	7.13(d)
“Reverse Split”	2.2(a)(v)
“SEC”	3.5(c)
“Securities Act”	3.5(c)
“Surviving Corporation”	2.3
“Series C Exchange Ratio”	3.3(c)
“Series C Warrant Exchange Ratio	3.4(a)
“Series D Exchange Ratio”	3.3(d)
“Series D Warrant Exchange Ratio	3.4(b)
“Series D-2 Exchange Ratio”	3.3(e)
“Series F Exchange Ratio”	3.3(f)
“SVB Loan Agreement”-	7.1(c)(x)
“Taxes”	5.10(a) and 6.10(a)
“Tax Returns”	5.10(b) and 6.10(b)
“Termination Date”	9.1(h)
“Utilize” or “Utilization”	5.18(a)(iv)

1.2Schedules

The schedules to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement.  All schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein.  Any capitalized terms used in any Schedule but not otherwise defined therein shall be defined as set forth in this Agreement.  The Schedules are as follow:

4

Schedule 2.1(b)	BPOMS Cap Table
Schedule 2.2(b)	HealthAxis Cap Table

1.3Exhibits

The following documents are referred to herein as Exhibits and copies are annexed hereto:

Exhibit A	HealthAxis Voting Agreement
Exhibit B	BPOMS Voting Agreement
Exhibit C	BPOMS Series F Certificate of Designation
Exhibit D	BPOMS Series F Convertible Preferred Stock Issuance Agreement
Exhibit E	HealthAxis/Tak Termination Agreement
Exhibit F	HealthAxis/Preferred Conversion and Termination Agreement
Exhibit G	Lewis Warrant Termination Agreement
Exhibit H	Amendment to the Remote Resourcing Agreement
Exhibit I	HealthAxis Articles of Amendment
Exhibit J	HealthAxis Series B Certificate of Designation

ARTICLE 2

DESCRIPTION OF THE TRANSACTIONS

2.1BPOMS Pre-Merger Steps.

(a)Prior to the date of this Agreement BPOMS has issued shares of its capital stock, authorized the grant of options to purchase shares of its capital stock and taken certain other steps, as follows (the “BPOMS Pre-Merger Steps”):

(i)by issuing 583,333 shares of BPOMS Series D-2 Preferred Stock pursuant to the exercise by investors of the amended BPOMS Series J Preferred Stock Purchase Warrants for aggregate net proceeds of $5,600,000,

(ii)by creating a new series of preferred stock designated as Series F Convertible Preferred Stock (the “BPOMS Series F Preferred Shares”) pursuant to the BPOMS Series F Certificate of Designations in the form attached hereto as Exhibit C;

(iii)by issuing 894,942 shares of BPOMS Series F Preferred Stock pursuant to the exchange of certain amended BPOMS Series A Purchase Warrants, BPOMS Series B Purchase Warrants, and those BPOMS Series D Purchase Warrants having an exercise price of $1.10, pursuant to the BPOMS Series F Convertible Preferred Stock Issuance Agreement in the form attached as Exhibit D;

(iv)by entering into that certain Waiver and Amendment Agreement, Amended and Restated Warrant Acknowledgment, Second Amendment to Series D Convertible Stock Purchase Agreement and Third Amendment to Series D Convertible Stock Purchase Agreement each in the form previously approved by Healthaxis, with those parties necessary to achieve the intended legal effect of the provisions set forth therein; and

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(v)by increasing the number of options to purchase BPOMS Common Stock issuable pursuant to the amended BPOMS’ 2007 Stock Incentive Plan to an aggregate of 12,300,000 options, some or all of which may, at the discretion of the board of directors of BPOMS, be granted to certain employees, directors and advisors of BPOMS prior to the Effective Time at exercise prices to be established as of the dates of such grants.

(b)As a result of the BPOMS Pre-Merger Steps (assuming that all of the increased number of options to purchase BPOMS Common Stock referred to in subparagraph 2.1(a)(v) hereof are granted prior to the Effective Time), the number and class of issued and outstanding securities of BPOMS at the Effective Time will be as set forth in the table (the “BPOMS Cap Table”) attached as Schedule 2.1(b).

2.2HealthAxis Pre-Merger Steps.

(a)On the terms and subject to the conditions of this Agreement, at or prior to the Effective Time, as a condition precedent to the Merger, HealthAxis shall have carried out the following re-structuring of its capital and related matters (the “HealthAxis Pre-Merger Steps”):

(i)the termination and cancellation of all HealthAxis Warrants issued to Tak Investments, Inc., and the termination of the HealthAxis Investor Rights Agreement dated May 13, 2005 with Tak Investments, Inc. (the “HealthAxis/Tak Investor Rights Agreement”) and the HealthAxis Registration Rights Agreement dated May 13, 2005 with Tak Investments, Inc. (the “HealthAxis/Tak Registration Rights Agreement”), in accordance with the HealthAxis/Tak Termination Agreement in the form attached hereto as Exhibit E;

(ii)the conversion of all outstanding shares of HealthAxis Series A Preferred Stock into 740,401 shares of HealthAxis Common Stock and the termination of the HealthAxis Investor Rights Agreement dated June 30, 2004 with holders of the HealthAxis Series A Preferred Stock (the “HealthAxis/Preferred Investor Rights Agreement”) and the HealthAxis Registration Rights Agreement dated June 30, 2004 with holders of the HealthAxis Series A Preferred Stock (the “HealthAxis/Preferred Registration Rights Agreement”) pursuant to the HealthAxis/Preferred Conversion and Termination Agreement in the form attached hereto as Exhibit F;

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(iii)the termination and cancellation of the HealthAxis Warrant held by Lewis Opportunity Fund in accordance with the Lewis Warrant Termination Agreement in the form attached hereto as Exhibit G;

(iv)the amendment of the Remote Resourcing Agreement dated May 13, 2005 between HealthAxis, Ltd., a subsidiary of HealthAxis, and Healthcare BPO Partners, L.P., an affiliate of Tak Investments, Inc., pursuant to the amendment in the form attached hereto as Exhibit H;

(v)a reverse split of the shares of HealthAxis Common Stock in a ratio to be determined by the Board of Directors of HealthAxis (within a range approved by the HealthAxis shareholders) (the “Reverse Split”) pursuant to the filing with the Pennsylvania Department of State of the HealthAxis Articles of Amendment substantially in the form attached hereto as Exhibit I;

(vi)the Board of Directors of HealthAxis will adopt a resolution creating a new series of preferred stock designated as Series B Convertible Preferred Stock (the “HealthAxis Series B Preferred Shares”), to which will be attached the rights, preferences and other provisions as set out in the HealthAxis Series B Certificate of Designations in the form attached hereto as Exhibit J, subject to the adjustments contemplated by Section 3.6 hereof; and

(vii)the Board of Directors of HealthAxis will authorize and approve the addition of approximately 3,000,000 shares of HealthAxis Common Stock (prior to giving effect to the Reverse Split) to the HealthAxis Inc. 2005 Stock Incentive Plan (or to a new plan developed by HealthAxis) and, to the extent required by the rules of the Nasdaq Stock Market, Inc., the shareholders of HealthAxis will approve such additional shares.

In order to carry out the HealthAxis Pre-Merger Steps, following execution of this Agreement, HealthAxis will use its best efforts to take the steps and actions and obtain all approvals as may be required by the provisions of paragraphs (i) to (vii) of this paragraph 2.2(a).

(b)Subject to the terms and conditions of this Agreement, following the completion of the HealthAxis Pre-Merger Steps, immediately prior to the Effective Time, the number and class of issued and outstanding securities of HealthAxis will be as set forth in the table (the “HealthAxis Cap Table”) attached hereto as Schedule 2.2(b).

(c)No fractional shares of HealthAxis’ Common Stock shall be issued in connection with the Reverse Split, and no certificates or scrip for any such fractional shares shall be issued.  Any holder of HealthAxis Common Stock who would otherwise be entitled to receive a fraction of a share as a result of the Reverse Split shall, in lieu of such fraction of a share, receive one full share of HealthAxis Common Stock.

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2.3The Merger.

Upon the terms and subject to the conditions contained in this Agreement, at the Effective Time, Merger Sub shall be merged with and into BPOMS, and the separate corporate existence of Merger Sub shall thereupon cease (the “Merger”). BPOMS shall continue as the surviving corporation in the Merger (the “Surviving Corporation”).

2.4Effects of the Merger.

The Merger shall have the effects provided in this Agreement and the applicable provisions of the DGCL. As a result of the Merger, BPOMS will become a wholly owned subsidiary of HealthAxis.

2.5The Closing.

On the terms and subject to the conditions of this Agreement, the closing of the Merger (the “Closing”) shall take place at 10:00 a.m., local time, on (a) the third (3rd) business day immediately following the day on which the last of the conditions set forth in Article 8 shall be fulfilled or waived in accordance herewith, or (b) at such other time, date or place as BPOMS and HealthAxis may otherwise agree in writing. Unless the parties shall otherwise agree and subject to Article 8, the parties shall use their best efforts to cause the Closing to occur as soon as practicable after the last to occur of the BPOMS Meeting and the HealthAxis Meeting. The date on which the Closing occurs is hereinafter referred to as the “Closing Date”.

2.6Effective Time.

If all the conditions to the Merger set forth in Article 8 shall have been fulfilled or waived in accordance herewith, and this Agreement shall not have been terminated as provided in Article 9, the parties hereto shall cause a Certificate of Merger satisfying the requirements of the DGCL to be properly executed, verified and delivered for filing in accordance with the DGCL on the Closing Date. The Merger shall become effective upon the acceptance for record of the Certificate of Merger by the Secretary of State of the State of Delaware in accordance with the DGCL (but not earlier than the Closing Date) or at such later time that the parties hereto shall have agreed upon and designated in such filing in accordance with applicable law as the effective time of the Merger (the “Effective Time”).

2.7Corporate Organization.

(a)At the Effective Time, unless otherwise determined by BPOMS and HealthAxis prior to the Effective Time, the Certificate of Incorporation of the Surviving Corporation shall be the Certificate of Incorporation of Merger Sub immediately prior to the Effective Time, until thereafter amended as provided by the DGCL and such Certificate of Incorporation.

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(b)Unless otherwise determined by BPOMS and HealthAxis prior to the Effective Time, the By-laws of Merger Sub in effect immediately prior to the Effective Time shall be the By-laws of the Surviving Corporation.

(c)At the Effective Time, (i) HealthAxis shall file an amendment to its Amended and Restated Articles of Incorporation to change the name of HealthAxis to “BPO Management Services, Inc.”, and (ii) BPOMS shall file an amendment to its Amended and Restated Articles of Incorporation to change the name of BPOMS to “BPOMS, Inc.”.

2.8Directors and Officers of Surviving Corporation and HealthAxis.

(a)The directors of BPOMS immediately prior to the Effective Time shall initially become the directors of the Surviving Corporation as of the Effective Time, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation, until their respective successors are duly elected or appointed and qualified.

(b)The officers of BPOMS immediately prior to the Effective Time shall initially become the officers of the Surviving Corporation as of the Effective Time, until their respective successors are duly elected or appointed and qualified.

(c)The directors and officers of HealthAxis as of the Effective Time will be determined as provided by Section 7.12 hereof.

2.9Tax Consequences.

For federal income tax purposes, the Merger is intended to constitute a reorganization within the meaning of Section 368( a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the parties shall report the Merger consistent therewith. The parties to this Agreement hereby adopt this Agreement as a “plan of reorganization” within the meaning of Section 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.

ARTICLE 3

CONVERSION OF SECURITIES

3.1Conversion of Merger Sub Shares.

At the Effective Time, by virtue of the Merger and without any action on the part of HealthAxis, Merger Sub, BPOMS or the holders thereof, each share of common stock, $0.01 par value per share, of Merger Sub that is issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock, $0.01 par value per share, of the Surviving Corporation.

3.2Conversion of BPOMS Common Stock.

(a)At the Effective Time, by virtue of the Merger and without any action on the part of HealthAxis, Merger Sub, BPOMS or the holders thereof, each issued and outstanding share of common stock, par value $0.001 per share of BPOMS (the “BPOMS Common Stock”;each a “BPOMS Common Share”; and collectively, the “BPOMS Common Shares”) shall be converted into the right to receive 0.3393 (to be adjusted after determination of the Reverse Split and otherwise in accordance with Section 3.6) (the “Exchange Ratio”) shares of common stock, par value $0.10 per share, of HealthAxis (the “HealthAxis Common Stock”). The shares of HealthAxis Common Stock to be issued in connection with the Merger are sometimes referred to as the “HealthAxis Common Shares” and shall bear appropriate restrictive legends.

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(b)Each BPOMS Common Share held in BPOMS’ treasury, if any, immediately prior to the Effective Time (collectively, “Cancelled BPOMS Common Shares”) shall, at the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be canceled and retired and cease to exist and no payment shall be made with respect thereto.

(c)No fractional shares of HealthAxis Common Stock shall be issued under this Section in connection with the Merger, and no certificates or scrip for any such fractional shares shall be issued. Any holder of BPOMS Common Shares who would otherwise be entitled to receive a fraction of a share of HealthAxis Common Stock (after aggregating all fractional shares of HealthAxis Common Stock issuable to such holder) shall, in lieu of such fraction of a share and upon surrender of such holder’s Certificate(s) (as defined in Section 4.1 (b)), receive one full share of HealthAxis Common Stock.

3.3Conversion of BPOMS Preferred Stock.

(a)At the Effective Time, each share of BPOMS Series A Preferred Stock that is then outstanding and unconverted shall cease to represent a right to acquire shares of BPOMS Common Stock, and shall be converted automatically into a right to receive 0.3393 (to be adjusted after determination of the Reverse Split and otherwise in accordance with Section 3.6) (also called the “Exchange Ratio”) shares of HealthAxis Common Stock.

(b)At the Effective Time, each share of BPOMS Series B Preferred Stock that is then outstanding and unconverted shall cease to represent a right to acquire shares of BPOMS Common Stock, and shall be converted automatically into a right to receive 0.3393 (to be adjusted after determination of the Reverse Split and otherwise in accordance with Section 3.6) (also called the “Exchange Ratio”) shares of HealthAxis Common Stock.

(c)At the Effective Time, each share of BPOMS Series C Preferred Stock that is then outstanding shall be converted automatically into a right to receive 1.7700 (to be adjusted after determination of the Reverse Split and otherwise in accordance with Section 3.6) (the “Series C Exchange Ratio”) shares of HealthAxis Common Stock.

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(d)At the Effective Time, each share of BPOMS Series D Preferred Stock that is then outstanding and unconverted shall cease to represent a right to acquire shares of BPOMS Common Stock, and shall be converted automatically into a right to receive 5.4288 (to be adjusted after determination of the Reverse Split and otherwise in accordance with Section 3.6) (the “Series D Exchange Ratio”) shares of HealthAxis Series B Preferred Stock.

(e)At the Effective Time, each share of BPOMS Series D-2 Preferred Stock that is then outstanding and unconverted shall cease to represent a right to acquire shares of BPOMS Common Stock, and shall be converted automatically into a right to receive 5.4288 (to be adjusted after determination of the Reverse Split and otherwise in accordance with Section 3.6) (the “Series D-2 Exchange Ratio”) shares of HealthAxis Series B Preferred Stock.

(f)At the Effective Time, each share of BPOMS Series F Preferred Stock that is then outstanding and unconverted shall cease to represent a right to acquire shares of BPOMS Common Stock, and shall be converted automatically into a right to receive 8.4825 (to be adjusted after determination of the Reverse Split and otherwise in accordance with Section 3.6) (the “Series F Exchange Ratio”) shares of HealthAxis Series B Preferred Stock.

(g)No fractional shares of HealthAxis Common Stock or HealthAxis Series B Preferred Stock shall be issued under this Section in connection with the Merger, and no certificates or scrip for any such fractional shares shall be issued.  Any holder of BPOMS Series A Preferred Stock, BPOMS Series B Preferred Stock, BPOMS Series C Preferred Stock, BPOMS Series D Preferred Stock, BPOMS Series D-2 Preferred Stock or BPOMS Series F Preferred Stock who would otherwise be entitled to receive a fraction of a share of HealthAxis Common Stock or HealthAxis Series B Preferred Stock (after aggregating all fractional shares of HealthAxis Common Stock or HealthAxis Series B Preferred Stock issuable to such holder) shall, in lieu of such fraction of a share and upon surrender of such holder’s Preferred Certificates (as defined in Section 4.2(a)), receive one full share of HealthAxis Common Stock or HealthAxis Series B Preferred Stock, as the case may be.

3.4Conversion of BPOMS Investor Warrants

In this Agreement, BPOMS Series A Warrants, Series B Warrants, Series C Warrants and Series D Warrants (including both Series D Warrants with an exercise price of $0.01 and the Series D Warrants with an exercise price of $1.10) are collectively called the “BPOMS Investor Warrants”.  At the Effective Time, the BPOMS Investor Warrants will be dealt with as follows.

(a)At the Effective Time, each BPOMS Series C Warrant that is then outstanding and unexercised shall cease to represent a right to acquire shares of BPOMS Common Stock, and shall be converted automatically into a right to receive 0.3393 (to be adjusted after determination of the Reverse Split and otherwise in accordance with Section 3.6) (the “Series C Warrant Exchange Ratio”) shares of HealthAxis Series B Preferred Stock.

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(b)At the Effective Time, each BPOMS Series D Warrant with an exercise price of $0.01 that is then outstanding and unexercised shall cease to represent a right to acquire shares of BPOMS Common Stock, and shall be converted automatically into a right to receive 0.3393 (to be adjusted after determination of the Reverse Split and otherwise in accordance with Section 3.6) (the “Series D Warrant Exchange Ratio”) shares of HealthAxis Series B Preferred Stock.

(c)At the Effective Time, each BPOMS Series A Warrant, Series B Warrant and Series D Warrant with an exercise price of $1.10 that has not previously been exercised and is then outstanding and unexercised (the “BPOMS Outstanding Investor Warrants”) shall cease to represent a right to acquire shares of BPOMS Common Stock and shall be converted automatically into a warrant to acquire, under the same terms and conditions as were applicable to such BPOMS Outstanding Investor Warrants immediately prior to the Effective Time, shares of HealthAxis Common Stock, and HealthAxis shall assume each BPOMS Outstanding Investor Warrant and each agreement pursuant to which any such BPOMS Outstanding Investor Warrant was granted; provided, however, that from and after the Effective Time, (i) the number of shares of HealthAxis Common Stock purchasable upon exercise of such BPOMS Outstanding Investor Warrants shall be equal to the number of shares of BPOMS Common Stock that were purchasable under such BPOMS Outstanding Investor Warrant immediately prior to the Effective Time, multiplied by the Exchange Ratio, rounded down to the nearest whole share, and (ii) the per share exercise price under each such BPOMS Outstanding Investor Warrant shall be adjusted by dividing the per share exercise price of each such BPOMS Outstanding Investor Warrant by the Exchange Ratio, rounding up to the nearest cent.  The terms of each BPOMS Outstanding Investor Warrant shall be subject to further adjustment as appropriate to reflect the Reverse Split and any other stock split, stock dividend, recapitalization or other similar transaction with respect to the HealthAxis Common Stock on or subsequent to the Effective Time.  As soon as practicable after the Effective Time, HealthAxis shall deliver to each holder of a BPOMS Outstanding Investor Warrant an appropriate notice setting forth such holder’s rights pursuant thereto, and such BPOMS Outstanding Investor Warrant shall continue in effect on the same terms and conditions.

3.5Conversion of BPOMS Employee Stock Options and Non-Investor Warrants.

(a)At the Effective Time, each option, whether vested or unvested, to purchase BPOMS Common Stock that is then outstanding and unexercised (a “BPOMS Option”) and all warrants to purchase BPOMS Stock other than the BPOMS Investor Warrants (collectively, the “BPOMS Non-Investor Warrants”) shall cease to represent a right to acquire shares of BPOMS Common Stock and shall be converted automatically into an option or warrant to acquire, under the same terms and conditions as were applicable to such BPOMS Option or BPOMS Non-Investor Warrant immediately prior to the Effective Time, shares of HealthAxis Common Stock, and HealthAxis shall assume each BPOMS Option and BPOMS Non-Investor Warrant and each option plan or agreement pursuant to which any such BPOMS Option and BPOMS Non-Investor Warrant were granted; provided, however, that from and after the Effective Time, (i) the number of shares of HealthAxis Common Stock purchasable upon exercise of such BPOMS Option or BPOMS Non-Investor Warrant shall be equal to the number of shares of BPOMS Common Stock that were purchasable under such BPOMS Option or BPOMS Non-Investor Warrant immediately prior to the Effective Time multiplied by the Exchange Ratio rounding down to the nearest whole share, and (ii) the per share exercise price under each such BPOMS Option and BPOMS Non-Investor Warrant shall be adjusted by dividing the per share exercise price of each such BPOMS Option and BPOMS Non-Investor Warrant by the Exchange Ratio, rounding up to the nearest cent. The terms of each BPOMS Option and BPOMS Non-Investor Warrant shall be subject to further adjustment as appropriate to reflect the Reverse Split and any other stock split, stock dividend, recapitalization or other similar transaction with respect to HealthAxis Common Stock on or subsequent to the Effective Time.

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(b)As soon as practicable after the Effective Time, HealthAxis shall deliver to each holder of an outstanding BPOMS Option or BPOMS Non-Investor Warrant an appropriate notice setting forth such holder’s rights pursuant thereto, and such BPOMS Option and BPOMS Non-Investor Warrant shall continue in effect on the same terms and conditions (including anti-dilution provisions).

(c)Promptly following the Effective Time, HealthAxis shall exercise its best efforts to file with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-8 (to the extent such form is available) under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of HealthAxis Common Stock issuable upon exercise of BPOMS Options and BPOMS Non-Investor Warrants assumed pursuant to Section 3.5(a) hereof and eligible for inclusion on Form S-8 under applicable securities laws, and shall use its best efforts to maintain the current status of the prospectus contained therein, as well as to comply with any applicable state securities or “blue sky” laws, for one year after the Effective Time.

3.6Adjustments.

(a)When the Reverse Split is determined by the Board of Directors of HealthAxis as contemplated by Section 2.2(a)(v) hereof, each of the Exchange Ratio, the Series C Exchange Ratio, the Series D Exchange Ratio, the Series D-2 Exchange Ratio, the Series F Exchange Ratio, the Series C Warrant Exchange Ratio and the Series D Warrant Exchange Ratio (collectively, the “Exchange Ratios”) shall be adjusted to equal the rate determined by multiplying the applicable exchange ratio then in effect by a fraction: (i) the numerator of which is the number of shares of HealthAxis Common Stock issued and outstanding and issuable, on a fully-diluted basis, after giving effect to the Reverse Split but immediately prior to the Effective Time, and (ii) the denominator of which is the number of shares of HealthAxis Common Stock issued and outstanding and issuable, on a fully-diluted basis, as of the date hereof (or, if there has been a previous adjustment pursuant to this section, then the denominator will be the number of shares of HealthAxis Common Stock issued and outstanding and issuable on a fully-diluted basis, as of the date of such previous adjustment).

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(b)If at any time during the period between the date of this Agreement and the Effective Time, any change in the BPOMS Common Stock, BPOMS Series A Preferred Stock, BPOMS Series B Preferred Stock, BPOMS Series C Preferred Stock, BPOMS Series D Preferred Stock, BPOMS Series D-2 Preferred Stock, BPOMS Series F Preferred Stock, HealthAxis Common Stock or HealthAxis Series B Preferred Stock shall occur by reason of any reclassification, recapitalization, stock dividend, stock split or combination (excluding the Reverse Split, unless and to the extent that the ratio of the Reverse Split is revised from that originally authorized by the Board of Directors of HealthAxis as contemplated by Section 2.2(a)(v)), exchange or readjustment of shares, or any stock dividend thereon with the record date during such period, then each of the Exchange Ratios shall be appropriately adjusted.

(c)If at any time during the period between the date of this Agreement and the Effective Time, HealthAxis shall issue any additional shares of HealthAxis Common Stock or any other securities exercisable for or convertible into shares of HealthAxis Common Stock (excluding shares of HealthAxis Common Stock issuable pursuant to the Reverse Split or shares or other securities issued pursuant to any reclassification, recapitalization, stock dividend, stock split, combination, exchange or readjustment of shares referred to in paragraph (b) of this Section 3.6) then each of the Exchange Ratios shall be adjusted to equal the rate determined by multiplying the applicable exchange ratio then in effect by a fraction: (i) the numerator of which is the number of shares of HealthAxis Common Stock issued and outstanding and issuable, on a fully-diluted basis, following the issuance of shares or other securities referred to in this paragraph (c), and (ii) the denominator of which is the number of shares of HealthAxis Common Stock issued and outstanding and issuable, on a fully-diluted basis, as of the date hereof (or, if there has been a previous adjustment pursuant to this section, then the denominator will be the number of shares of HealthAxis Common Stock issued and outstanding and issuable, on a fully-diluted basis, as of the date of such previous adjustment).

(d)If at any time during the period between the date of this Agreement and the Effective Time, BPOMS shall issue any shares of BPOMS Common Stock or any other securities exercisable for or convertible into shares of BPOMS Common Stock (“BPOMS Convertible Preferred Stock”) (excluding shares and other securities issuable pursuant to the BPOMS Pre-Merger Steps or shares or other securities issuable pursuant to any reclassification, recapitalization, stock dividend, stock split, combination, exchange or readjustment of shares or any stock dividend referred to in paragraph (b) of this Section 3.6), then each of the  Exchange Ratios shall be adjusted to equal the rate determined by multiplying the applicable exchange ratio then in effect by a fraction: (i) the numerator of which is the aggregate of the number of shares of BPOMS Common Stock and the number of shares of BPOMS Convertible Preferred Stock of all series issued and outstanding and issuable, on a fully-diluted basis, as of the date of this Agreement (or, if there has been a previous adjustment pursuant to this section, then the numerator will be the number of shares of BPOMS Common Stock and BPOMS Convertible Preferred Stock issued and outstanding and issuable, on a fully-diluted basis, as of the date of such previous adjustment), and (ii) the denominator of which is the aggregate of the number of shares of BPOMS Common Stock and shares of BPOMS Convertible Preferred Stock of all series issued and outstanding and issuable on a fully-diluted basis after the issuance of shares or other securities referred to in this paragraph (d).

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(e)The adjustments provided for in this Section 3.6 are cumulative and shall apply to successive reclassifications, recapitalizations, stock dividends, stock splits, combinations, exchanges or readjustments of shares or issuances of shares or other securities (without duplication).

(f)No adjustment to any of the Exchange Ratios shall be required in connection with securities of HealthAxis or BPOMS issued pursuant to the exercise of any warrants, options or other rights which are outstanding as of the date of this Agreement or upon conversion of any convertible securities or exchange of any exchangeable securities outstanding as of the date of this Agreement.

(g)In addition to such adjustments to the Exchange Ratios, when the Reverse Split is determined by the Board of Directors of HealthAxis as contemplated by Section 2.2(a)(v) hereof, the provisions set out in the HealthAxis Series B Certificate of Designations with respect to (i) the particular number of HealthAxis Series B Preferred Shares in Section 1 of the Certificate and the VWAP in paragraph 2(b) of the Certificate, (ii) the number of HealthAxis Series B Preferred Shares in paragraphs 3(a) and 3(c) of the Certificate, (iii) the Liquidation Preference Amount per share in Section 4 of the Certificate, (iv) the Closing Bid Price referred to in paragraph 5(c) of the Certificate, (v) the Conversion Price in paragraph 5(d) of the Certificate, and (vi) the number of HealthAxis Series B Preferred Shares referred to in Section 9 of the Certificate, will be adjusted appropriately based on the Reverse Split.

3.7Reservation of Shares

At or prior to the Effective Time, HealthAxis shall reserve for issuance the number of shares of HealthAxis Common Stock issuable upon conversion of the HealthAxis Series B Preferred Stock issued or to be issued pursuant to Section 3.3.  In addition, at or prior to the Effective Time, HealthAxis shall reserve for issuance the number of shares of HealthAxis Common Stock subject to (i) BPOMS Outstanding Investor Warrants assumed pursuant to Section 3.4(c) hereof and (ii) BPOMS Options and BPOMS Non-Investor Warrants assumed pursuant to Section 3.5(a) hereof.

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3.8Dissenting BPOMS Stockholders.

Notwithstanding any provision of this Agreement to the contrary, if required by the DGCL but only to the extent required thereby, shares of BPOMS Common Stock that are issued and outstanding immediately prior to the Effective Time and that are held by holders of such shares of BPOMS Common Stock who have properly exercised appraisal rights with respect thereto (the “Dissenting Common Stock”) in accordance with Section 262 of the DGCL will not be exchangeable for the right to receive the per share amount of the merger consideration described in Section 3.2(a) attributable to such shares of Dissenting Common Shares, and holders of such shares of Dissenting Common Stock will be entitled to receive payment of the appraised value of such shares of Dissenting Common Stock in accordance with the provisions of such Section 262 unless and until such holders fail to perfect or effectively withdraw or lose their rights to appraisal and payment under the DGCL. If, after the Effective Time, any such holder fails to perfect or effectively withdraws or loses such right, such shares of Dissenting Common Stock will thereupon be treated as if they had been converted into and have become exchangeable for, at the Effective Time, the right to receive the merger consideration attributable to such shares of Dissenting Common Stock. Notwithstanding anything to the contrary contained in this Section 3.8, if the Merger is not consummated, then the right of any stockholder to be paid the fair value of such stockholder’s Dissenting Common Stock pursuant to Section 262 of the DGCL shall cease. BPOMS will promptly comply with its obligations under Section 262 of the DGCL and will give HealthAxis prompt notice of any demands and withdrawals of such demands received by BPOMS for appraisals of shares of Dissenting Common Stock.

ARTICLE 4

EXCHANGE OF SHARES

4.1Exchange of Common Stock Certificates.

(a)Prior to the Effective Time, HealthAxis shall designate either its transfer agent as of the date hereof or a bank or trust company as shall be reasonably acceptable to BPOMS, to act as Exchange Agent in connection with the Merger (the “Exchange Agent”). At or immediately prior to the Effective Time, HealthAxis will take all steps necessary to deposit with the Exchange Agent for the benefit of the holders of BPOMS Common Shares certificates representing the aggregate number of shares of HealthAxis Common Stock issuable pursuant to Section 3.2 in exchange for outstanding BPOMS Common Shares.

(b)Promptly after the Effective Time, HealthAxis and the Surviving Corporation shall cause the Exchange Agent to mail to each Person who was a record holder, as of the Effective Time, of an outstanding certificate or certificates that immediately prior to the Effective Time represented BPOMS Common Shares (the “Certificates”), a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates in exchange for certificates evidencing HealthAxis Common Shares. Upon surrender to the Exchange Agent of a Certificate, together with such letter of transmittal duly executed, and any

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other required documents, the holder of such Certificate shall be entitled to receive in exchange therefor (i) a certificate representing the number of whole shares of HealthAxis Common Stock to which such holder shall be entitled pursuant to Section 3.2, and (ii) any dividends or other distributions to which such holder is entitled pursuant to Section 4.1(c) (the HealthAxis Common Shares and cash paid pursuant to Section 4.1(c) being referred to, collectively, as the “Exchange Merger Consideration”) and such Certificate shall forthwith be canceled.  The holder of such Certificate may elect to receive uncertificated shares of HealthAxis Common Stock issued through the direct registration system instead of a physical certificate. If payment is to be made to a Person other than the Person in whose name the Certificate surrendered is registered, it shall be a condition of payment that the transfer not be prohibited under applicable law and the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer as determined by the Exchange Agent, and that the Person requesting such payment shall pay any transfer, or other taxes required by reason of the payment to a Person other than the registered holder of the Certificate surrendered or established to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 4.1, each Certificate (other than Certificates representing Canceled BPOMS Common Shares and other than Certificates representing Dissenting Common Stock) shall represent for all purposes only the right to receive the Exchange Merger Consideration, without any interest thereon. In the event of a transfer of ownership of BPOMS Common Shares which is not registered in the stock transfer records of BPOMS, the Exchange Merger Consideration may be issued to such a transferee if the transfer is not prohibited under applicable law and the certificate representing BPOMS Common Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid or are not payable.

(c)No dividends or other distributions declared or made after the Effective Time with respect to shares of HealthAxis Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of HealthAxis Common Stock they are entitled to receive until the holder of such Certificate shall surrender such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of HealthAxis Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of HealthAxis Common Stock.

(d)After the Effective Time, there shall be no registration on the share transfer books of the Surviving Corporation of transfers of the BPOMS shares that were outstanding immediately prior to the Effective Time, and as of the Effective Time, the share ledger of BPOMS shall be closed. All Exchange Merger Consideration paid upon the surrender of Certificates in accordance with the terms of this Article 4 shall be deemed to have been paid in full satisfaction of all rights pertaining to the BPOMS Common Shares previously evidenced by Certificates. After the Effective Time, the holders of BPOMS Common Shares outstanding at the Effective Time shall cease to have any rights with respect to such BPOMS Common Shares except as provided herein or by applicable law. If, after the Effective Time, certificates evidencing BPOMS Common Shares are presented to the Surviving Corporation, they shall be canceled and exchanged for the Exchange Merger Consideration as provided in this Article 4.

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(e)In the event any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of HealthAxis Common Stock as may be required pursuant to Section 3.2 and any dividends or distributions payable pursuant to Section 4.1(c), provided, however, that HealthAxis may, in its discretion and as a condition precedent to the issuance and/or payment thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against HealthAxis, the Surviving Corporation or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed.

4.2Exchange of Preferred Stock Certificates and Penny Warrants.

(a)Promptly after the Effective Time, HealthAxis shall mail to each Person who was a holder, as of the Effective Time, of an outstanding certificate or certificates which immediately prior to the Effective Time represented shares of BPOMS Series A Preferred Stock, BPOMS Series B Preferred Stock, BPOMS Series C Preferred Stock, BPOMS Series D Preferred Stock, BPOMS Series D-2 Preferred Stock or BPOMS Series F Preferred Stock (the “Preferred Certificates”) and to each person who was a holder, as of the Effective Time, of any BPOMS Series C Warrants or BPOMS Series D Warrants with an exercise price of $0.01 (the “BPOMS Penny Warrants”), a letter of transmittal (which shall specify that delivery shall be effected, and the risk of loss and title to the Preferred Certificates and the BPOMS Penny Warrants shall pass, only upon proper delivery of the Preferred Certificates and the BPOMS Penny Warrants to HealthAxis) and instructions for use in effecting the surrender of the Preferred Certificates and the BPOMS Penny Warrants in exchange for certificates evidencing shares of HealthAxis Common Stock or HealthAxis Series B Preferred Stock, as the case may be, as provided by Section 3.3 and 3.4. Upon surrender to HealthAxis of a Preferred Certificate and the BPOMS Penny Warrants, together with such letter of transmittal duly executed, and any other required documents, the holder of such Preferred Certificate and the BPOMS Penny Warrants shall be entitled to receive in exchange therefor a certificate representing the number of shares of HealthAxis Common Stock or HealthAxis Series B Preferred Stock to which such holder shall be entitled pursuant to Section 3.3 or 3.4 and such Preferred Certificate and the BPOMS Penny Warrants shall forthwith be cancelled. A holder entitled to receive a certificate representing HealthAxis Common Stock may elect to receive uncertificated shares of HealthAxis Common Stock issued through the direct registration system instead of a physical certificate.

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(b)In the event any Preferred Certificates and the BPOMS Penny Warrants shall have been lost, stolen or destroyed, HealthAxis shall issue in exchange for such lost, stolen or destroyed Preferred Certificates and the BPOMS Penny Warrants, upon the making of an affidavit of that fact by the holder thereof, such shares of HealthAxis Common Stock or HealthAxis Series B Preferred Stock as may be required pursuant to Section 3.3 or 3.4, provided, however, that HealthAxis may, in its discretion and as a condition precedent to the issuance and/or payment thereof, require the owner of such lost, stolen or destroyed Preferred Certificates and the BPOMS Penny Warrants to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against HealthAxis with respect to the Preferred Certificates and the BPOMS Penny Warrants alleged to have been lost, stolen or destroyed.

4.3Withholding Rights.

HealthAxis and the Surviving Corporation shall be entitled to deduct and withhold from the number of shares of HealthAxis Common Stock and HealthAxis Series B Preferred Stock otherwise deliverable under the Agreement such amounts as HealthAxis and the Surviving Corporation are required to deduct and withhold with respect to such delivery and payment under the Code or any provision of state, local, provincial or foreign tax law.  To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been delivered and paid to the holder of shares of BPOMS Common Stock, BPOMS Series A Preferred Stock, BPOMS Series B Preferred Stock, BPOMS Series C Preferred Stock, BPOMS Series D Preferred Stock, BPOMS Series D-2 Preferred Stock, BPOMS Series F Preferred Stock, BPOMS Series C Warrant or BPOMS Series D Warrant in respect of which such deduction and withholding was made by HealthAxis and the Surviving Corporation.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF BPOMS

BPOMS hereby represents and warrants to HealthAxis and Merger Sub as follows, except as set forth in (i) BPOMS’ Annual Report on Form 10-K for the year ending December 31, 2007 and any other BPOMS SEC Documents (as defined below) filed subsequent to December 31, 2007, and (ii) the written disclosure letter delivered at or prior to the execution hereof to HealthAxis (the “BPOMS Disclosure Letter”). The BPOMS Disclosure Letter shall be arranged in sections or subsections corresponding to the number and lettered sections and subsections contained in this Article 5. The disclosures in any section or subsection of the BPOMS Disclosure Letter shall qualify the correspondingly numbered representation and warranty and such other representations and warranties in this Article 5 to the extent it is reasonably clear from a reading of the disclosure that such disclosure is applicable to such other representations and warranties.

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5.1Organization; Good Standing; Authority; Compliance with Law.

(a)BPOMS is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now conducted. BPOMS is duly licensed or qualified and is in good standing to transact business as a foreign corporation in each jurisdiction in which the character of the properties owned or leased by it therein or in which the nature of its business makes such qualification or licensing necessary, except where the failure to be so licensed or qualified would not have, individually or in the aggregate, a BPOMS Material Adverse Effect. For purposes of this Agreement, a “BPOMS Material Adverse Effect” means a material adverse effect on the business, assets (including intangible assets), financial condition or results of operations of BPOMS and the BPOMS Subsidiaries (as defined in Section 5.4) taken as a whole.

(b)Each of the BPOMS Subsidiaries is a corporation, partnership or limited liability company duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the corporate, partnership or limited liability company power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to transact business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not, individually or in the aggregate, have a BPOMS Material Adverse Effect.

(c)The business of BPOMS and the BPOMS Subsidiaries is being operated in compliance with all laws, ordinances, regulations and orders of all governmental entities, except for violations that would not have, individually or in the aggregate, a BPOMS Material Adverse Effect. BPOMS and the BPOMS Subsidiaries have all permits, certificates, licenses, approvals, consents and other authorizations (collectively, “Government Approvals”) of all governmental agencies, entities, commissions, boards, bureaus, tribunals, officials or authorities, whether Federal, state or local (collectively, “Governmental Agencies”), required by law with respect to the operation of their businesses, except those the absence of which would not, individually or in the aggregate, have a BPOMS Material Adverse Effect or prevent or delay consummation of the Merger. All such Government Approvals are in full force and effect, and, BPOMS and the BPOMS Subsidiaries are in compliance with all conditions and requirements of the Government Approvals and with all rules and regulations relating thereto, other than failures that would not have a BPOMS Material Adverse Effect. BPOMS has not received any notices of violations of any Federal, state and local laws, regulations and ordinances relating to its business, operations or assets which, if it were determined that a violation had occurred, would have a BPOMS Material Adverse Effect.

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(d)The certificate of incorporation or other charter documents, bylaws and organizational documents (and in each such case, all amendments thereto) of BPOMS and each of the BPOMS Subsidiaries which carries on any active business are listed in Section 5.1(d) of the BPOMS Disclosure Letter, true and correct copies of which have previously been delivered to HealthAxis or its counsel.

5.2Authorization, Validity and Effect of Agreements.

BPOMS has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The Board of Directors of BPOMS has taken all necessary corporate action required to be taken by it to approve this Agreement, the Merger, and the transactions contemplated by this Agreement. The execution by BPOMS of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by all requisite corporate action on the part of BPOMS, subject to the approvals described in Section 5.2 of the BPOMS Disclosure Letter. This Agreement constitutes the valid and legally binding obligation of BPOMS, enforceable against BPOMS in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors’ rights and general principles of equity.

5.3Capitalization.

(a)The authorized capital stock of BPOMS consists of 150,000,000 shares of BPOMS Common Stock and 28,135,816 shares of preferred stock, par value $0.001 per share, of which 2,308,612 shares are designated as Series A (the “BPOMS Series A Preferred Shares”), 1,449,204 shares are designated as Series B (the “BPOMS Series B Preferred Shares”), 21,378,000 shares are designated as Series C (the “BPOMS Series C Preferred Shares”), 1,500,000 shares are designated as Series D (the “BPOMS Series D Preferred Shares”), 1,500,000 shares are designated as Series D-2 (the “BPOMS Series D-2 Preferred Shares”) and 1,300,000 shares are designated as Series F (the “BPOMS Series F Preferred Shares”).As of the date hereof, there are 12,671,034 BPOMS Common Shares issued and outstanding, 1,808,163 BPOMS Series A Preferred Shares issued and outstanding, 1,449,204 BPOMS Series B Preferred Shares issued and outstanding, 916,666 BPOMS Series C Preferred Shares issued and outstanding, 1,427,084 BPOMS Series D Preferred Shares issued and outstanding, 1,312,500 BPOMS Series D-2 Preferred Shares issued and outstanding and 894,942 BPOMS Series F Preferred Shares issued and outstanding.  All outstanding shares of BPOMS are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights or rights of first refusal created by statute, the Certificate of Incorporation or Bylaws of BPOMS or any agreement to which BPOMS is a party or by which it is bound, and free of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof or under applicable federal or state securities or “blue sky” laws.

(b)Except as set forth in Section 5.3 of the BPOMS Disclosure Letter, BPOMS has no outstanding bonds, debentures, notes or other obligations the holders of which have or upon the happening of certain events would have the right to vote (or which are convertible into or exercisable or exchangeable for securities having the right to vote) with the stockholders of BPOMS on any matter.

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(c)Except for the BPOMS options and BPOMS warrants described in Section 5.3 of the BPOMS Disclosure Letter, there are no existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements, stock appreciation rights or similar derivative securities or instruments or commitments which obligate BPOMS to issue, transfer or sell any BPOMS Shares or make any payments in lieu thereof. Section 5.3 of the BPOMS Disclosure Letter contains a complete and correct list setting forth as of the date hereof (i) the number of options and warrants outstanding (setting forth for each option the plan under which it was granted and for each warrant whether it is a BPOMS Series A Warrant, BPOMS Series B Warrant, BPOMS Series C Warrant, BPOMS Series D Warrant or BPOMS Non-Investor Warrant), (ii) the dates on which such options or warrants were granted, (iii) the dates on which such options or warrants shall vest and expire and (iv) the exercise or conversion price of each outstanding option or warrant, as the case may be.  The terms of the BPOMS Options, the BPOMS Outstanding Investor Warrants and the BPOMS Non-Investor Warrants permit the assumption or substitution of rights to purchase HealthAxis Common Stock as provided in this Agreement, without the consent or approval of the holders of such securities or BPOMS stockholders. Except for such assumption or substitution, neither the entry into this Agreement nor the consummation of the transactions contemplated hereby will affect the vesting or other terms of the BPOMS Options, BPOMS Outstanding Investor Warrants or the BPOMS Non-Investor Warrants.  BPOMS does not have outstanding any shares of restricted stock subject to vesting. All outstanding securities of BPOMS and each BPOMS Subsidiary have been issued and granted in compliance in all material respects with (i) all applicable securities laws and (ii) all requirements set forth in all applicable contracts.  The shares of BPOMS Common Stock issued under options or warrants were issued in transactions which qualified for exemptions under either Section 4(2) of, or Rule 701 under, the Securities Act for stock issuances under compensatory benefit plans.

(d)Except as set forth in Section 5.3 of the BPOMS Disclosure Letter, there are no agreements or understandings to which BPOMS or any BPOMS Subsidiary is a party with respect to the voting of any BPOMS Shares or which restrict the transfer of any such shares, nor does BPOMS have knowledge of any such agreements or understandings with respect to the voting of any such shares or which restrict the transfer of any such shares.  Except as set forth in Section 5.3 of the BPOMS Disclosure Letter, there are no outstanding contractual obligations of BPOMS or any BPOMS Subsidiary to register under the securities laws of any jurisdiction or to repurchase, redeem or otherwise acquire any BPOMS Shares or any other securities of BPOMS or any BPOMS Subsidiary.

(e)Materially true and complete copies of all agreements and instruments relating to the securities described above and in Section 5.3 of the BPOMS Disclosure Letter, or forms thereof, have been provided to HealthAxis and such agreements and instruments have not been amended, modified or supplemented, and there are no agreements to amend, modify or supplement such agreements or instruments in any case from the form provided to HealthAxis.

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(f)Set forth below is a summary of all securities of any type of BPOMS (including all shares, options, warrants, calls, subscriptions, convertible securities or other rights, agreements, stock appreciation rights, or derivative securities or instruments or commitments which obligate BPOMS to issue, transfer or sell any securities) that are outstanding as of the date hereof, which are separately categorized to indicate the number of such securities outstanding and the number of shares of BPOMS Common Stock (or any other indicated class of securities) into which they are convertible or exercisable:

Security	Number Outstanding	Shares Into Which Convertible/Exercisable
BPOMS Common Stock	12,671,034	12,671,034
BPOMS Series A Preferred Shares	1,808,163	1,808,163
BPOMS Series B Preferred Shares	1,449,204	1,449,204
BPOMS Series C Preferred Shares	916,666	0
BPOMS Series D Preferred Shares	1,427,083.8	22,833,341
BPOMS Series D-2 Preferred Shares	1,312,499.9	20,999,998
BPOMS Series F Preferred Shares	894,942	22,373,550
BPOMS Options	15,002,954	15,002,954
BPOMS Series A Warrants	1,666,667	1,666,667
BPOMS Series B Warrants	3,333,334	3,333,334
BPOMS Series C Warrants	10,000,001	10,000,001
BPOMS Series D Warrants (with $1.10 exercise price)	1,000,000	1,000,000
BPOMS Series D Warrants (with $0.01 exercise price)	9,333,327	9,333,327
BPOMS Series J Warrants	0	0
BPOMS Non-Investor Warrants	2,078,261	2,078,261

5.4Subsidiaries.

Section 5.4 of the BPOMS Disclosure Letter lists all Subsidiaries (as defined in Section 10.13) of BPOMS which carry on any active business (the “BPOMS Subsidiaries” and, individually, a “BPOMS Subsidiary”). BPOMS owns directly or indirectly all of the outstanding shares of capital stock or other equity interests of each of the BPOMS Subsidiaries. All of the outstanding shares of capital stock in each of the BPOMS Subsidiaries are duly authorized, validly issued, fully paid and nonassessable. Except as set forth in Section 5.4 of the BPOMS Disclosure Letter, all of the outstanding shares of capital stock of each of the BPOMS Subsidiaries owned, directly or indirectly, by BPOMS are owned free and clear of all liens, pledges, security interests, claims or other encumbrances. Except as set forth in Section 5.4 of the BPOMS Disclosure Letter, there are no options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate BPOMS or any BPOMS Subsidiary to issue, transfer or sell any shares of capital stock of any BPOMS Subsidiary. The following information for each BPOMS Subsidiary is set forth in Section 5.4 of the BPOMS Disclosure Letter: (i) its name and jurisdiction of incorporation, (ii) its authorized capital stock and (iii) its outstanding capital stock.

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5.5Other Interests.

Except for interests in the BPOMS Subsidiaries, neither BPOMS nor any BPOMS Subsidiary owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or other entity (other than investments in short term investment securities).

5.6No Violation.

Except as set forth in Section 5.6 of the BPOMS Disclosure Letter, neither the execution and delivery by BPOMS of this Agreement nor the consummation by BPOMS of the transactions contemplated by this Agreement in accordance with its terms will: (i) conflict with or result in a breach of any provisions of BPOMS’ Certificate of Incorporation or Bylaws; (ii) violate, result in a breach of any provision of, or constitute a default under, or require any approval or consent under or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by or result in a material adverse change to, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties owned or leased by BPOMS or the BPOMS Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument to which BPOMS or any of the BPOMS Subsidiaries is a party, or by which BPOMS or any of the BPOMS Subsidiaries or any of the properties owned or leased by BPOMS or the BPOMS Subsidiaries is bound or affected, except for any of the foregoing matters in this clause which, individually or in the aggregate, would not have a BPOMS Material Adverse Effect and would not reasonably be expected to prevent, materially alter or materially delay any of the transactions contemplated by this Agreement; (iii) contravene or conflict with or constitute a violation of any provision of any law, rule, regulation, judgment, injunction, order or decree binding upon or applicable to BPOMS or any BPOMS Subsidiary; or (iv) other than the filings provided for in this Agreement, required under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Securities Act or applicable state securities and “Blue Sky” laws (collectively, the “Regulatory Filings”), require any consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority which has not been obtained or made, except where the failure to obtain any such consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority would not have a BPOMS Material Adverse Effect and could not reasonably be expected to prevent, materially alter or materially delay any of the transactions contemplated by this Agreement.

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5.7SEC Filings; Financial Statements.

(a)In this Agreement, all registration statements, proxy statements, Certifications (as defined below) and other statements, reports, schedules, forms and other documents filed by BPOMS with the SEC since December 15, 2006 are called the “BPOMS SEC Documents”.  BPOMS has delivered to HealthAxis accurate and complete copies of all BPOMS SEC Documents, other than any BPOMS SEC Documents which can be obtained on the SEC’s website at www.sec.gov. Except as set forth on Section 5.7(a) of the BPOMS Disclosure Letter or as would not have a BPOMS Material Adverse Effect, all statements, reports, schedules, forms and other documents required to have been filed by BPOMS with the SEC within the twelve-month period preceding the date of this Agreement have been duly filed on a timely basis. None of the BPOMS Subsidiaries is required to file any documents with the SEC under the Exchange Act. As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing): (i) each of the BPOMS SEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act (as the case may be); and (ii) none of the BPOMS 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. The certifications and statements required by (A) Rule 13a-14 under the Exchange Act and (B) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) relating to the BPOMS SEC Documents (collectively, the “Certifications”) are accurate and complete and comply as to form and content with all applicable laws or rules of applicable governmental and regulatory authorities.

(b)Except as described in the BPOMS SEC Documents, (i) BPOMS maintains disclosure controls and procedures that satisfy the requirements of Rule 13a-15 under the Exchange Act, and (ii) such disclosure controls and procedures are designed to ensure that all material information concerning BPOMS is made known on a timely basis to the individuals responsible for the preparation of BPOMS’ filings with the SEC and other public disclosure documents.

(c)The financial statements (including any related notes) contained or incorporated by reference in the BPOMS 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 generally accepted accounting principles (“GAAP”) (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, as permitted by Form 10-QSB of the SEC, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated; and (iii) fairly present the consolidated financial position of BPOMS and the BPOMS Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows of BPOMS and the BPOMS Subsidiaries for the periods covered thereby.

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(d)BPOMS’ auditor has at all required times since the date of enactment of the Sarbanes-Oxley Act been: (i) to the knowledge of BPOMS, a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act); (ii) “independent” with respect to BPOMS and the BPOMS Subsidiaries within the meaning of Regulation S-X under the Exchange Act; and (iii) to the knowledge of BPOMS, in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations promulgated by the SEC and the Public Company Accounting Oversight Board thereunder. Section 5.7(d) of the BPOMS Disclosure Letter contains an accurate and complete description of all non-audit services performed by BPOMS’ auditors for BPOMS and the BPOMS Subsidiaries since December 15, 2006 and the fees paid for such services. All such non-audit services were approved as required by Section 202 of the Sarbanes-Oxley Act.

(e)Section 5.7(e) of the BPOMS Disclosure Letter lists, and BPOMS has delivered to HealthAxis accurate and complete copies of the documentation creating or governing, all securitization transactions and “off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K under the Exchange Act) effected by BPOMS since December 15, 2006.

5.8Litigation.

Except as set forth in Section 5.8 of the BPOMS Disclosure Letter, there are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which BPOMS or any BPOMS Subsidiary is a party or by which any of its properties or assets are bound or likely to be affected and (ii) no actions, suits or proceedings pending against BPOMS or any BPOMS Subsidiary or to which any of their respective properties or assets are subject or, to the knowledge of BPOMS, threatened against BPOMS or any BPOMS Subsidiary or to which any of their respective properties or assets are subject, at law or in equity, that in each such case could, individually or in the aggregate, have a BPOMS Material Adverse Effect.

5.9Absence of Certain Changes.

Except as set forth in Sections 5.7(c) or 5.9 of the BPOMS Disclosure Letter or the BPOMS SEC Documents, since December 31, 2007, BPOMS and the BPOMS Subsidiaries have conducted their business only in the ordinary course of such business and consistent with past practices and there has not been any:

(a)BPOMS Material Adverse Effect;

(b)amendment or change in the Certificate of Incorporation or By-Laws of BPOMS or in any similar organizational documents of any BPOMS Subsidiaries, other than as contemplated by this Agreement;

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(c)incurrence, creation or assumption by BPOMS or any of the BPOMS Subsidiaries of (i) any mortgage, deed of trust, security interest, pledge, lien, title retention device, collateral assignment, claim, charge, restriction or other encumbrance of any kind on any of the assets or properties of BPOMS or any of the BPOMS Subsidiaries; or (ii) any obligation or liability of any indebtedness for borrowed money;

(d)issuance or sale of any debt or equity securities of BPOMS or any of the BPOMS Subsidiaries, or the issuance or grant of any options, warrants or other rights to acquire from BPOMS or any of the BPOMS Subsidiaries, directly or indirectly, any debt or equity securities of BPOMS or any of the BPOMS Subsidiaries (other than the shares issued and options authorized as part of the BPOMS Pre-Merger Steps as contemplated by this Agreement);

(e)purchase, license, sale, assignment or other disposition or transfer, or any agreement or other arrangement for the purchase, license, sale, assignment or other disposition or transfer, of any of the assets, properties or goodwill of BPOMS other than a license or sale of any product or products of BPOMS or any of the BPOMS Subsidiaries made in the ordinary course of BPOMS’ business;

(f)payment or discharge by BPOMS or any of the BPOMS Subsidiaries of any security interest, lien, claim, or encumbrance of any kind on any asset or property of BPOMS or any of the BPOMS Subsidiaries, or the payment or discharge of any liability that was not either shown or reflected in the BPOMS SEC Documents or incurred in the ordinary course of BPOMS’ business after December 31, 2007 and was in an amount in excess of $150,000 for any single liability to a particular creditor;

(g)damage, destruction or loss of any property or asset, whether or not covered by insurance, having (or likely with the passage of time to have) a BPOMS Material Adverse Effect;

(h)declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, the capital stock of BPOMS, any split, combination or recapitalization of the capital stock of BPOMS or any direct or indirect redemption, purchase or other acquisition of the capital stock of BPOMS or any change in any rights, preferences, privileges or restrictions of any outstanding security of BPOMS, other than as contemplated by this Agreement;

(i)increase in the compensation payable or to become payable to any of the officers, directors or employees of BPOMS or any of the BPOMS Subsidiaries, or any bonus or pension, insurance or other benefit payment or arrangement (including without limitation stock awards, stock option grants, stock appreciation rights or stock option grants other than issuance of stock options as part of the BPOMS Pre-Merger Steps) made to or with any of such officers, directors or employees, other than increases in base salary for employees (excluding senior management employees) in the ordinary course of business and consistent with past practice;

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(j)obligation or liability incurred by BPOMS or any of the BPOMS Subsidiaries to any of its officers, directors or stockholders except for normal and customary compensation and expense allowances payable to officers in the ordinary course of BPOMS’ business consistent with past practice and except in connection with the BPOMS Pre-Merger Steps;

(k)making by BPOMS or any of the BPOMS Subsidiaries of any loan, advance or capital contribution to, or any investment in, any officer, director, employee or stockholder of BPOMS or of any BPOMS Subsidiary or any firm or business enterprise in which any such Person had a direct or indirect material interest at the time of such loan, advance, capital contribution or investment;

(l)entering into, amendment of, relinquishment, termination or non-renewal by BPOMS or any BPOMS Subsidiary of any contract, lease, transaction, commitment or other right or obligation other than in the ordinary course of its business, or any written or oral indication or assertion by the other party thereto of any problems with BPOMS’ or any BPOMS Subsidiary’s services or performance under such contract, lease, transaction, commitment or other right or obligation having a BPOMS Material Adverse Effect, or of such other party’s demand to amend, terminate or not renew any such contract, lease, transaction, commitment or other right or obligation which would be likely to have a BPOMS Material Adverse Effect;

(m)material change in the manner in which BPOMS or any BPOMS Subsidiary extends discounts, credits or warranties to customers or otherwise deals with its customers;

(n)entering into by BPOMS or any of the BPOMS Subsidiaries of any transaction, contract or agreement that by its terms requires or contemplates a required minimum current and/or future financial commitment, expenses (inclusive of overhead expenses) or obligation on the part of BPOMS or any of the BPOMS Subsidiaries involving in excess of $150,000, excluding legal and accounting fees associated with this Agreement and the transactions contemplated hereby) or that is not entered into in the ordinary course of BPOMS’ business, or the conduct of any business or operations by BPOMS or any BPOMS Subsidiary that is other than in the ordinary course of BPOMS’ or such BPOMS Subsidiary’s business; or

(o)license, transfer or grant of a right under any BPOMS Intellectual Property (as defined in Section 5.18 below), other than those licensed, transferred or granted in the ordinary course of business consistent with its past practices.

5.10Taxes.

Except as set forth in Section 5.10 of the BPOMS Disclosure Letter or where such failure would not have, individually or in the aggregate, a BPOMS Material Adverse Effect:

(a)BPOMS and each of the BPOMS Subsidiaries has paid or caused to be paid all federal, state, local, foreign, and other taxes, and all deficiencies, or other additions to tax, interest, fines and penalties (collectively, “Taxes”), owed or accrued by it and due and payable through the date hereof (including any Taxes payable pursuant to Treasury Regulation § 1.1502-6 and any similar state, local or foreign provision).

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(b)BPOMS and each of the BPOMS Subsidiaries has timely filed all federal, state, local and foreign tax returns (collectively “Tax Returns”) required to be filed by any of them through the date hereof, and all such returns accurately set forth the amount of any Taxes relating to the applicable period.

(c)BPOMS and each of the BPOMS Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other party.

(d)The financial statements included in the BPOMS SEC Documents reflect adequate reserves for Taxes payable by BPOMS and each BPOMS Subsidiary for all taxable periods and portions thereof through the date of such financial statements.

(e)Since December 31, 2007, each of BPOMS and the BPOMS Subsidiaries has made sufficient accrual for Taxes in accordance with GAAP with respect to periods for which Tax Returns have not been filed.  All liabilities for Taxes attributable to the period commencing on the day following the filing date of the most recently filed BPOMS SEC Documents were incurred in the ordinary course of business.

(f)There are no outstanding agreements, waivers or arrangements extending the statutory period of limitations applicable to any claim for, or the period for the collection or assessment of, Taxes due from BPOMS or any BPOMS Subsidiary for any taxable period and there have been no deficiencies proposed, assessed or asserted for such Taxes.

(g)There are no closing agreements that could affect Taxes of BPOMS or any BPOMS Subsidiary for periods after the Effective Time pursuant to Section 7121 of the Code or any similar provision under state, local or foreign tax laws.

(h)No audit or other proceedings by any court, governmental or regulatory authority or similar authority relating to Taxes has occurred, been asserted or is pending and none of BPOMS or any BPOMS Subsidiary has received notice that any such audit or proceeding may be commenced.

(i)No election has been made or filed by or with respect to, and no consent to the application of, Section 341(f)(2) of the Code has been made by or with respect to, BPOMS, any BPOMS Subsidiary or any of their properties or assets.

(j)None of BPOMS or any BPOMS Subsidiary has agreed to, or filed application for, or is required, to make any changes or adjustment to its accounting method.

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(k)Except as set forth in Section 5.10(k) of the BPOMS Disclosure Letter, there is no contract, agreement, plan or arrangement covering any Person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by BPOMS or any BPOMS Subsidiary by reason of Section 280G or Section 162(m) of the Code.

(l)Neither BPOMS nor any BPOMS Subsidiary has (i) been a member of an affiliated group (within the meaning of Section 1504 of the Code) or an affiliated, combined, consolidated, unitary, or similar group for state, local or foreign Tax purposes, other than the group of which BPOMS is the common parent or (ii) any liability for or in respect of the Taxes of, or determined by reference to the Tax liability of, another Person (other than BPOMS or any BPOMS Subsidiary) under Treasury Regulation § 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise.

(m)Neither BPOMS nor any BPOMS Subsidiary has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (x) in the two (2) years prior to the date of this Agreement or (y) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the Merger.

(n)Neither BPOMS nor any BPOMS Subsidiary is a party to any agreement providing for the allocation, indemnification, or sharing of Taxes other than any such agreement to which BPOMS or any BPOMS Subsidiary are the exclusive parties.

BPOMS has not taken any action or engaged in any activities that would preclude the treatment of the Merger as a reorganization under Section 368(a) of the Code.  In addition, BPOMS has no plan or intention to take any action or engage in any activities that would preclude the treatment of the Merger as a reorganization of under Section 368(a) of the Code.

5.11Books and Records.

(a)The books of account and other financial records of BPOMS and each of the BPOMS Subsidiaries are true, complete and correct in all material respects, and have been maintained in accordance with good business practices, since December 15, 2006.

(b)The minute books and other records of BPOMS and each of the BPOMS Subsidiaries contain accurate records of all meetings and accurately reflect all other action of the stockholders and Board of Directors and any committees of the Board of Directors of BPOMS and each of the BPOMS Subsidiaries since December 15, 2006.

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5.12Properties.

(a)Section 5.12 (a) of the BPOMS Disclosure Letter sets forth a list of all real property currently, or since December 15, 2006, owned or leased by BPOMS or any of the BPOMS Subsidiaries, and, with respect to all real property currently leased by BPOMS or any of the BPOMS Subsidiaries, the location of the property, the unexpired term of the lease and the aggregate annual rental and/or other fees payable under any such lease. All such current leases are, to the knowledge of BPOMS, in full force and effect, are valid and effective in accordance with their respective terms, and there is not to the knowledge of BPOMS any existing material default or event of default under any such lease (or event which with notice or lapse of time, or both, would constitute such a material default).

(b)BPOMS and each of the BPOMS Subsidiaries has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any liens, except as reflected in the BPOMS SEC Documents or in Section 5.12(b) of the BPOMS Disclosure Letter and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby.

5.13Environmental Matters.

Except as set forth in Section 5.13 of the BPOMS Disclosure Letter, neither BPOMS nor any of the BPOMS Subsidiaries is in violation of any laws, regulations, judgments or consent decrees relating to hazardous substances or hazardous waste (collectively, “Environmental Laws”) which violation could reasonably be expected to result in a BPOMS Material Adverse Effect. Except as set forth in Section 5.13 of the BPOMS Disclosure Letter, neither BPOMS, any of the BPOMS Subsidiaries, nor, to the knowledge of BPOMS, any third party, has used, released, discharged, generated, manufactured, produced, stored, or disposed of in, on, or under or about its owned or leased property or other assets, or transported thereto or therefrom, any hazardous substances or hazardous wastes, including asbestos, lead and petroleum, during the period of BPOMS’ or the BPOMS Subsidiary’s ownership or lease of such property in a manner that could reasonably be expected to subject BPOMS or any BPOMS Subsidiary to a material liability under the Environmental Laws. None of BPOMS or any of the BPOMS Subsidiaries has received written notice from any governmental authority that any property owned or leased by BPOMS or any of the BPOMS Subsidiaries is in violation of any Environmental Laws. There is no pending civil, criminal or administrative suit or other legal proceeding against BPOMS or any of the BPOMS Subsidiaries with respect to any Environmental Laws. BPOMS has provided HealthAxis complete copies of all environmental reports, assessments and studies in BPOMS’ possession and control with respect to properties owned or leased by BPOMS or any BPOMS Subsidiary. As used in this Agreement, the terms “hazardous substances” and “hazardous wastes” shall have the meanings set forth in the Comprehensive Environmental Response, Compensation and Liability Act, as amended, and the regulations thereunder; the Resource Conservation and Recovery Act, as amended, and the regulations thereunder; the Federal Clean Water Act, as amended, and the regulations thereunder; the Clean Air Act, 42 U.S.C. Sections 7401 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136 et seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001 et seq.; the Occupational Safety and Health Act of 1970; the Hazardous Materials Transportation Act, as amended by the Hazardous Materials Transportation Authorization Act of 1994, 49 U.S.C. Sections 5101 et seq.; the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq.; the Oil Pollution Act of 1990,33 U.S.C. Sections 2701 et seq.; as each of these may be amended from time to time; and any and state or local analogues to any of these statutes.

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5.14Brokers.

Except as set forth on Section 5.14 of the BPOMS Disclosure Letter, neither BPOMS nor any of the BPOMS Subsidiaries has entered into any contract, arrangement or understanding with any Person or firm that may result in the obligation of such entity or HealthAxis or the Surviving Corporation to pay any finder’s fees, brokerage or agent’s commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. BPOMS is not aware of any claim for payment of any finder’s fees, brokerage or agent’s commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby other than as set forth in Section 5.14 of the BPOMS Disclosure Letter.

5.15Related Party Transactions.

Except as set forth in the BPOMS SEC Documents or the BPOMS Disclosure Letter, since December 31, 2007, no event has occurred that would be required to be reported by BPOMS pursuant to Item 404 of Regulation S-B promulgated under the Securities Act.

5.16Contracts and Commitments.

(a)Except as filed with the BPOMS SEC Documents or as set forth in Section 5.16(a) of the BPOMS Disclosure Letter, neither BPOMS nor any of the BPOMS Subsidiaries has, or is party to or is bound by:

(i)any consulting agreement, contract or commitment under which any firm or other organization provides consulting services to BPOMS or any of the BPOMS Subsidiaries, other than in the ordinary course of business and consistent with past practice;

(ii)any fidelity or surety bond or completion bond;

(iii)any guaranty of the obligations of a third party;

(iv)any agreement, contract, commitment, transaction or series of transactions for any purpose other than in the ordinary course of BPOMS’ or any of the BPOMS Subsidiaries’ business relating to capital expenditures or commitments or long term obligations in excess of $150,000;

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(v)any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of BPOMS’ or any of the BPOMS Subsidiaries’ business;

(vi)any mortgages, indentures, loans or credit agreements, security agreements or other arrangements or instruments relating to the borrowing of money or extension of credit, including capital leases and also guaranties referred to in clause (iii) hereof;

(vii)any purchase order or contract for the purchase of inventory or other materials involving $150,000 or more;

(viii)any assignment, license or other agreement with respect to any form of intangible property, excluding agreements made in the ordinary course of business;

(ix)any agreement, contract or commitment that involves $150,000 or more or is not cancellable without penalty upon 30 days notice, excluding agreements made in the ordinary course of business;

(x)any agreement or contract involving the sharing of profits and losses by BPOMS or any of the BPOMS Subsidiaries with any other Person;

(xi)any contract containing covenants that restrict or limit the ability of BPOMS or any BPOMS Subsidiaries to engage in any line of business or compete with any person; or

(xii)any “material contracts” within the meaning set forth in Item 601(b)(10) of Regulation S-B  promulgated under the Securities Act.

The contracts and other documents referred to in (i) through (xii) above and all contracts and documents required to be filed with any BPOMS SEC Documents shall be referred to herein as “BPOMS Contracts”.

(b)Except as would not individually or in the aggregate have a BPOMS Material Adverse Effect, all BPOMS Contracts are valid and binding on BPOMS and, to the best of the knowledge of BPOMS, on the other parties thereto, and are in full force and effect and enforceable against BPOMS and, to the best of the knowledge of BPOMS, against the other parties thereto, in accordance with their respective terms. Except as disclosed in Section 5.16(b) of the BPOMS Disclosure Letter, no approval or consent of, or notice to any Person the failure of which to obtain would have a BPOMS Material Adverse Effect is needed in order that the BPOMS Contracts shall continue in full force and effect in accordance with their terms without penalty, acceleration or rights of early termination following the consummation of the transactions contemplated by this Agreement. Except to the extent any of the following would not individually or in the aggregate have a BPOMS Material Adverse Effect, BPOMS is not in violation of, breach of or default under any BPOMS Contract nor, to BPOMS’ knowledge, is any other party to any BPOMS Contract. Except as set forth in Section 5.16 of the BPOMS Disclosure Letter, BPOMS is not in violation or breach of or default under any BPOMS Contract (including leases of real property) relating to non-competition, indebtedness, guarantees of indebtedness of any other Person, employment, or collective bargaining.

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5.17Employee Matters and Benefit Plans.

(a)With the exception of the definition of “Affiliate” set forth in Section 5.17(a)(i) below (which definition shall apply only to this Section 5.17 and Section 6.17), for purposes of this Agreement, the following terms shall have the meanings set forth below:

(i)“Affiliate” shall mean any other Person under common control with or otherwise required to be aggregated with a Person or any Subsidiary of such Person as set forth in Section 414(b), (c), (m) or (0) of the Code and the regulations thereunder;

(ii)“Employee” shall mean any current, former or retired employee, officer, or director of a Person or any Subsidiary or any Affiliate of such Person;

(iii)“Employee Agreement” shall refer to any material management, employment, severance, consulting, relocation, repatriation, expiration, visas, work permit or similar agreement or contract between a Person or any Subsidiary or Affiliate of such Person and any Employee or consultant that is not an Employee Plan;

(iv)“Employee Plan” shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock related awards, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and whether or not legally binding, including without limitation, each “employee benefit plan” within the meaning of Section 3(3) of ERISA (as defined below), which is or has been maintained, contributed to, or required to be contributed to, by a Person or any of its Subsidiaries or any Affiliate for the benefit of any “Employee.” and pursuant to which such Person or any of its Subsidiary or any Affiliate has or may have any material liability contingent or otherwise;

(v)“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended;

(vi)“IRS” shall mean the Internal Revenue Service;

(vii)“Multiemployer Plan” shall mean any “Pension Plan” (as defined below) which is a “multiemployer plan,” as defined in Sections 3(37) and 4001 (a)(3) of ERISA; and

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(viii)“Pension Plan” shall refer to each BPOMS and Subsidiary Employee Plan that is an “employee pension benefit plan,” within the meaning of Section 3(2) of ERISA.

(b)Section 5.17(b) of the BPOMS Disclosure Letter contains an accurate and complete list of each Employee Agreement of BPOMS and Employee Plan of BPOMS. No benefits under any Employee Agreement or Employee Plan of BPOMS will be increased, or subject to accelerated vesting, by the occurrence of any of the transactions contemplated by this Agreement, nor will the value of any of the benefits thereunder be calculated on the basis of any transactions contemplated by this Agreement. Except as set forth in Section 5.17(b) of the BPOMS Disclosure Letter, neither BPOMS nor any of its Subsidiaries or Affiliates has any announced plan or commitment, whether legally binding or not, to establish any new Employee Plan or Employee Agreement, to modify any Employee Agreement (except to the extent required by law or to conform any such Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to HealthAxis in writing, or as required by this Agreement), or to enter into any Employee Plan or Employee Agreement, nor does it have any intention or commitment to do any of the foregoing.

(c)BPOMS has provided to HealthAxis correct and complete copies of all material documents embodying or relating to each Employee Agreement and Employee Plan, including:  (i) all amendments thereto; (ii) the most recent annual actuarial valuations, if any, prepared for each BPOMS Employee Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each BPOMS Employee Plan or related trust; (iv) if the BPOMS Employee Plan is funded, the most recent annual and periodic accounting of Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each BPOMS Employee Plan; (vi) all IRS determination letters and rulings relating to BPOMS Employee Plans and copies of all applications and correspondence to or from the IRS or DOL with respect to any BPOMS Employee Plan; and (vii) all communications material to any Employee or Employees relating to any BPOMS Employee Plan and any proposed BPOMS Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to BPOMS or any BPOMS Subsidiary.

(d)Except as set forth in Section 5.l7(d) of the BPOMS Disclosure Letter:

(i)BPOMS and each of the BPOMS Subsidiaries and Affiliates has performed in all material respects all obligations required to be performed by them under each BPOMS Employee Plan, and each BPOMS Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA and the Code;

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(ii)no “prohibited transaction,” within the meaning of Section 4975 of the Code or Section 406 of ERISA for which no class or statutory exemption is available, has occurred with respect to any BPOMS Employee Plan;

(iii)there are no material actions, suits or claims pending or, to the knowledge of BPOMS, threatened or anticipated (other than routine claims for benefits) against any BPOMS Employee Plan or against the assets of any BPOMS Employee Plan;

(iv)such BPOMS Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability to BPOMS or any of the BPOMS Subsidiaries or any of its Affiliates (other than ordinary administration expenses typically incurred in a termination event);

(v)there are no audits, inquiries or proceedings pending or, to the knowledge of BPOMS, threatened by the IRS or DOL with respect to any BPOMS Employee Plan;

(vi)neither BPOMS nor any of the BPOMS Subsidiaries is subject to any penalty or tax with respect to any BPOMS Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980 of the Code; and

(vii)all contributions, including any top heavy contributions, required to be made prior to the Closing by BPOMS or any Affiliate to any Employee Plan have been made or shall be made on or before the Closing Date.

(e)Neither BPOMS nor any of the BPOMS Subsidiaries or Affiliates currently maintain, sponsor, participate in or contribute to, nor have they ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.

(f)At no time has BPOMS or any of the BPOMS Subsidiaries or Affiliates contributed to or been requested or obligated to contribute to any Multiemployer Plan.

(g)Except as set forth in Section 5.17(g) of the BPOMS Disclosure Letter or as required by local, state or federal law, no Employee Plan or Employee Agreement to which BPOMS is a party provides, or is required to provide, life insurance, medical or other employee benefits to any Employee upon his or her retirement or termination of employment for any reason, and BPOMS and each of the BPOMS Subsidiaries has never represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) that such Employee(s) would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment.

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(h)The execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Employee Agreement, Employee Plan, trust or loan that will or may result in any payment (whether of severance payor otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Employee, except as set forth in Schedule 5.17(h) of the BPOMS Disclosure Letter.

(i)Except as set forth in Section 5.l7(i) of the Disclosure Letter, BPOMS and each of the BPOMS Subsidiaries (i) is in compliance in all respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Employees except as would not have a BPOMS Material Adverse Effect; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries, and other payments to Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Employees (other than routine payments to be made in the normal course of business and consistent with past practice).

(j)No work stoppage or labor strike against BPOMS or any BPOMS Subsidiary is pending or, to the knowledge of BPOMS, threatened. Neither BPOMS nor any of the BPOMS Subsidiaries is involved in or, to the knowledge of BPOMS, threatened with, any labor dispute, grievance, administrative proceeding or litigation relating to labor, safety, employment practices or discrimination matters involving any Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, have a BPOMS Material Adverse Effect. Neither BPOMS nor any of the BPOMS Subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act that would, individually or in the aggregate, directly or indirectly have a BPOMS Material Adverse Effect. Neither BPOMS nor any of the BPOMS Subsidiaries or Affiliates has ever been a party to any agreement with any labor organization or union, and none of the BPOMS Employees are represented by any labor organization or union, nor have any BPOMS Employees threatened to organize or join a union or filed a petition for representation with the National Labor Relations Board.

(k)There are no (i) bonus or severance payments that could be payable to Employees of BPOMS under existing Employee Agreements on account of the transactions contemplated by this Agreement (without regard to termination of employment), or (ii) severance obligations that could be payable to Employees of BPOMS under existing Employee Agreements on account of terminations of employment following the Effective Time, except as disclosed in Section 5.17(k) of the BPOMS Disclosure Letter.

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(l)The employment agreements contemplated by Section 8.1(d) hereof shall in all respects be excepted from the representations set forth in this Section 5.17.

5.18Intellectual Property.

(a)For the purposes of this Agreement, the following terms have the following definitions:

(i)“Intellectual Property” shall mean any or all of the following and all rights in, arising out of, or associated therewith: (a) all United States, international and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations in part thereof; (b) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data, customer lists, proprietary processes and formulae, all source and object code, algorithms, architectures, structures, display screens, layouts, inventions, development tools and all documentation and media constituting, describing or relating to the above, including, without limitation, manuals, memoranda and records; (c) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world; (d) all industrial designs and any registrations and applications therefor throughout the world; (e) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor throughout the world; (t) all proprietary databases and data collections and all rights therein throughout the world; and (g) any equivalent rights to any of the foregoing anywhere in the world.

(ii)“BPOMS Intellectual Property” shall mean that Intellectual Property owned by or licensed to or controlled by BPOMS or any of the BPOMS Subsidiaries.

(iii)“BPOMS Registered Intellectual Property” means those United States, international and foreign: (a) patents and patent applications (including provisional applications); (b) registered trademarks and service marks, applications to register trademarks or service marks, intent to use applications, or other registrations or applications related to trademarks or service marks; and (c) registered copyrights and applications for copyright registration, owned by BPOMS.

(iv)“Utilize” or “Utilization” means to make, manufacture, use, market, import, export, distribute, sell, dispose, assign, license, develop, publish, display, modify and/or amend.

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(b)Section 5.18(b) of the BPOMS Disclosure Letter lists all material proceedings or actions known to BPOMS before any court, tribunal (including the United States Patent and Trademark Office (“PTO”) or equivalent authority anywhere in the world) related to any BPOMS Intellectual Property. No BPOMS Intellectual Property is the subject of any outstanding decree, order, judgment, agreement, or stipulation restricting in any manner the use, transfer, or licensing thereof by BPOMS or any of the BPOMS Subsidiaries, or which may affect the validity, use or enforceability of any BPOMS Intellectual Property.

(c)Section 5.18(c) of the BPOMS Disclosure Letter lists all BPOMS Registered Intellectual Property. With respect to each item of BPOMS Registered Intellectual Property, necessary registration, maintenance and renewal fees in connection with such BPOMS Registered Intellectual Property have been made and all necessary documents and certificates in connection with such BPOMS Registered Intellectual Property have been filed with the relevant patent, trademark or copyright authorities in the United States or other jurisdictions for the purposes of maintaining such BPOMS Registered Intellectual Property.

(d)BPOMS or a BPOMS Subsidiary has the right to prevent others from using, marketing, distributing, selling or licensing all BPOMS Intellectual Property used in its business as presently conducted and as it is expected to be conducted as of the Effective Time, including without limitation, all Intellectual Property used or to be used in the BPOMS Products (as defined below), and such rights to Utilize the BPOMS Intellectual Property are sufficient for such conduct of their respective businesses.

(e)To BPOMS’ knowledge, Utilization by BPOMS or any of the BPOMS Subsidiaries of any BPOMS products currently being licensed, produced or sold by BPOMS or any of the BPOMS Subsidiaries or currently under development or consideration by BPOMS or any of the BPOMS Subsidiaries (“BPOMS Products”) does not violate any license or agreement between BPOMS or any of the BPOMS Subsidiaries and any third party or, to BPOMS’ knowledge, infringe any Intellectual Property right, moral right or right of publicity or privacy of any other party, and, except as set forth in Section 5.18(e) of the BPOMS Disclosure Letter, BPOMS has not received notice of any pending or threatened claim or litigation contesting the validity, ownership or right to Utilize any BPOMS Intellectual Property nor, to the knowledge of BPOMS, is there any basis for any such claim under applicable law, nor has BPOMS or any of the BPOMS Subsidiaries received any notice asserting that any BPOMS Products or the Utilization thereof conflicts or will conflict with the rights of any other party.

(f)BPOMS and the BPOMS Subsidiaries have timely and satisfactorily fulfilled their respective obligations under all material agreements pursuant to which BPOMS or any of the BPOMS Subsidiaries, as the case may be, has agreed to program, design or develop on behalf of a third party, whether for original use or for porting or conversion (for use on a different hardware platform or in a different language), any software products or any part thereof’ except where the failure to so comply would not reasonably be expected to have a BPOMS Material Adverse Effect.

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(g)Except as set forth in Section 5.18(g) of the BPOMS Disclosure Letter, to the extent that any work, invention, or material has been developed or created by a third party for BPOMS or any of the BPOMS Subsidiaries, to BPOMS’ knowledge, BPOMS or a BPOMS Subsidiary has a written agreement with such third party with respect thereto and BPOMS or a BPOMS Subsidiary has obtained ownership of, and is the exclusive owner of, or has a valid license to use, all BPOMS Intellectual Property in such work, material or invention by operation of law or by valid assignment or by agreement, as the case may be.

(h)Section 5.18(h) of the BPOMS Disclosure Letter lists all material contracts, licenses and agreements to which BPOMS or any of the BPOMS Subsidiaries is a party that are currently in effect (i) with respect to BPOMS Intellectual Property licensed or offered to any third party (other than licenses granted in the ordinary course of business); or (ii) pursuant to which a third party has licensed or transferred any Intellectual Property to BPOMS or any of the BPOMS Subsidiaries (other than licenses granted in the ordinary course of business). Except as set forth in Section 5.18(h) of the BPOMS Disclosure Letter, neither BPOMS nor any of the BPOMS Subsidiaries has transferred ownership of, or granted any license with respect to, any BPOMS Intellectual Property, to any third party (other than licenses granted in the ordinary course of business).

(i)Except as set forth in Section 5.18(i) of the BPOMS Disclosure Letter, the contracts, licenses and agreements listed in Section 5.18(h) are in full force and effect to BPOMS’ knowledge. The consummation of the transactions contemplated by this Agreement will not violate or result in the breach, modification, cancellation, termination, or suspension of such contracts, licenses and agreements listed in Section 5.18(h) and will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any rights of BPOMS to any BPOMS Intellectual Property or impair the right of BPOMS or any of the BPOMS Subsidiaries or the Surviving Corporation to Utilize any BPOMS Intellectual Property or portion thereof BPOMS and each of the BPOMS Subsidiaries is in material compliance with, and has not materially breached any term any of such contracts, licenses and agreements listed in Section 5.18(h) and, to the knowledge of BPOMS, all other parties to such contracts, licenses and agreements listed in Section 5.18(h) are in compliance with, and have not breached any term of, such contracts, licenses and agreements. Except as set forth in Section 5.18(i) of the BPOMS Disclosure Letter, following the Effective Time, the Surviving Corporation will be permitted to exercise all of BPOMS’ and each of the BPOMS Subsidiaries’, if any, rights under the contracts, licenses and agreements listed in Section 5.18(h) to the same extent BPOMS and such BPOMS Subsidiary would have been able to had the transactions contemplated by this Agreement not occurred and without the payment of any additional funds other than ongoing fees, royalties or payments which BPOMS or such BPOMS Subsidiary would otherwise be required to pay.

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(j)Except as set forth in Section 5.18(j) of the BPOMS Disclosure Letter, (i) BPOMS and each of the BPOMS Subsidiaries (including to the knowledge of each of their executive officers, directors and employees) has not received any notice or claim (whether written, oral or otherwise) challenging BPOMS’ ownership or rights in the BPOMS Intellectual Property or claiming that any other Person or entity has any legal or beneficial ownership with respect thereto; (ii) all the BPOMS Intellectual Property rights owned by BPOMS and embodied in BPOMS Products are, to BPOMS’ knowledge, legally valid and enforceable without any material qualification, limitation or restriction on their use, and BPOMS has not received any notice or claim (whether written or oral) challenging the validity or enforceability of any of the BPOMS Intellectual Property rights; and (iii) to BPOMS’ knowledge, no third party is infringing or misappropriating any part of the BPOMS Intellectual Property.

(k)BPOMS and each of the BPOMS Subsidiaries has taken reasonable and practicable measures designed to protect their respective rights in their respective confidential information and trade secrets or any trade secrets or confidential information of third parties provided to BPOMS or any of the BPOMS Subsidiaries. To the knowledge of BPOMS or any of the BPOMS Subsidiaries, neither BPOMS nor any BPOMS Subsidiary, has permitted any such confidential information or trade secrets to be used, divulged or appropriated for the benefit of Persons to the material detriment of BPOMS or any of the BPOMS Subsidiaries.

(l)Section 5.18(l) of the BPOMS Disclosure Letter sets forth a list of all Internet domain names used by BPOMS in its business (collectively, the “Domain Names”). BPOMS has, and after the Effective Time, to BPOMS’ knowledge, the Surviving Corporation will have, a valid registration and all material rights (free of any material restriction) in and to the Domain Names, including, without limitation, all rights necessary to the continued use of the BPOMS Domain Names in connection with the conduct of BPOMS’ business as it is currently conducted.

(m)Neither BPOMS nor any of the BPOMS Subsidiaries is or has been a party to any Government Contract relating to or affecting ownership or Utilization of any BPOMS Intellectual Property. For purposes of this paragraph, the term “Government Contract” means any Government Prime Contract, Government Subcontract, Bid or Teaming Agreement. “Government Prime Contract” means any prime contract, basic ordering agreement, letter contract, purchase order, delivery order, change, arrangement or other commitment of any kind, on which final payment has not been made, between a party and either the U.S. Government or a State Government. “Government Subcontract” means any subcontract, basic ordering agreement, letter contract, purchase order, delivery order, change, arrangement, or other commitment of any kind, on which final payment has not been made, between a party and any prime contractor to either the U.S. Government or a State Government or any subcontractor with respect to a Government Prime Contract. “State Government” means any state, territory or possession of the United States or any department, agency or instrumentality thereof, or any department or agency of any of the above with statewide jurisdiction and responsibility, or any municipal or local government, department, agency or instrumentality. “Teaming Agreement” has same meaning as the term “contractor team arrangement(s)” as defined in the Federal Acquisition Regulation (FAR) Subpart 9.601. “Us. Government” means the United States Government or any department, agency or instrumentality thereof.

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5.19Anti-Takeover Plan.

BPOMS has taken all action necessary to exempt the transactions contemplated by this Agreement from the operation of any “fair price,” “moratorium,” “control share acquisition,” or other similar anti-takeover statute or regulation enacted under the state or federal laws of the United States.  Neither BPOMS nor any BPOMS Subsidiary has in effect any plan, scheme, device or arrangement, commonly or colloquially known as a “poison pill” or, an “anti-takeover” plan or any similar plan, scheme, device or arrangement.

5.20Shareholder Vote Required.

The only votes of the holders of any class of shares of capital stock of BPOMS necessary to approve this Agreement, the Merger and the other transactions contemplated by this Agreement are: (i) the affirmative vote of holders of a majority of the outstanding BPOMS Common Stock, BPOMS Series A Preferred Shares, BPOMS Series B Preferred Shares and BPOMS Series C Preferred Shares (voting together, as a single class), and (ii) the affirmative votes of holders of a majority of each of the outstanding BPOMS Series A Preferred Shares, BPOMS Series C Preferred Shares, BPOMS Series D Preferred Shares, BPOMS Series D-2 Preferred Shares and BPOMS Series F Preferred Shares.  BPOMS has, prior to the date of this Agreement, obtained the required votes described in clause (ii) of this Section 5.20 and timely complied with its obligations under Section 262 of the DGCL.

5.21Undisclosed Liabilities.

Except as and to the extent reflected, reserved against or otherwise disclosed in Section 5.7(c) of the Disclosure Letter or the BPOMS SEC Documents or as set forth in Section 5.21 of the BPOMS Disclosure Letter, neither BPOMS nor any BPOMS Subsidiary has any liabilities or obligations of any kind, whether accrued, absolute, asserted or unasserted, contingent or otherwise, of a nature required to be disclosed on a balance sheet prepared in accordance with GAAP consistently applied, which would have, individually or in the aggregate, a BPOMS Material Adverse Effect.

5.22Insurance.

BPOMS maintains, and has maintained or caused to be maintained, without interruption, since December 15, 2006, policies or binders of insurance covering such risk, and events, including personal injury, property damage, errors and omissions and general liability in amounts BPOMS reasonably believes adequate for its business and operations, and its current insurance policies (other than directors’ and officers’ insurance) will not terminate due to the consummation of the Merger. Section 5.22 of the BPOMS Disclosure Letter sets forth a summary of all current insurance policies (including, without limitation, limits, deductibles and terms) maintained by BPOMS and the BPOMS Subsidiaries.

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5.23Financial Forecast and Relationships with Suppliers, Licensors and Customers.

BPOMS has provided to HealthAxis a copy of its 2008 Forecast(the “BPOMS Forecast”). The Forecast was prepared in good faith and BPOMS believes there is a reasonable basis for the BPOMS Forecast. No current distributor, customer of or supplier to BPOMS or any of the BPOMS Subsidiaries has notified BPOMS or such BPOMS Subsidiary of an intention to terminate or substantially alter its existing business relationship with BPOMS or such BPOMS Subsidiary, nor has any licensor under a license agreement with BPOMS or any of the BPOMS Subsidiaries notified BPOMS or such BPOMS Subsidiary of an intention to terminate or substantially alter BPOMS’ or such BPOMS Subsidiary’s rights under such license, which termination or alteration would cause BPOMS to fail to achieve the projections set forth in the BPOMS Forecast or would otherwise have a BPOMS Material Adverse Effect in 2008.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF HEALTHAXIS AND MERGER SUB

HealthAxis and Merger Sub hereby represent and warrant to BPOMS as follows, except as set forth in (i) HealthAxis’ Annual Report on Form 10-K for the year ending December 31, 2007 and any other HealthAxis SEC Documents (as defined below) filed subsequent to December 31, 2007, and (ii) the written disclosure letter delivered at or prior to the execution hereof to BPOMS (the “HealthAxis Disclosure Letter”). The HealthAxis Disclosure Letter shall be arranged in sections or subsections corresponding to the number and lettered sections and subsections contained in this Article 6. The disclosures in any section or subsection of the HealthAxis Disclosure Letter shall qualify the correspondingly numbered representation and warranty and such other representations and warranties in this Article 6 to the extent it is reasonably clear from a reading of the disclosure that such disclosure is applicable to such other representations and warranties.

6.1Organization; Good Standing; Authority; Compliance with Law.

(a)HealthAxis is a corporation duly organized, validly existing and in good standing under the laws of the State of Pennsylvania and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of HealthAxis and Merger Sub has all requisite power and authority to own, lease and operate its properties and to carry on its business as now conducted. HealthAxis is duly licensed or qualified and is in good standing to transact business as a foreign corporation in each jurisdiction in which the character of the properties owned or leased by it therein or in which the nature of its business makes such qualification or licensing necessary, except where the failure to be so licensed or qualified would not have, individually or in the aggregate, a HealthAxis Material Adverse Effect. For purposes of this Agreement, a “HealthAxis Material Adverse Effect” means a material adverse effect on the business, assets (including intangible assets), financial condition or results of  operations of HealthAxis and the HealthAxis Subsidiaries (as defined in Section 6.4), taken as a whole.

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(b)Each of the Subsidiaries of HealthAxis (the “HealthAxis Subsidiaries”) is a corporation, partnership or limited liability company duly incorporated or formed, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation, has the corporate, partnership or limited liability company power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to transact business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not have, individually or in the aggregate, a HealthAxis Material Adverse Effect.

(c)The business of HealthAxis and the HealthAxis Subsidiaries is being operated in compliance with all laws, ordinances, regulations and orders of all governmental entities, except for violations which would not have, individually or in the aggregate, a HealthAxis Material Adverse Effect. HealthAxis and the HealthAxis Subsidiaries have all Government Approvals of all Governmental Agencies, required by law with respect to the operation of their businesses, except those the absence of which would not, individually or in the aggregate, have a HealthAxis Material Adverse Effect or prevent or delay consummation of the Merger. All such Government Approvals are in full force and effect, and HealthAxis and the HealthAxis Subsidiaries are in compliance with all conditions and requirements of the Government Approvals and with all rules and regulations relating thereto other than failures that would not have a HealthAxis Material Adverse Effect. HealthAxis has not received any notices of violations of any Federal, state and local laws, regulations and ordinances relating to its business, operations or assets which, if it were determined that a violation had occurred, would have a HealthAxis Material Adverse Effect.

(d)The Amended and Restated Articles of Incorporation or other charter documents and Bylaws (and in each such case, all amendments thereto) of HealthAxis and each of the HealthAxis Subsidiaries are listed in Section 6.1(d) of the HealthAxis Disclosure Letter, and true and correct copies have previously been delivered or made available to BPOMS and its counsel.

6.2Authorization, Validity and Effect of Agreements.

HealthAxis and Merger Sub each has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The Board of Directors of each of HealthAxis and Merger Sub has taken all necessary corporate action required to be taken by it to approve this Agreement, the Merger, and the transactions contemplated by this Agreement. The execution by HealthAxis and Merger Sub of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by all requisite action on the part of HealthAxis and Merger Sub, subject to the approvals described in Section 6.2 of the HealthAxis Disclosure Letter. This Agreement constitutes the valid and legally binding obligation of HealthAxis and Merger Sub, enforceable against HealthAxis and Merger Sub in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors’ rights and general principles of equity.

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6.3Capitalization.

(a)The authorized capital stock of HealthAxis as of the date hereof and prior to the HealthAxis Pre-Merger Steps consists of 1,900,000,000 shares of HealthAxis Common Stock, $0.10 par value per share, and 100,000,000 shares of preferred stock, $1.00 par value per share, of which 3,850,000 shares are designated as Series A Convertible Preferred Shares (the “HealthAxis Series A Preferred Shares”). As of the date hereof, there are 8,816,088 shares of HealthAxis Common Stock issued and outstanding and 740,401 HealthAxis Series A Preferred Shares issued and outstanding. All such outstanding shares of HealthAxis are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights or rights of first refusal created by statute, the Certificate of Incorporation or Bylaws of HealthAxis or any agreement to which HealthAxis is a party or by which it is bound, and free of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof or under applicable federal or state securities or “blue sky” laws. The authorized capital stock of Merger Sub consists of 100 shares of common stock, par value $0.01 per share. As of the date hereof, 100 shares of common stock of Merger Sub are issued and outstanding, fully paid and non-assessable and owned by HealthAxis. Except as set forth in Section 6.3 of the HealthAxis Disclosure Letter HealthAxis has no outstanding bonds, debentures, notes or other obligations the holders of which have or upon the happening of certain events would have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of HealthAxis on any matter. Except as set forth in Section 6.3 of the HealthAxis Disclosure Letter or as shall be terminated as part of the HealthAxis Pre-Merger Steps, there are no existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements, stock appreciation rights or similar derivative securities or instruments or commitments which obligate HealthAxis to issue, transfer or sell any Shares of HealthAxis of any class or make any payments in lieu thereof.  Except as set forth in Section 6.3 of the HealthAxis Disclosure Letter, there are no agreements or understandings to which HealthAxis or any HealthAxis Subsidiary is a party with respect to the voting of any HealthAxis Shares or which restrict the transfer of any such shares (other than such restrictions as shall terminate as part of the HealthAxis Pre-Merger Steps), nor does HealthAxis have knowledge of any such agreements or understandings with respect to the voting of any such shares or which restrict the transfer of any such shares. Except as disclosed in Section 6.3 of the HealthAxis Disclosure Letter and except for such obligations as shall be terminated as part of the HealthAxis Pre-Merger Steps, there are no outstanding contractual obligations of HealthAxis or any HealthAxis Subsidiary to register under the securities laws of any jurisdiction or to repurchase, redeem or otherwise acquire any HealthAxis Shares or any other securities of HealthAxis or any HealthAxis Subsidiary. Section 6.3 of the HealthAxis Disclosure Letter contains a complete and correct list setting forth as of the date hereof (i) the number of options and warrants outstanding, (ii) the dates on which such options or warrants were granted, (iii) the dates on which such options or warrants shall expire and (iv) the exercise or conversion price of each outstanding option or warrant, as the case may be. Materially true and complete copies of all agreements and instruments relating to the securities described above and in Section 6.3 of the HealthAxis Disclosure Letter, or forms thereof, have been provided to BPOMS and such agreements and instruments have not been amended, modified or supplemented, and there are no agreements to amend, modify or supplement such agreements or instruments in any case from the form provided to BPOMS.  All outstanding securities of HealthAxis and each HealthAxis Subsidiary have been issued and granted in compliance in all material respects with (i) all applicable securities laws; and (ii) all requirements set forth in all applicable contracts.  The shares of HealthAxis Common Stock issued under options or warrants were issued in transactions which were registered under the Securities Act or which qualified for exemptions under either Section 4(2) of, or Rule 701 under, the Securities Act for stock issuances under compensatory benefit plans.

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(b)The shares of HealthAxis Common Stock and HealthAxis Series B Preferred Stock to be issued pursuant to the Merger, at the Effective Time, will be duly authorized, validly issued, fully paid and unassessable and free of preemptive rights of any nature.

(c)Set forth below is a summary of all securities of any type of HealthAxis (including all shares, options, warrants, calls, subscriptions, convertible securities or other rights, agreements, stock appreciation rights, or derivative securities or instruments or commitments which obligate HealthAxis to issue, transfer or sell any securities) that are outstanding as of the date hereof, which are separately categorized to indicate the number of such securities outstanding and the number of shares of HealthAxis Common Stock (or any other indicated class of securities) into which they are convertible or exercisable:

Security	Number Outstanding		Shares Into Which Convertible/Exercisable
HealthAxis Common Stock	8,816,088	(1)	—
HealthAxis Series A Preferred Shares	740,401		740,401
HealthAxis Options	878,725		878,725
Healthaxis Warrants	200,632		200,632

(1)  Includes 380,125 shares of restricted stock.

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6.4Subsidiaries

Section 6.4 of the HealthAxis Disclosure Letter lists all Subsidiaries of HealthAxis (the “HealthAxis Subsidiaries” and, individually, a “HealthAxis Subsidiary”). HealthAxis owns directly or indirectly all of the outstanding shares of capital stock or other equity interests of each of the HealthAxis Subsidiaries. All of the outstanding shares of capital stock in each of the HealthAxis Subsidiaries are duly authorized, validly issued, fully paid and nonassessable. Except as set forth in Section 6.4 of the HealthAxis Disclosure Letter, all of the outstanding shares of capital stock of each of the HealthAxis Subsidiaries owned, directly or indirectly, by HealthAxis are owned free and clear of all liens, pledges, security interests, claims or other encumbrances. Except as set forth in Section 6.4 of the HealthAxis Disclosure Letter, there are no options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate HealthAxis or any HealthAxis Subsidiary to issue, transfer or sell any shares of capital stock of any HealthAxis Subsidiary. The following information for each HealthAxis Subsidiary is set forth in Section 6.4 of the HealthAxis Disclosure Letter: (i) its name and jurisdiction of incorporation, (ii) its authorized capital stock and (iii) its outstanding capital stock.

6.5Other Interests.

Except for interests in the HealthAxis Subsidiaries, neither HealthAxis nor any HealthAxis Subsidiary owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or other entity (other than investments in short term investment securities).

6.6No Violation.

Except as set forth in Section 6.6 of the HealthAxis Disclosure Letter, neither the execution and delivery by HealthAxis and Merger Sub of this Agreement nor the consummation by HealthAxis and Merger Sub of the transactions contemplated by this Agreement in accordance with its terms will: (i) conflict with or result in a breach of any provisions of HealthAxis’ or Merger Sub’s respective charter or by-laws; (ii) violate, result in a breach of any provision of, or constitute a default under, or require any approval or consent under or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by or result in a material adverse change to, or result in the creation of any lien, security interest, charge or encumbrance upon any of HealthAxis’ or Merger Sub’s properties under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument to which HealthAxis or Merger Sub is a party, or by which HealthAxis or Merger Sub or any of their properties is bound or affected, except for any of the foregoing matters in this clause which, individually or in the aggregate, would not have a HealthAxis Material Adverse Effect; (iii) contravene or conflict with or constitute a violation of any provision of any law, rule, regulation, judgment, injunction, order or decree binding upon or applicable to HealthAxis or Merger Sub; or (iv) other than the filings provided for in this Agreement and the Regulatory Filings, require any consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority which has not been obtained or made, except where the failure to obtain any such consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority would not have a HealthAxis Material Adverse Effect and could not reasonably be expected to prevent, materially alter or materially delay any of the transactions contemplated by this Agreement.

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6.7SEC Filings; Financial Statements.

(a)In this Agreement, all registration statements, proxy statements, Certifications (as defined below) and other statements, reports, schedules, forms and other documents filed by HealthAxis with the SEC on or after December 31, 2006 are called the “HealthAxis SEC Documents”.  HealthAxis has delivered to BPOMS accurate and complete copies of all HealthAxis SEC Documents, other than any HealthAxis SEC Documents which can be obtained on the SEC’s website at www.sec.gov. Except as set forth on Section 6.7(a) of the HealthAxis Disclosure Letter or as would not have a HealthAxis Material Adverse Effect, all statements, reports, schedules, forms and other documents required to have been filed by HealthAxis with the SEC within the twelve-month period preceding the date of this Agreement have been filed on a timely basis. None of the HealthAxis Subsidiaries is required to file any documents with the SEC under the Exchange Act. As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing): (i) each of the HealthAxis SEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act (as the case may be); and (ii) none of the HealthAxis 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. The certifications and statements required by (A) Rule 13a-14 under the Exchange Act and (B) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) relating to the HealthAxis SEC Documents (collectively, the “Certifications”) are accurate and complete and comply as to form and content with all applicable laws or rules of applicable governmental and regulatory authorities.

(b)Except as described in the HealthAxis SEC Documents, (i) HealthAxis maintains disclosure controls and procedures that satisfy the requirements of Rule 13a-15 under the Exchange Act, and (ii) such disclosure controls and procedures are designed to ensure that all material information concerning HealthAxis is made known on a timely basis to the individuals responsible for the preparation of HealthAxis’ filings with the SEC and other public disclosure documents. Except as set forth in Section 6.7(b) of the HealthAxis Disclosure Letter, HealthAxis is in compliance with the applicable listing and other rules and regulations of the Nasdaq Capital Market and has not received any notice from the Nasdaq Capital Market asserting any present non-compliance with such rules and regulations.

(c)The financial statements (including any related notes) contained or incorporated by reference in the HealthAxis 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 (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, as permitted by Form 10-Q of the SEC, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated; and (iii) fairly present the consolidated financial position of HealthAxis and the HealthAxis Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows of HealthAxis and the HealthAxis Subsidiaries for the periods covered thereby.

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(d)HealthAxis’ auditor has at all required times since the date of enactment of the Sarbanes-Oxley Act been: (i) to the knowledge of HealthAxis, a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act); (ii) “independent” with respect to HealthAxis and the HealthAxis Subsidiaries within the meaning of Regulation S-X under the Exchange Act; and (iii) to the knowledge of HealthAxis, in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations promulgated by the SEC and the Public Company Accounting Oversight Board thereunder. Section 6.7(d) of the HealthAxis Disclosure Letter contains an accurate and complete description of all non-audit services performed by HealthAxis’ principal auditors for HealthAxis and the HealthAxis Subsidiaries from January 1, 2006 to March 31, 2008 and the fees paid for such services. All such non-audit services were approved as required by Section 202 of the Sarbanes-Oxley Act.

(e)Section 6.7(e) of the HealthAxis Disclosure Letter lists, and HealthAxis has delivered to BPOMS accurate and complete copies of the documentation creating or governing, all securitization transactions and “off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K under the Exchange Act) effected by HealthAxis since December 31, 2006.

6.8Litigation.

Except as set forth in Section 6.8 of the HealthAxis Disclosure Letter, there are (i) no continuing orders, injunctions or decrees of any court, arbitrator or governmental authority to which HealthAxis or any HealthAxis Subsidiary is a party or by which any of its properties or assets are bound or likely to be affected and (ii) no actions, suits or proceedings pending against HealthAxis or any HealthAxis Subsidiary as to which any of their respective properties or assets are subject or, to the knowledge of HealthAxis threatened against HealthAxis or any HealthAxis Subsidiary or to which any of their respective properties or assets are subject, at law or in equity, that in each such case could, individually or in the aggregate, have an HealthAxis Material Adverse Effect.

6.9Absence of Certain Changes.

Except as set forth in Section 6.9 of the HealthAxis Disclosure Letter or the HealthAxis SEC Documents or as contemplated by Section 8.1(d) of this Agreement, since December 31, 2007, HealthAxis and the HealthAxis Subsidiaries have conducted their business only in the ordinary course of such business and consistent with past practices and there has not been any:

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(a)HealthAxis Material Adverse Effect;

(b)amendment or change in the charter or By-Laws of HealthAxis or any of the HealthAxis Subsidiaries, other than as contemplated in this Agreement;

(c)incurrence, creation or assumption by HealthAxis or any of the HealthAxis Subsidiaries of (i) any mortgage, deed of trust, security interest, pledge, lien, title retention device, collateral assignment, claim, charge, restriction or other encumbrance of any kind on any of the assets or properties of HealthAxis or any of the HealthAxis Subsidiaries; or (ii) any obligation or liability of any indebtedness for borrowed money, other than pursuant to the SVB Loan Agreement (as defined below) or any amendment, extension or renewal thereof or any related documents;

(d)issuance or sale of any debt or equity securities of HealthAxis or any of its Subsidiaries, or the issuance or grant of any options, warrants or other rights to acquire from HealthAxis or any HealthAxis Subsidiaries, directly or indirectly, any debt or equity securities of HealthAxis or any of its Subsidiaries, other than (i) the shares to be issued and stock options to be granted as contemplated by this Agreement, and (ii) upon the exercise of any options and warrants outstanding as of the date of this Agreement;

(e)payment or discharge by HealthAxis or any of the HealthAxis Subsidiaries of any security interest, lien, claim, or encumbrance of any kind on any asset or property of HealthAxis or any of the HealthAxis Subsidiaries, or the payment or discharge of any liability that was not either shown or reflected in the HealthAxis SEC Documents or incurred in the ordinary course of HealthAxis’ business after December 31, 2007 and was in an amount in excess of $150,000 for any single liability to a particular creditor;

(f)purchase, license, sale, assignment or other disposition or transfer, or any agreement or other arrangement for the purchase, license, sale, assignment or other disposition or transfer, of any of the assets, properties or goodwill of HealthAxis other than a license or sale of any product or products of HealthAxis or any of the HealthAxis Subsidiaries made in the ordinary course of HealthAxis’ business;

(g)damage, destruction or loss of any property or asset, whether or not covered by insurance, having (or likely with the passage of time to have) a HealthAxis Material Adverse Effect;

(h)declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, the capital stock of HealthAxis, any split, combination or recapitalization of the capital stock of HealthAxis or any direct or indirect redemption, purchase or other acquisition of the capital stock of HealthAxis or any change in any rights, preferences, privileges or restrictions of any outstanding security of HealthAxis, other than the Reverse Split and the other steps contemplated by the HealthAxis Pre-Merger Steps and other than the nominal dividend relating to the HealthAxis Series A Preferred Stock and any stock repurchased (on a set-off basis without any cash outlay by HealthAxis other than to the IRS) in connection with the payment of withholding taxes associated with equity compensation incentives;

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(i)increase in the compensation payable or to become payable to any of the officers, directors or employees of HealthAxis or any of the HealthAxis Subsidiaries, or any bonus or pension, insurance or other benefit payment or arrangement (including without limitation stock awards, stock option grants, stock appreciation rights or stock option grants) made to or with any of such officers, directors or employees, other than increases in base salary for employees (excluding senior management employees) in the ordinary course of business and consistent with past practice;

(j)obligation or liability incurred by HealthAxis or any of the HealthAxis Subsidiaries to any of its officers, directors or stockholders except for normal and customary compensation and expense allowances payable to officers in the ordinary course of HealthAxis’ business consistent with past practice and except in connection with the HealthAxis Pre-Merger Steps;

(k)making by HealthAxis or any of the HealthAxis Subsidiaries of any loan, advance or capital contribution to, or any investment in, any officer, director, employee or stockholder of HealthAxis or any HealthAxis Subsidiary or any firm or business enterprise in which any such Person had a direct or indirect material interest at the time of such loan, advance, capital contribution or investment;

(l)entering into, amendment of, relinquishment, termination or non-renewal by HealthAxis or any HealthAxis Subsidiary of any contract, lease, transaction, commitment or other right or obligation other than in the ordinary course of its business or any written or oral indication or assertion by the other party thereto of any material problems with HealthAxis’ or any HealthAxis Subsidiary’s services or performance under such contract, lease, transaction, commitment or other right or obligation having a HealthAxis Material Adverse Effect, or of such other party’s demand to amend, terminate or not renew any such contract, lease, transaction, commitment or other right or obligation which would be likely to have a HealthAxis Material Adverse Effect;

(m)material change in the manner in which HealthAxis or any HealthAxis Subsidiary extends discounts, credits or warranties to customers or otherwise deals with its customers;

(n)entering into by HealthAxis or any of the HealthAxis Subsidiaries of any transaction, contract or agreement that by its terms requires or contemplates a required minimum current and/or future financial commitment, expenses (inclusive of overhead expenses) or obligation on the part of HealthAxis or any of the HealthAxis Subsidiaries involving in excess of $150,000, excluding any amendment, extension or renewal of the SVB Loan Agreement (or related documents) or any legal and accounting fees or other fees or obligations associated with this Agreement and the transactions contemplated hereby (including fees described in Section 6.14) or that is not entered into in the ordinary course of HealthAxis’ business, or the conduct of any business or operations by HealthAxis or any HealthAxis Subsidiary that is other than in the ordinary course of HealthAxis’ or such HealthAxis Subsidiary’s business; or

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(o)license, transfer or grant of a right under any HealthAxis Intellectual Property (as defined in Section 6.18 below), other than those licensed, transferred or granted in the ordinary course of business consistent with its past practices.

6.10Taxes.

Except as set forth in Section 6.10 of the HealthAxis Disclosure Letter or where such failure would not have, individually or in the aggregate, a HealthAxis Material Adverse Effect:

(a)HealthAxis and each of the HealthAxis Subsidiaries has paid or caused to be paid all federal, state, local, foreign, and other taxes, and all deficiencies, or other additions to tax, interest, fines and penalties (collectively, “Taxes”), owed or accrued by it and due and payable through the date hereof (including any Taxes payable pursuant to Treasury Regulation § 1.1502-6 (and any similar state, local or foreign provision).

(b)HealthAxis and each of the HealthAxis Subsidiaries has timely filed all federal, state, local and foreign tax returns (collectively “Tax Returns”) required to be filed by any of them through the date hereof, and all such returns accurately set forth the amount of any Taxes relating to the applicable period.

(c)HealthAxis and each of the HealthAxis Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other party.

(d)The financial statements included in the HealthAxis SEC Documents reflect adequate reserves for Taxes payable by HealthAxis and each HealthAxis Subsidiary for all taxable periods and portions thereof through the date of such financial statements.

(e)Since December 31, 2007, each of HealthAxis and the HealthAxis Subsidiaries has made sufficient accrual for Taxes in accordance with GAAP with respect to periods for which Tax Returns have not been filed.  All liabilities for Taxes attributable to the period commencing on the day following the filing date of the most recently filed HealthAxis SEC Documents were incurred in the ordinary course of business.

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(f)There are no outstanding agreements, waivers or arrangements extending the statutory period of limitations applicable to any claim for, or the period for the collection or assessment of, Taxes due from HealthAxis or any HealthAxis Subsidiary for any taxable period and there have been no deficiencies proposed, assessed or asserted for such Taxes.

(g)There are no closing agreements that could affect Taxes of HealthAxis or any HealthAxis Subsidiary for periods after the Effective Time pursuant to Section 7121 of the Code or any similar provision under state, local or foreign tax laws.

(h)No audit or other proceedings by any court, governmental or regulatory authority or similar authority relating to Taxes has occurred, been asserted or is pending and none of HealthAxis or any HealthAxis Subsidiary has received notice that any such audit or proceeding may be commenced.

(i)No election has been made or filed by or with respect to, and no consent to the application of, Section 341(f)(2) of the Code has been made by or with respect to, HealthAxis, any HealthAxis Subsidiary or any of their properties or assets.

(j)None of HealthAxis or any HealthAxis Subsidiary has agreed to, or filed application for, or is required, to make any changes or adjustment to its accounting method.

(k)Except as set forth in Section 5.10(k) of the HealthAxis Disclosure Letter, there is no contract, agreement, plan or arrangement covering any Person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by HealthAxis or any HealthAxis Subsidiary by reason of Section 280G or Section 162(m) of the Code.

(l)Neither HealthAxis nor any HealthAxis Subsidiary has (i) been a member of an affiliated group (within the meaning of Section 1504 of the Code) or an affiliated, combined, consolidated, unitary, or similar group for state, local or foreign Tax purposes, other than the group of which HealthAxis is the common parent or (ii) any liability for or in respect of the Taxes of, or determined by reference to the Tax liability of, another Person (other than HealthAxis or any HealthAxis Subsidiary) under Treasury Regulation § 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise.

(m)Neither HealthAxis nor any HealthAxis Subsidiary has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (x) in the two (2) years prior to the date of this Agreement or (y) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the Merger.

(n)Neither HealthAxis nor any HealthAxis Subsidiary is a party to any agreement providing for the allocation, indemnification, or sharing of Taxes other than any such agreement to which HealthAxis or any HealthAxis Subsidiary are the exclusive parties.

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HealthAxis has not taken any action or engaged in any activities that would preclude the treatment of the Merger as a reorganization under Section 368(a) of the Code.  In addition, HealthAxis has no plan or intention to take any action or engage in any activities that would preclude the treatment of the Merger as a reorganization of under Section 368(a) of the Code.

6.11Books and Records.

(a)The books of account and other financial records of HealthAxis and each of the HealthAxis Subsidiaries are true, complete and correct in all material respects, and have been maintained in accordance with good business practices since December 31, 2006.

(b)The minute books and other records of HealthAxis and each of the HealthAxis Subsidiaries contain accurate records of all meetings and accurately reflect all other action of the stockholders and Board of Directors and any committees of the Board of Directors of HealthAxis and each of the HealthAxis Subsidiaries since December 31, 2006.

6.12Properties.

(a)Section 6.12(a) of the HealthAxis Disclosure Letter sets forth a list of all real property currently owned or leased by HealthAxis or any of the HealthAxis Subsidiaries, and, with respect to all real property currently leased by HealthAxis or any of the HealthAxis Subsidiaries, the location of the property, the unexpired term of the lease and the aggregate annual rental and/or other fees payable under any such lease. All such current leases are, to the knowledge of HealthAxis, in full force and effect, are valid and effective in accordance with their respective terms, and there is not to the knowledge of HealthAxis any existing material default or event of default under any such lease (or event which with notice or lapse of time, or both, would constitute such a material default).

(b)HealthAxis and each of the HealthAxis Subsidiaries has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any liens, except as reflected in the HealthAxis SEC Documents or in Section 6.12(b) of the HealthAxis Disclosure Letter and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby.

6.13Environmental Matters.

Except as set forth in Section 6.13 of the HealthAxis Disclosure Letter, neither HealthAxis nor any of the HealthAxis Subsidiaries is in violation of any Environmental Laws which violation could reasonably be expected to result in a HealthAxis Material Adverse Effect. Except as set forth in Section 6.13 of the HealthAxis Disclosure Letter, neither HealthAxis, any of the HealthAxis Subsidiaries, nor, to the knowledge of HealthAxis, any third party, has used, released, discharged, generated, manufactured, produced, stored, or disposed of in, on, or under or about its owned or leased property or other assets, or transported thereto or therefrom, any hazardous substances or hazardous wastes, including asbestos, lead and petroleum, during the period of HealthAxis’ or the HealthAxis Subsidiary’s ownership or lease of such property in a manner that could reasonably be expected to subject HealthAxis or any HealthAxis Subsidiary to a material liability under the Environmental Laws. None of HealthAxis or any of the HealthAxis Subsidiaries has received written notice from any governmental authority that any property owned or leased by HealthAxis or any of the HealthAxis Subsidiaries is in violation of any Environmental Laws. There is no pending civil, criminal or administrative suit or other legal proceeding against HealthAxis or any of the HealthAxis Subsidiaries with respect to any Environmental Laws. HealthAxis has provided BPOMS complete copies of all environmental reports, assessments and studies in HealthAxis’ possession and control with respect to properties owned or leased by HealthAxis or any HealthAxis Subsidiary.

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6.14No Brokers.

Except as set forth in Section 6.14 of the HealthAxis Disclosure Letter, neither HealthAxis nor Merger Sub nor any of the HealthAxis Subsidiaries has entered into any contract, arrangement or understanding with any Person or firm which may result in the obligation of such entity or BPOMS to pay any finder’s fees, brokerage or agent’s commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. Except as set forth in the HealthAxis Disclosure Letter, neither HealthAxis nor Merger Sub is aware of any claim for payment directly by HealthAxis or Merger Sub of any finder’s fees, brokerage or agent’s commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby.

6.15Related Party Transactions.

Except as set forth in the HealthAxis SEC Documents, or the HealthAxis Disclosure Letter, since December 31, 2007, no event has occurred that would be required to be reported by HealthAxis pursuant to Item 404 of Regulation S-K promulgated under the Securities Act.

6.16Contracts and Commitments

(a)Except as filed with the HealthAxis SEC Documents or as set forth in Section 6.16(a) of the HealthAxis Disclosure Letter, neither HealthAxis nor any of the HealthAxis Subsidiaries has, or is party to or is bound by:

(i)any consulting agreement, contract or commitment under which any firm or other organization provides consulting services to HealthAxis or any of the HealthAxis Subsidiaries other than in the ordinary course of business;

(ii)any fidelity or surety bond or completion bond;

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(iii)any guaranty of the obligations of a third party;

(iv)any agreement, contract, commitment, transaction or series of transactions for any purpose other than in the ordinary course of HealthAxis’ or any of the HealthAxis Subsidiaries’ business relating to capital expenditures or commitments or long term obligations in excess of $150,000 (other than the SVB Loan Agreement and any amendment, extension or renewal thereof or of any related documents);

(v)any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of HealthAxis’ or any of the HealthAxis Subsidiaries’ business;

(vi)any mortgages, indentures, loans or credit agreements, security agreements or other arrangements or instruments relating to the borrowing of money or extension of credit, including capital leases and also guaranties referred to in clause (iii) hereof (other than the SVB Loan Agreement and any amendment, extension or renewal thereof or of any related documents);

(vii)any purchase order or contract for the purchase of inventory or other materials involving $150,0000 or more;

(viii)any distribution, joint marketing or development agreement, other than agreements made in the ordinary course of business;

(ix)any assignment, license or other agreement with respect to any form of intangible property, excluding agreements made in the ordinary course of business;

(x)any agreement or contract involving the sharing of profits and losses by HealthAxis or any of the Subsidiaries;

(xi)any agreement, contract or commitment that involves $150,000 or more or is not cancellable without penalty upon 30 days notice, excluding agreements made in the ordinary course of business;

(xii)any contract containing covenants that restrict or limit the ability of HealthAxis or any HealthAxis Subsidiaries to engage in any line of business or compete with any person; or

(xiii)any “material contracts” within the meaning set forth in Item 601(b)(10) of Regulation S-K  promulgated under the Securities Act.

The contracts and other documents referred to in (i) through (xiii) above and all contracts and documents required to be filed with any HealthAxis SEC Documents shall be referred to herein as “HealthAxis Contracts”.

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(b)Except as would not individually or in the aggregate have a HealthAxis Material Adverse Effect, all HealthAxis Contracts are valid and binding on HealthAxis and, to the best of the knowledge of HealthAxis, on the other parties thereto, and are in full force and effect and enforceable against HealthAxis and, to the best of the knowledge of HealthAxis, against the other parties thereto, in accordance with their respective terms. Except as disclosed in Section 6.16(b) of the HealthAxis Disclosure Letter, no approval or consent of, or notice to any Person the failure of which to obtain would have a HealthAxis Material Adverse Effect is needed in order that the HealthAxis Contracts shall continue in full force and effect in accordance with their terms without penalty, acceleration or rights of early termination following the consummation of the transactions contemplated by this Agreement. Except to the extent any of the following would not individually or in the aggregate have a HealthAxis Material Adverse Effect, HealthAxis is not in violation of, breach of or default under any HealthAxis Contract nor, to HealthAxis’ knowledge, is any other party to any HealthAxis Contract. Except as set forth in Section 6.16 of the HealthAxis Disclosure Letter, HealthAxis is not in violation or breach of or default under any HealthAxis Contract (including leases of real property) relating to non-competition, indebtedness, guarantees of indebtedness of any other Person, employment, or collective bargaining.

6.17Employee Matters and Benefit Plans.

(a)Section 6.17(a) of the HealthAxis Disclosure Letter contains an accurate and complete list of each Employee Agreement and Employee Plan of HealthAxis (including for each such plan a description of any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement of the value of any of the benefits of which will be calculated on the basis of any transactions contemplated by this Agreement). Except as set forth in Section 6.17(a) of the HealthAxis Disclosure Letter, neither HealthAxis nor any of the HealthAxis Subsidiaries or Affiliates has any announced plan or commitment, whether legally binding or not, to establish any new Employee Plan or Employee Agreement, to modify any Employee Plan or Employee Agreement (except to the extent required by law or to conform any such Employee Plan or Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to BPOMS in writing, or as required by this Agreement), or to enter into any Employee Plan or Employee Agreement, nor does it have any intention or commitment to do any of the foregoing.

(b)HealthAxis has provided or made available to BPOMS correct and complete copies of all material documents embodying or relating to each HealthAxis Employee Plan and Employee Agreement including: (i) all amendments thereto; (ii) the most recent annual actuarial valuations, if any, prepared for each HealthAxis Employee Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each HealthAxis Employee Plan or related trust; (iv) if the HealthAxis Employee Plan is funded, the most recent annual and periodic accounting of Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each HealthAxis Employee Plan; (vi) all IRS determination letters and rulings relating to HealthAxis Employee Plans and copies of all applications and correspondence to or from the IRS or DOL with respect to any HealthAxis Employee Plan; and (vii) all communications material to any Employee or Employees relating to any HealthAxis Employee Plan and any proposed HealthAxis Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to HealthAxis or any HealthAxis Subsidiary.

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(c)(i) Except as set forth in Section 6.l7(c) of the HealthAxis Disclosure Letter, HealthAxis and each of the HealthAxis Subsidiaries and Affiliates has performed in all material respects all obligations required to be performed by them under each HealthAxis Employee Plan, and each HealthAxis Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (ii) no “prohibited transaction,” within the meaning of Section 4975 of the Code or Section 406 of ERISA for which no class or statutory exemption is available, has occurred with respect to any HealthAxis Employee Plan; (iii) there are no material actions, suits or claims pending or, to the knowledge of HealthAxis, threatened or anticipated (other than routine claims for benefits) against any HealthAxis Employee Plan or against the assets of any HealthAxis Employee Plan; (iv) such HealthAxis Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability to HealthAxis or any of the HealthAxis Subsidiaries or any of its Affiliates (other than ordinary administration expenses typically incurred in a termination event); (v) there are no audits, inquiries or proceedings pending or, to the knowledge of HealthAxis, threatened by the IRS or DOL with respect to any HealthAxis Employee Plan; (vi) neither HealthAxis nor any of the HealthAxis Subsidiaries is subject to any penalty or tax with respect to any HealthAxis Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980 of the Code; and (vii) all contributions, including any top heavy contributions, required to be made prior to the Closing by HealthAxis or any Affiliate to any Employee Plan have been made or shall be made on or before the Closing Date.

(d)Neither HealthAxis nor any of the HealthAxis Subsidiaries or Affiliates currently maintain, sponsor, participate in or contribute to, nor have they ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.

(e)At no time has HealthAxis or any of the HealthAxis Subsidiaries or Affiliates contributed to or been requested or obligated to contribute to any Multiemployer Plan.

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(f)Except as set forth in Section 6.17(f) of the HealthAxis Disclosure Letter or as required by local, state or federal law, no Employee Plan or any Employment Agreement to which HealthAxis is a party provides, or is required to provide, life insurance, medical or other employee benefits to any Employee upon his or her retirement or termination of employment for any reason, and HealthAxis and each of the HealthAxis Subsidiaries has never represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) that such Employee(s) would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment.

(g)The execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any HealthAxis Employee Plan, Employee Agreement, trust or loan that will or may result in any payment (whether of severance payor otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any HealthAxis Employee, except as set forth in Section 6.17(g) of the HealthAxis Disclosure Letter.

(h)Except as set forth in Section 6.17(h) of the HealthAxis Disclosure Letter, HealthAxis and each of the HealthAxis Subsidiaries (i) is in compliance in all respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours; in each case, with respect to Employees except as would not have an HealthAxis Material Adverse Effect; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries, and other payments to Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Employees (other than routine payments to be made in the normal course of business and consistent with past practice).

(i)No work stoppage or labor strike against HealthAxis or any HealthAxis Subsidiary is pending or, to the knowledge of HealthAxis, threatened. Neither HealthAxis nor any of the HealthAxis Subsidiaries is involved in or, to the knowledge of HealthAxis, threatened with, any labor dispute, grievance, administrative proceeding or litigation relating to labor, safety, employment practices or discrimination matters involving any Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, have a HealthAxis Material Adverse Effect. Neither HealthAxis nor any of the HealthAxis Subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly have a HealthAxis Material Adverse Effect.

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Neither HealthAxis nor any of the HealthAxis Subsidiaries or Affiliates has ever been a party to any agreement with any labor organization or union, and none of the HealthAxis Employees are represented by any labor organization or union, nor have any HealthAxis Employees threatened to organize or join a union or filed a petition for representation with the National Labor Relations Board.

(j)There are no (i) bonus or severance payments that could be payable to Employees of HealthAxis under existing Employee Agreements or Employee Plans on account of the transactions contemplated by this Agreement (without regard to termination of employment), or (ii) severance obligations that could be payable to Employees of HealthAxis under existing Employee Agreements and Employee Plans on account of terminations of employment following the Effective Time, except as disclosed in Schedule 6.17(j) of the HealthAxis Disclosure Letter.

(k)The employment agreements contemplated by Section 8.1(d) of this Agreement and the addition to shares of the 2005 Stock Incentive Plan (or a new plan) contemplated by Section 2.2(a)(viii) of this Agreement shall in all respects be excepted from the representations set forth in this Section 6.17.

6.18Intellectual Property and Products; HIPAA Compliance.

(a)Section 6.18(a) of the HealthAxis Disclosure Letter lists all material proceedings or actions known to HealthAxis before any court, tribunal (including the PTO or equivalent authority anywhere in the world) related to any Intellectual Property owned by; or licensed to, or controlled by HealthAxis or any of the HealthAxis Subsidiaries (the “HealthAxis Intellectual Property”). No HealthAxis Intellectual Property is the subject of any outstanding decree, order, judgment, agreement, or stipulation restricting in any manner the use, transfer, or licensing thereof by HealthAxis or any of the HealthAxis Subsidiaries, or which may affect the validity, use or enforceability of any HealthAxis Intellectual Property.

(b)Section 6.18(b) of the HealthAxis Disclosure Letter lists all United States, international and foreign: (a) patents and patent applications (including provisional applications); (b) registered trademarks and service marks, applications to register trademarks or service marks, intent to use applications, or other registrations or applications related to trademarks or service marks; and (c) registered copyrights and applications for copyright registration owned by HealthAxis (collectively, the “HealthAxis Registered Intellectual Property”). With respect to each item of HealthAxis Registered Intellectual Property, all material registration, maintenance and renewal fees necessary in connection with such HealthAxis Registered Intellectual Property have been made and all material documents and certificates necessary in connection with such HealthAxis Registered Intellectual Property have been filed with the relevant patent, trademark or copyright authorities in the United States or other jurisdictions for the purposes of maintaining such HealthAxis Registered Intellectual Property.

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(c)HealthAxis or a HealthAxis Subsidiary has the right to prevent others from using, marketing, distributing, selling or licensing all HealthAxis Intellectual Property used in its business as presently conducted and as it is expected to be conducted as of the Effective Time, including without limitation, all Intellectual Property used or to be used in the HealthAxis Products (as defined below), and such rights to Utilize are sufficient for such conduct of their respective businesses.

(d)To HealthAxis’ knowledge, the Utilization by HealthAxis or any of the HealthAxis Subsidiaries of any HealthAxis products currently being licensed, produced or sold by HealthAxis or any of the HealthAxis Subsidiaries or currently under development or consideration by HealthAxis or any of the HealthAxis Subsidiaries (“HealthAxis Products”)does not violate any license or agreement between HealthAxis or any of the HealthAxis Subsidiaries and any third party or, to HealthAxis’ knowledge, infringe any Intellectual Property right, moral right or right of publicity or privacy of any other party, and, except as set forth in Section 6.18(d) of the Disclosure Letter, HealthAxis has not received notice of any pending or threatened claim or litigation contesting the validity, ownership or right to Utilize any HealthAxis Intellectual Property nor, to the knowledge of HealthAxis, is there any basis for any such claim under applicable law, nor has HealthAxis or any of the HealthAxis Subsidiaries received any notice asserting that any HealthAxis Products or Utilization thereof conflicts or will conflict with the rights of any other party.

(e)HealthAxis and the HealthAxis Subsidiaries have timely and satisfactorily fulfilled their respective obligations under all material agreements pursuant to which HealthAxis or any of the HealthAxis Subsidiaries, as the case may be, has agreed to program, design or develop on behalf of a third party, whether for original use or for porting or conversion (for use on a different hardware platform or in a different language), any software products or any part thereof, except where the failure to so comply would not reasonably be expected to have a HealthAxis Material Adverse Effect.

(f)Except as set forth in Section 6.18(f) of the HealthAxis Disclosure Letter, to the extent that any work, invention, or material has been developed or created by a third party for HealthAxis or any of the HealthAxis Subsidiaries, to HealthAxis’ knowledge, HealthAxis or a HealthAxis Subsidiary has a written agreement with such third party with respect thereto and HealthAxis or a HealthAxis Subsidiary thereby has obtained ownership of, and is the exclusive owner of, or has a valid license to use, all HealthAxis Intellectual Property in such work, material or invention by operation of law or by valid assignment or by agreement, as the case may be.

(g)Section 6.l8(g) of the HealthAxis Disclosure Letter lists all material contracts, licenses and agreements to which HealthAxis or any of the HealthAxis Subsidiaries is a party that are currently in effect (i) with respect to HealthAxis Intellectual Property licensed or offered to any third party (other than licenses granted in the ordinary course of business); or (ii) pursuant to which a third party has licensed or transferred any Intellectual Property to HealthAxis or any of the HealthAxis Subsidiaries. Except as set forth in Section 6.18(g) of the HealthAxis Disclosure Letter, neither HealthAxis nor any of the HealthAxis Subsidiaries has transferred ownership of, or granted any license with respect to, any HealthAxis Intellectual Property, to any third party (other than licenses granted in the ordinary course of business).

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(h)Except as set forth in Section 6.18(h) of the HealthAxis Disclosure Letter, the contracts, licenses and agreements listed in Section 6.18(h) are in full force and effect to HealthAxis’ knowledge. The consummation of the transactions contemplated by this Agreement will not violate or result in the breach, modification, cancellation, termination, or suspension of such contracts, licenses and agreements listed in Section 6.18(h) and will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any rights of HealthAxis to any HealthAxis Intellectual Property or impair the right of HealthAxis or any of the HealthAxis Subsidiaries to Utilize any HealthAxis Intellectual Property or portion thereof.  HealthAxis and each of the HealthAxis Subsidiaries is in material compliance with, and has not materially breached any term any of such contracts, licenses and agreements listed in Section 6.18(h) and, to the knowledge of HealthAxis, all other parties to such contracts, licenses and agreements listed in Section 6.18(h) are in compliance with, and have not breached any term of, such contracts, licenses and agreements. Except as set forth in Section 6.18(h) of the HealthAxis Disclosure Letter, following the Effective Time HealthAxis and each of the HealthAxis Subsidiaries will be permitted to exercise all of HealthAxis’ and each of the HealthAxis Subsidiaries, if any, respective rights under the contracts, licenses and agreements listed in Section 6.18(h) to the same extent HealthAxis and such HealthAxis Subsidiary would have been able to had the transactions contemplated by this Agreement not occurred and without the payment of any additional funds other than ongoing fees, royalties or payments which HealthAxis or a HealthAxis Subsidiary would otherwise be required to pay.

(i)Except as set forth in Section 6.18(i) of the HealthAxis Disclosure Letter, (i) HealthAxis and each of the HealthAxis Subsidiaries (including to the knowledge of each of their executive officers, directors and employees) has not received any notice or claim (whether written, oral or otherwise) challenging HealthAxis’ ownership or rights in the HealthAxis Intellectual Property or claiming that any other Person or entity has any legal or beneficial ownership with respect thereto; (ii) all the HealthAxis Intellectual Property rights owned by HealthAxis and embodied in its HealthAxis Products are, to HealthAxis’ knowledge, legally valid and enforceable without any material qualification, limitation or restriction on their use, and HealthAxis has not received any notice or claim (whether written or oral) challenging the validity or enforceability of any of the HealthAxis Intellectual Property rights; and (iii) to HealthAxis’ knowledge, no third party is infringing or misappropriating any part of the HealthAxis Intellectual Property.

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(j)HealthAxis and each of the HealthAxis Subsidiaries has taken reasonable and practicable measures designed to protect their respective rights in their respective confidential information and trade secrets or any trade secrets or confidential information of third parties provided to HealthAxis or any of the HealthAxis Subsidiaries. To the knowledge of HealthAxis or any of the HealthAxis Subsidiaries, neither HealthAxis nor any HealthAxis Subsidiaries has permitted any such confidential information or trade secrets to be used, divulged or appropriated for the benefit of Persons to the material detriment of HealthAxis or any of the HealthAxis Subsidiaries.

(k)Section 6.18(k) of the HealthAxis Disclosure Letter sets forth a list of all Internet domain names used by HealthAxis in its business (collectively, the “HealthAxis Domain Names”). To HealthAxis’ knowledge, HealthAxis has a valid registration and all material rights (free of any material restriction) in and to the HealthAxis Domain Names, including, without limitation, all rights necessary to the continued use of the HealthAxis Domain Names in connection with the conduct of HealthAxis’ business as it is currently conducted.

(l)Neither HealthAxis nor any of the HealthAxis Subsidiaries is or has been a party to any Government Contract relating to or affecting ownership or Utilization of any HealthAxis Intellectual Property.

(m)HealthAxis is in compliance, in all materials respects, with the Health Insurance Portability and Accountability Act of 1996, including, without limitation, all regulations and requirements relating to security, privacy and electronic transactions standards promulgated thereunder (collectively, “HIPAA”).  HealthAxis Products, which assist HealthAxis customers to perform services in compliance with HIPAA, are compliant, in all material respects, with HIPAA requirements to the extent applicable.  HealthAxis and HealthAxis Products are compliant, in all material respects, with the laws and regulations of any state where HealthAxis conducts business, relating to obligations of Business Associates (as defined under HIPAA) to maintain such compliance.

6.19Anti-Takeover Matters.

HealthAxis and Merger Sub have taken all action necessary to exempt the merger and the other transactions contemplated by this Agreement from the operation of any “fair price,” “moratorium,” “control share acquisition,” or other similar anti-takeover statute or regulation enacted under the state or federal laws of the United States, including without limitation, Section 203 of the DGCL. Except for the HealthAxis/Tak Investor Rights Agreement, the HealthAxis/Tak Registration Rights Agreement, the HealthAxis/Preferred Investor Rights Agreement and the HealthAxis/Preferred Registration Rights Agreement, copies of which have been provided to BPOMS and which will be terminated at Closing, neither HealthAxis nor any HealthAxis Subsidiary has in effect any agreement, plan, scheme, device or arrangement commonly or colloquially known as a “poison pill” or an “anti-takeover” plan or any similar plan, scheme, device or arrangement.

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6.20Shareholder Vote Required.

The only vote of the holders of any class of shares of the capital stock of HealthAxis necessary to approve the Reverse Split, the change of HealthAxis’ name to BPO Management Services, Inc., this Agreement, the creation and issuance of HealthAxis stock in the Merger, the change of control of HealthAxis for purposes of NASD Rule 4350(i)(B) and the other transactions and other matters contemplated by this Agreement is the affirmative vote of a majority of the votes cast by the holders of the outstanding HealthAxis Common Stock.

6.21Undisclosed Liabilities.

Except as and to the extent reflected, reserved against or otherwise disclosed in Section 6.7(c) of the Disclosure Letter or the HealthAxis SEC Documents and except as set forth in Section 6.21 of the HealthAxis Disclosure Letter, neither HealthAxis nor the HealthAxis Subsidiaries have any liabilities or obligations of any kind, whether accrued, absolute, asserted or unasserted, contingent or otherwise, of a nature required to be disclosed on a balance sheet prepared in accordance with GAAP consistently applied, which would have, individually or in the aggregate, a HealthAxis Material Adverse Effect.

6.22Insurance.

HealthAxis maintains, and has maintained or caused to be maintained, without interruption, since January 1, 2002, policies or binders of insurance covering such risk, and events, including personal injury, property damage, errors and omissions and general liability in amounts HealthAxis reasonably believes adequate for its business and operations, and its current insurance policies (other than directors and officers insurance) will not terminate due to consummation of the Merger.  Section 6.22 of the HealthAxis Disclosure Letter sets forth a summary of all current insurance policies (including, without limitation, limits, deductibles and terms) maintained by HealthAxis and the HealthAxis Subsidiaries.

6.23Financial Forecast and Relationships with Suppliers, Licensors and Customers.

HealthAxis has provided to BPOMS a copy of its 2008 forecast (the “HealthAxis Forecast”). The HealthAxis Forecast was prepared in good faith and HealthAxis believes there is a reasonable basis for the HealthAxis Forecast. No current supplier, licensor, distributor or customer of HealthAxis or any of the HealthAxis Subsidiaries has notified HealthAxis or such HealthAxis Subsidiary of an intention to terminate or substantially alter its existing business relationship with HealthAxis or such HealthAxis Subsidiary, which termination or alteration would cause HealthAxis to fail to achieve the projections set forth in the HealthAxis Forecast or would otherwise have a HealthAxis Material Adverse Effect in 2008.

6.24Continuity of Business Enterprise.

It is the present intention of HealthAxis to continue at least one significant historic business line of BPOMS, or to use at least a significant portion of BPOMS’ historic assets in a business, in each case within the meaning of the United States Treasury Regulations Section 1.368-1(d).

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6.25Ownership of BPOMS Shares.

As of the date hereof, and during the three (3) year period immediately preceding the date hereof, neither HealthAxis nor, to HealthAxis’ knowledge, any affiliate or associate (as defined in Section 203 of the DGCL) thereof, is an “interested stockholder” of BPOMS within the meaning of Section 203 of the DGCL.

ARTICLE 7

COVENANTS AND OTHER AGREEMENTS

7.1Conduct of Businesses.

(a)During the period from the date of this Agreement until the Effective Time, except as specifically permitted by this Agreement, unless the other Party has consented in writing thereto:

(i)BPOMS and HealthAxis shall use their reasonable best efforts, and shall cause their respective Subsidiaries to use their reasonable best efforts, to preserve intact their business organizations and goodwill;

(ii)BPOMS and HealthAxis shall confer on a regular basis with one or more representatives of the other to report on material operational matters relating to the business of BPOMS and the BPOMS Subsidiaries;

(iii)each Party will cooperate with and, at the request of the other Party, provide reasonable assistance to the other Party to seek to reduce or avoid disruptions to the other Party’s business that may result from or arise out of the announcement or pendency of the transactions contemplated hereby;

(iv)BPOMS and HealthAxis shall promptly notify the other of any material emergency or other material change in the condition (financial or otherwise), business, properties, assets, liabilities or the normal course of its businesses or in the operation of their properties, any material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated);

(v)each Party shall promptly deliver to the other Party true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement other than those reports, statements or schedules that are available through the SEC’s website; and

(vi)In the event either Party becomes aware that any of its respective representations or warranties set forth in Sections 5 and 6 hereof will not be true and correct in all material respects on the Closing Date as if made at and as of the Closing Date, such Party shall give prompt written notice thereof to the other Party, and shall give access to all appropriate information related thereto that is in its possession or control.

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(b)Prior to the Closing Date, except as expressly provided in this Agreement or unless BPOMS has first obtained written consent of HealthAxis, BPOMS:

(i)Shall, and shall cause each BPOMS Subsidiary to, exercise its best efforts to conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted, preserve and protect the BPOMS Intellectual Property and keep available the services of its officers and employees;

(ii)Shall not amend BPOMS’ Certificate of Incorporation or By-laws, and shall cause each BPOMS Subsidiary not to amend its certificates of incorporation, bylaws or equivalent organizational documents;

(iii)Shall not, and shall cause each BPOMS Subsidiary not to,

(A)issue or authorize for issue any BPOMS capital stock or security convertible into or exercisable for any BPOMS capital stock (except for (I) shares of BPOMS Series F Preferred Stock issued as part of the BPOMS Pre-Merger Steps, (II) shares of BPOMS Common Stock issued upon the exercise of options or warrants outstanding as of the date of this Agreement and (III) options issued as permitted under the following clause (C));

(B)effect any share split, reverse share split, share dividend, recapitalization or other similar transaction or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for BPOMS capital stock or capital stock of any BPOMS Subsidiary, except for the BPOMS Pre-Merger Steps;

(C)grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire, redeem or repurchase any BPOMS capital stock except in connection with the BPOMS Pre-Merger Steps;

(D)increase any compensation or enter into or amend any employment agreement with any of its present or future officers, directors or employees except in the ordinary course of business and except for the employment agreements contemplated by Section 8.1(d) hereof;

(E)adopt any new Employee Plan or (except as contemplated in this Agreement) amend any existing BPOMS Employee Plan or severance or termination pay policies in any material respect, except as required by applicable law or for changes which are less favorable to participants in such plans;

(F)authorize, declare, set aside or pay any dividends or make any other distribution or payments with respect to any BPOMS capital stock, or directly or indirectly redeem, purchase or otherwise acquire any BPOMS capital stock or capital stock of any of the BPOMS Subsidiaries except in connection with the BPOMS Pre-Merger Steps; or

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(G)make any commitment for any such action;

(iv)Shall not, and shall not permit any of the BPOMS Subsidiaries to, pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the BPOMS SEC Documents or incurred after the date thereof in the ordinary course of business consistent with past practice;

(v)Shall not, and shall not permit any of the BPOMS Subsidiaries to, enter into or amend, modify or terminate any contract which is outside the ordinary course of business and which may result in total fixed or guaranteed payments or liability by or to it in excess of $100,000, other than contracts for expenses of attorneys and accountants incurred in connection with the Merger and office space leases on commercially reasonable terms;

(vi)Shall not, and shall not permit any of the BPOMS Subsidiaries to, enter into or amend any contract with any officer, trustee, director, consultant or affiliate of BPOMS or any of the BPOMS Subsidiaries, other than as contemplated by the BPOMS Pre-Merger Steps;

(vii)Shall, and shall cause each BPOMS Subsidiary to, timely prepare, in a manner consistent with past practice, and file all Tax Returns required to be filed the due date of which (including reasonable extensions) occurs on or before the Effective Time and pay all Taxes due with respect to any such Tax Returns;

(viii)Shall not, and shall not permit any BPOMS Subsidiary to, amend any Tax Returns, make any election relating to Taxes, change any election relating to Taxes already made, adopt any accounting method relating to Taxes, change any accounting method relating to Taxes unless required by GAAP (as agreed with BPOMS’ independent public accountants) or a change in the Code, enter into any closing agreement relating to Taxes, settle or compromise any claim, suit, litigation, proceeding, investigation, audit or controversy relating to Taxes (unless required by law), or consent to the waiver of the statute of limitations for any claim or audit relating to Taxes;

(ix)Shall not enter into, terminate or materially amend or renew any contract other than with third parties in the ordinary course of operating its business consistent with past practice and with the employees referred to in Section 8.1(d) hereof; and

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(x)Shall not incur any indebtedness or other obligation for borrowed money other than trade payables and other accruals made in the ordinary course of business consistent with past practice.

(c)Prior to the Closing Date, except as expressly provided in this Agreement unless HealthAxis has first obtained written consent of BPOMS, HealthAxis:

(i)Shall, and shall cause each HealthAxis Subsidiary to, exercise its best efforts to conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted, preserve and protect the HealthAxis Intellectual Property and keep available the services of its officers and employees;

(ii)Shall not amend HealthAxis’ Amended and Restated Articles of Incorporation or By-laws, and shall cause each HealthAxis Subsidiary not to amend its charters, bylaws or equivalent organizational documents except in connection with the HealthAxis Pre-Merger Steps;

(iii)Shall not, and shall cause each HealthAxis Subsidiary not to,

(A)issue or authorize for issue any HealthAxis capital stock or security convertible into or exercisable for any HealthAxis capital stock, except for (i) the shares to be issued and stock options to be granted as contemplated by this Agreement, and (ii) upon the exercise of any options and warrants outstanding as of the date of this Agreement,

(B)effect any share split, reverse share split, share dividend, recapitalization or other similar transaction or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for HealthAxis capital stock or capital stock of any HealthAxis Subsidiary except in connection with the HealthAxis Pre-Merger Steps,

(C)grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire, redeem or repurchase any HealthAxis capital stock, except repurchases of stock in connection with the payment of withholding taxes related to equity compensation incentives which are on a set-off basis and do not involve any cash outlay by HealthAxis other than to the IRS,

(D)increase any compensation or enter into or amend any employment agreement with any of its present or future officers, directors or employees other than as contemplated by Section 8.1(d) hereof,

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(E)adopt any new Employee Plan or amend any existing HealthAxis Employee Plan or severance or termination pay policies in any material respect, except as contemplated by this Agreement or as required by applicable law or for changes which are less favorable to participants in such plans,

(F)authorize, declare, set aside or pay any dividends (except as expressly provided in this Agreement) or make any other distribution or payments with respect to any HealthAxis capital stock, or directly or indirectly redeem, purchase or otherwise acquire any HealthAxis capital stock or capital stock of any of the HealthAxis Subsidiaries, except for the nominal dividend relating to the HealthAxis Series A Preferred Stock and any stock repurchased in connection with the payment of withholding taxes associated with equity compensation incentives on a set-off basis and not involving any cash outlay by HealthAxis other than to the IRS, or

(G)make any commitment for any such action;

(iv)Shall not, and shall not permit any of the HealthAxis Subsidiaries to, pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the HealthAxis SEC Documents or incurred after the date thereof in the ordinary course of business consistent with past practice;

(v)Shall not, and shall not permit any of the HealthAxis Subsidiaries to, enter into or amend, modify or terminate any contract which may result in total fixed or guaranteed payments or liability by or to it in excess of $150,000 other than contracts for expenses of financial advisors, attorneys and accountants incurred in connection with the Merger;

(vi)Shall not, and shall not permit any of the HealthAxis Subsidiaries to, enter into any contract with any officer, trustee, director or affiliate of HealthAxis or any of the HealthAxis Subsidiaries other than as contemplated by the HealthAxis Pre-Merger Steps;

(vii)Shall, and shall cause each HealthAxis Subsidiary to, timely prepare, in a manner consistent with past practice, and file all Tax Returns required to be filed the due date of which (including reasonable extensions) occurs on or before the Effective Time and pay all Taxes due with respect to any such Tax Returns;

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(viii)Shall not, and shall not permit any HealthAxis Subsidiary to, amend any Tax Returns, make any election relating to Taxes, change any election relating to Taxes already made, adopt any accounting method relating to Taxes, change any accounting method relating to Taxes unless required by GAAP (as agreed with HealthAxis’ independent public accountants) or a change in the Code, enter into any closing agreement relating to Taxes, settle or compromise any claim, suit, litigation, proceeding, investigation, audit or controversy relating to Taxes (unless required by law), or consent to the waiver of the statute of limitations for any claim or audit relating to Taxes;

(ix)Shall not enter into, terminate or materially amend or renew any contract other than with third parties in the ordinary course of operating its business consistent with past practice; and

(x)Shall not incur any indebtedness or other obligation for borrowed money other than pursuant to the Loan and Security Agreement between the Company and Silicon Valley Bank dated August 14, 2006 (as amended, the “SVB Loan Agreement”), and other than trade payables and other accruals made in the ordinary course of business consistent with past practice.

7.2BPOMS Stockholders Meeting.

(a)BPOMS will take all action necessary in accordance with applicable law and its respective Certificate of Incorporation, to convene an annual or special meeting of its stockholders (the “BPOMS Meeting”) as promptly as practicable to consider and vote upon the adoption and approval of this Agreement and the transactions contemplated hereby including the Merger and the BPOMS Pre-Merger Steps. The Board of Directors of BPOMS shall recommend that its stockholders adopt and approve this Agreement and the transactions contemplated hereby and BPOMS shall use its reasonable best efforts to obtain such approval; provided, however, that nothing contained in this Section 7.2 shall prohibit the directors of BPOMS from failing to make, withdrawing such recommendation, modifying such recommendation or using their reasonable best efforts to obtain such adoption and approval if BPOMS shall have received an Acquisition Proposal (as hereinafter defined) and if such directors have determined in good faith, after consulting with their financial and legal advisors, that the Acquisition Proposal is a Superior Offer (as hereinafter defined).

(b)As promptly as practicable following the date hereof, BPOMS shall prepare and, following review and incorporation of reasonable comments by HealthAxis (which review shall be as prompt as practicable), file with the SEC a preliminary proxy statement and form of proxy, or preliminary information statement, as permitted by Regulation 14A or 14C, as applicable, under the Securities Exchange Act of 1934, as amended (“Exchange Act”) relating to the BPOMS Meeting and the vote of the stockholders of BPOMS with respect to this Agreement, the Merger, the transactions contemplated by this Agreement, and the BPOMS Pre-Merger Steps. As soon as practicable and permitted under applicable laws, BPOMS shall prepare the related final proxy statement or final information statement (such final proxy statement or final information statement, the “BPOMS Proxy Statement”); mail the BPOMS Proxy Statement to its shareholders and file the BPOMS Proxy Statement with the SEC. HealthAxis shall promptly furnish all information about itself and its business and operations and all necessary financial information to BPOMS as BPOMS may reasonably request in connection with the preparation of the BPOMS Proxy Statement, it being understood that prior to execution of this Agreement, BPOMS has requested HealthAxis to provide BPOMS with all financial and other information required by Regulation 14A under the Exchange Act to be disclosed in the BPOMS Proxy Statement with regard to HealthAxis and its business, operations and financial condition.  HealthAxis shall ensure that the financial statements to be included in the BPOMS Proxy Statement (i) are prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the footnotes thereto and that the interim financial statements may not have notes thereto and other presentation items that may be required by GAAP and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in amount), and (ii) fairly present in all material respects the consolidated financial position and operating results and cash flows of HealthAxis as of the dates and for the periods indicated therein.

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(c)As promptly as practicable following the date hereof, BPOMS shall deliver to HealthAxis a draft of the preliminary proxy statement containing all information required to be included therein, other than such information as is to be provided by or is dependent upon information provided by HealthAxis pursuant to Section 7.2(b) above.

(d)Whenever BPOMS receives any comments from the SEC or its staff or any other event occurs relating to this Agreement or the Merger which is required to be set forth in a filing with the SEC by BPOMS, whether an amendment or supplement to the BPOMS Proxy Statement or otherwise, BPOMS shall (i) promptly inform HealthAxis of such occurrence, (ii) provide reasonable advance notice to HealthAxis of such filing (including without limitation an opportunity to provide comments thereto) and (iii) cooperate with HealthAxis in such filing with the SEC or its staff, including without limitation in completing any mailing to Stockholders of BPOMS or any amendment or supplement to the BPOMS Proxy Statement.

7.3HealthAxis Fairness Hearing; Stockholders Meeting.

(a)As promptly as practicable following the execution of this Agreement, HealthAxis shall prepare and file, with the full cooperation of BPOMS, an application to obtain a permit (a “California Permit”) from the Commissioner of Corporations of the State of California after a hearing before such Commissioner (the “Fairness Hearing”) pursuant to Section 25121 of the California Corporate Securities Law of 1968, so that the issuance of HealthAxis securities in the Merger shall be exempt from registration under Section 3(a)(10) of the Securities Act.  HealthAxis, with the full cooperation of BPOMS, will use commercially reasonable efforts to respond to any comments from the California Department of Corporations and each of HealthAxis and BPOMS will use their commercially reasonable efforts to have the California Permit granted as soon as practicable after such filing, including without limitation, scheduling the Fairness Hearing on the first practicable date after filing of the application.  As promptly as practical after the date of this Agreement, HealthAxis and BPOMS shall prepare and make such filings as are required under applicable Blue Sky laws relating to the transactions contemplated by this Agreement.  BPOMS shall use reasonable and good faith efforts to assist HealthAxis as may be necessary to cause the Permit Application and any solicitation material sent to Stockholders of BPOMS to comply with the securities and Blue Sky laws.

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(b)In the event the parties are not able to obtain a California Permit, HealthAxis shall, at its election, use commercially reasonable efforts to prepare and file with the SEC a registration statement on Form S-4 or other comparable form in which a proxy statement to solicit and obtain the approval of BPOMS’ Stockholders as contemplated in Section 7.2(b) above will be included.

(c)As promptly as practicable following the receipt of the California Permit, HealthAxis will take all action necessary in accordance with applicable law and its respective Certificate of Incorporation, to convene an annual or special meeting of its stockholders (the “HealthAxis Meeting”) to consider and vote upon the approval of this Agreement and the transactions and other matters contemplated hereby including the issuance of HealthAxis stock in the Merger and the Reverse Split. The Board of Directors of HealthAxis shall recommend that its stockholders approve this Agreement and the transactions and other matters contemplated hereby and HealthAxis shall use its reasonable best efforts to solicit and obtain such approval; provided, however, that nothing contained in this Section 7.3 shall prohibit the directors of HealthAxis from failing to make, withdrawing such recommendation, modifying such recommendation  or using their reasonable best efforts to obtain such approval if HealthAxis shall have received an Acquisition Proposal and if such directors have determined in good faith, after consultation with their financial and legal advisors, that the Acquisition Proposal is a Superior Offer. The materials submitted to the BPOMS’ stockholders shall be subject to review and approval by HealthAxis and include information regarding BPOMS; the terms of the Merger; the Agreement and any related agreements; and the unanimous recommendation of the Board of Directors of BPOMS in favor of the Merger, this Agreement and any related agreements.

(d)As promptly as practicable following the receipt of the California Permit, HealthAxis shall prepare and, following review and incorporation of reasonable comments by BPOMS (which review shall be as prompt as practicable), file with the SEC a preliminary proxy statement and form of proxy, or preliminary information statement, as permitted by Regulation 14A or 14C, as applicable, under the Securities Exchange Act of 1934, as amended (“Exchange Act”) relating to the HealthAxis Meeting and the vote of the stockholders of HealthAxis with respect to this Agreement and the transactions and other matters contemplated by this Agreement. As soon as practicable and permitted under applicable laws, HealthAxis shall prepare the related final proxy statement or final information statement (such final proxy statement or final information statement, the “HealthAxis Proxy Statement”); mail the HealthAxis Proxy Statement to its shareholders and file the HealthAxis Proxy Statement with the SEC. BPOMS shall promptly furnish all information about itself and its business and operations and all necessary financial information to HealthAxis as HealthAxis may reasonably request in connection with the preparation of the HealthAxis Proxy Statement, it being understood that prior to execution of this Agreement, HealthAxis has requested BPOMS to provide HealthAxis with all financial and other information required by Regulation 14A under the Exchange Act to be disclosed in the HealthAxis Proxy Statement with regard to BPOMS and its business, operations and financial condition.  BPOMS shall ensure that the financial statements to be included in the HealthAxis Proxy Statement (i) are prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the footnotes thereto and that the interim financial statements may not have notes thereto and other presentation items that may be required by GAAP and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in amount), and (ii) fairly present in all material respects the consolidated financial position and operating results and cash flows of BPOMS as of the dates and for the periods indicated therein.

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(e)As promptly as practicable following the date hereof, HealthAxis shall deliver to BPOMS a draft of the preliminary proxy statement containing all information required to be included therein, other than such information as is to be provided by or is dependent upon information provided by BPOMS pursuant to Section 7.3(b) above.

(f)Whenever HealthAxis receives any comments from the SEC or its staff or any other event occurs relating to this Agreement or the Merger which is required to be set forth in a filing with the SEC by HealthAxis, whether an amendment or supplement to the HealthAxis Proxy Statement or otherwise, HealthAxis shall (i) promptly inform BPOMS of such occurrence, (ii) provide reasonable advance notice to BPOMS of such filing (including without limitation an opportunity to provide comments thereto) and (iii) cooperate with BPOMS in such filing with the SEC or its staff, including without limitation in completing any mailing to Stockholders of HealthAxis or any amendment or supplement to the HealthAxis Proxy Statement.

7.4Approvals; Other Action.

Subject to the terms and conditions herein provided, BPOMS and HealthAxis shall: (i) use best efforts to cooperate with one another in (x) determining which filings are required to be made prior to the Effective Time with, and which consents, approvals, permits or authorizations are required to be obtained prior to the Effective Time from, governmental or regulatory authorities of the United States, the several states and any third parties in connection with the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and (y) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; (ii) use best efforts to obtain in writing any consents required from third parties to effectuate the Merger, such consents to be in form reasonably satisfactory to BPOMS and HealthAxis; and (iii) use best efforts to take, or cause to be taken, all other actions and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purpose of this Agreement, the proper officers and directors HealthAxis and BPOMS shall take all such necessary action.

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7.5Access to Information; Confidentiality.

(a)Upon reasonable notice and subject to the restrictions contained in the Non-Disclosure Agreement referenced in Section 10.5 below, BPOMS and HealthAxis shall (and shall cause their respective Subsidiaries to) afford to the officers, employees, accountants, counsel and other representatives of the other reasonable access, during normal business hours during the period prior to the Effective Time, to all their properties, books, contracts, Tax Returns, commitments and records and permit such Persons to make such inspections as they may reasonably require and, during such period, each of BPOMS and HealthAxis shall (and shall cause their respective Subsidiaries to) furnish promptly to the other all information concerning its business, properties and Personnel as the other may reasonably request; provided that if a Party is withholding information because it is obligated to do so pursuant to a confidentiality agreement by which it is bound, the Party shall give the other notice of such withholding.

(b)In addition to any other obligations contained in the Non-Disclosure Agreement, in the event of termination of this Agreement for any reason each Party shall promptly return all such information obtained from the other, and any copies made of, or reports or analyses based on, such information, to the other and not use any such information for any purpose that would be competitive with or cause material harm to the other.

7.6Publicity.

HealthAxis and BPOMS shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or any transaction contemplated herein and shall not issue any such press release or make any such public statement without the prior consent of the other Party, which consent shall not be unreasonably withheld; provided, however, that a Party may, without the prior consent of the other Party, issue such press release or make such public statement as may be required by law or the rules of the Nasdaq Stock Market if it has used its reasonable best efforts to consult with the other Party and to obtain such Party’s consent but has been unable to do so in a timely manner.

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7.7Listing of HealthAxis Common Stock.

Subject to the terms of this Agreement and the impact of the transactions contemplated hereby, prior to the Effective Time HealthAxis and BPOMS shall coordinate their efforts with respect to the possible listing on the Nasdaq Capital Market of the HealthAxis Common Stock.

7.8Further Action.

Each Party hereto shall, subject to Article 9 and subject to the fulfillment at or before the Effective Time of each of the conditions of performance set forth herein or the waiver thereof, perform such further acts and execute such documents as may reasonably be required to effect the Merger.

7.9Tax Treatment.

None of HealthAxis, Merger Sub, or BPOMS shall, and they shall not permit any of their respective Subsidiaries to, take any action prior to or following the Closing that would reasonably be expected to cause the Merger to fail to qualify as a reorganization within the meaning of Section 368(a) of the Code.

7.10No Solicitation.

(a)For purposes of this Agreement, “Acquisition Proposal” shall mean, with respect to a Party, any offer or proposal (other than an offer or proposal made or submitted by BPOMS, on the one hand or HealthAxis, on the other hand, to the other Party) contemplating or otherwise relating to any Acquisition Transaction with such Party. “Acquisition Transaction” shall mean any transaction or series of transactions described in subparagraphs (i), (ii) or (iii) of this paragraph  (other than the BPOMS Pre-Merger Steps, HealthAxis Pre-Merger Steps, and a private placement of shares of HealthAxis Common Stock or securities convertible into or exercisable for shares of HealthAxis Common Stock, which private placement would be for the purpose of raising up to $3,000,000 of working capital for HealthAxis and would close after the Effective Time, and would not require a stockholder vote (the “Additional Financing”), but the entry into which would be subject to the prior written consent of HealthAxis pursuant to Section 7.1(b) hereof):

(i)any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction: (i) in which a Party or any of its affiliates is a constituent corporation; (ii) in which a Person or “group” (as defined in the Exchange Act and the rules promulgated thereunder) of Persons directly or indirectly acquires beneficial or record ownership of securities representing more than 15% of the outstanding securities of any class of voting securities of a Party or any of its Subsidiaries; (iii) in which a Party or any of its Subsidiaries issues securities representing more than 15% of the outstanding securities of any class of voting securities of such Party or any of its Subsidiaries; or (iv) in which a Party or any of its Subsidiaries would acquire a “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X promulgated under the Exchange Act;

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(ii)any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for: (i) 15% or more of the consolidated net revenues of a Party and its Subsidiaries, taken as a whole, consolidated net income of a Party and its Subsidiaries, taken as a whole, or consolidated book value of the assets of a Party and its Subsidiaries, taken as a whole; or (ii) 15% or more of the fair market value of the assets of a Party and its Subsidiaries, taken as a whole; or

(iii)any liquidation or dissolution of a Party.

(b)For purposes of this Agreement, “Superior Offer” shall mean an unsolicited bona fide written offer made to a Party or any of its Subsidiaries by a third party to enter into (i) a merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction as a result of which either (A) the Party’s stockholders prior to such transaction in the aggregate cease to own at least 50% of the voting securities of the entity surviving or resulting from such transaction (or the ultimate parent entity thereof) or (B) in which a Person or “group” (as defined in the Exchange Act and the rules promulgated thereunder) directly or indirectly acquires beneficial or record ownership of securities representing 50% or more of the Party’s capital stock or (ii) a sale, lease, exchange transfer, license, acquisition or disposition of any business or other disposition of at least 50% of the assets of the Party or its Subsidiaries, taken as a whole, in a single transaction or a series of related transactions that: (a) was not obtained or made as a direct or indirect result of a breach of (or in violation of) this Agreement; and (b) is on terms and conditions that the board of directors of the Party determines, in its reasonable, good faith judgment, after obtaining and taking into account such matters that its board of directors deems relevant following consultation with its outside legal counsel and financial advisor: (x) is reasonably likely to be more favorable, from a financial point of view, to the Party’s stockholders, than the terms of the transactions contemplated by the Merger Agreement; and (y) is reasonably capable of being consummated; provided, however, that any such offer shall not be deemed to be a “Superior Offer” if any financing required to consummate the transaction contemplated by such offer is not committed and is not reasonably capable of being obtained by such third party.

(c)Each Party agrees that neither it nor any of its Subsidiaries shall, nor shall it nor any of its Subsidiaries authorize or permit any of the officers, directors, investment bankers, attorneys or accountants retained by it or any of its Subsidiaries to, and that it shall use commercially reasonable efforts to cause its and its Subsidiaries’ non-officer employees and other agents not to (and shall not authorize any of them to) directly or indirectly: (i) solicit, initiate, encourage, induce or knowingly facilitate the communication, making, submission or announcement of any Acquisition Proposal; (ii) furnish any information regarding such Party to any Person in connection with or in response to an Acquisition Proposal; (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal; (iv) approve, endorse or recommend any Acquisition Proposal; or (v) execute or enter into any letter of intent or similar document or any agreement contemplating or otherwise relating to any Acquisition Transaction; provided, however, that,

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(1)nothing contained in this Agreement shall prevent a Party or its board of directors from complying with its disclosure obligations under Sections 14d-9 and 14e-2 of the Exchange Act with regard to an Acquisition Proposal; provided, further however, that, if such disclosure has the substantive effect of withdrawing, modifying or qualifying the directors’ recommendation in a manner adverse to the other Party or the adoption of this Agreement by the other Party’s Board of Directors, then BPOMS and HealthAxis each shall have the right to terminate this Agreement as set forth in Sections 9.1(f) and 9.1(g), respectively; and

(2)at any time prior to the approval of the transactions contemplated by this Agreement by each Party’s stockholders, each Party may furnish nonpublic information regarding itself or its Subsidiaries to, and enter into discussions or negotiations with, any Person, and take any action otherwise prohibited by this Section 7.10(c), in response to an Acquisition Proposal that is submitted to such Party or any of its Subsidiaries by such Person (and not withdrawn) if: (A) neither such Party nor any Representative of such Party shall have breached this Section; (B) the Board of Directors of such Party concludes in good faith after consulting with its financial and legal advisors, that the Acquisition Proposal is a Superior Offer or is reasonably likely to lead to a Superior Offer; (C) at least two business days prior to furnishing any such non-public information to, or entering into discussions with, such Person, such Party gives the other Party written notice of the identity of such Person and of such Party’s intention to furnish non-public information to, or enter into discussions with, such Person; (D) such Party receives from such Person an executed confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions, no hire provisions and “standstill” provisions) at least as favorable to such Party as those contained in the Non-Disclosure Agreement; and (E) concurrently with furnishing any such nonpublic information to such Person, such Party furnishes such nonpublic information to the other Party (to the extent such nonpublic information has not been previously furnished). Without limiting the generality of the foregoing, each Party acknowledges and agrees that, in the event any officer, director, employee, controlling stockholder, agent or representative (including, without limitation, any investment banker, attorney or accountant retained by it or any of its Subsidiaries) of such Party (each, a “Representative”) (whether or not such Representative is purporting to act on behalf of such Party) takes any action that, if taken by such Party, would constitute a breach of this Section by such Party, the taking of such action by such Representative shall be deemed to constitute a breach of this Section by such Party for purposes of this Agreement.

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(d)If any Party or any Representative of such Party receives an Acquisition Proposal at any time prior to the Closing Date, then such Party shall promptly (and in no event later than one (l) business day after such Party becomes aware of such Acquisition Proposal) advise the other Party orally and in writing of such Acquisition Proposal (including the identity of the Person making or submitting such Acquisition Proposal, and the terms thereof). Such Party shall keep the other Party fully informed with respect to the status and terms of any such Acquisition Proposal and any modification or proposed modification thereto.

(e)Each Party shall immediately cease and cause to be terminated any existing discussions with any Person that relate to any Acquisition Proposal as of the date of this Agreement.

(f)Each Party shall not release or permit the release of any Person from, or waive or permit the waiver of any provision of or right under, any confidentiality, non-solicitation, no hire, “standstill” or similar agreement (whether entered into prior to or after the date of this Agreement) to which such Party is a party or under which such Party has any rights, and shall enforce or cause to be enforced each such agreement to the extent requested by the other Party. Each Party shall promptly request each Person that has executed a confidentiality or similar agreement in connection with its consideration of a possible Acquisition Transaction or equity investment to return to such Party all confidential information heretofore furnished to such Person by or on behalf of such Party.

7.11Notice of Certain Events.

Each of BPOMS and HealthAxis shall as promptly as reasonably practicable notify the other of: (i) any notice or other communication from any Person alleging that the consent of such Person (or another Person) is or may be required in connection with the transactions contemplated by this Agreement and/or that such consent will or may be withheld or unobtainable on a timely basis or without unreasonable effort or expense; (ii) any notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated by this Agreement; (iii) any actions, suits, claims, investigations or proceedings commenced or threatened against, relating to or involving or otherwise affecting such Party or any of its Subsidiaries that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 5.9 or 6.9, as applicable, or which relate to the consummation of the transactions contemplated by this Agreement; and (iv) of any fact or occurrence between the date of this Agreement and the Effective Time of which it becomes aware which makes any of its representations and warranties contained in this Agreement untrue in any material respect (without regard to any materiality qualification contained in such representation or warranty) or causes any breach of its obligations under this Agreement in any material respect (without regard to any materiality qualification contained in such obligation).

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7.12Directors and Officers.

HealthAxis shall cause the Persons to be nominated for election to the HealthAxis Board of Directors as BPOMS shall designate in writing prior to the filing of the preliminary Proxy Statement (the “BPOMS Designees”). The HealthAxis Proxy Statement shall include a proposal that the BPOMS Designees be elected to serve as directors of HealthAxis, subject to the condition that the Closing Date occur within thirty (30) days of the HealthAxis Meeting.  BPOMS will ensure that all information required to be provided in the HealthAxis Proxy Statement regarding the BPOMS Designees is true and correct and is timely provided to HealthAxis.  At or prior to the Effective Time, HealthAxis shall obtain the resignations as officers (but not as employees) of all current officers of HealthAxis, to be effective as of the Effective Time. Effective as of the Effective Time, the Board of Directors of HealthAxis shall appoint each of the individuals to serve as officers of HealthAxis as BPOMS shall designate in writing prior to the filing of the preliminary Proxy Statement.

7.13Indemnification and Insurance.

(a)The By-Laws and charter of each of HealthAxis and the Surviving Corporation shall contain the provisions with respect to indemnification set forth in the By-Laws and charter of each of HealthAxis and BPOMS respectively, which provisions shall not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner that would adversely affect the rights thereunder as of the Effective Time of individuals who at the Effective Time were directors, officers, employees or agents of HealthAxis or BPOMS, respectively, unless such modification is required after the Effective Time by law.

(b)Notwithstanding the foregoing, HealthAxis and the Surviving Corporation do hereby agree, to the fullest extent permitted under applicable law or under HealthAxis’ or the Surviving Corporation’s charter or By-Laws, to indemnify and hold harmless, each present and former director, officer or employee of HealthAxis or BPOMS, as applicable, or any of their respective Subsidiaries (collectively, the “Indemnified Parties”) against any costs or expenses (including attorneys’ fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, (x) arising out of or pertaining to the negotiation, authorization, execution or performance of this Agreement or any document or agreement contemplated hereby, or the transactions contemplated hereby or thereby, or (y) otherwise with respect to any acts or omissions occurring at or prior to the Effective Time, to the same extent as provided in HealthAxis’ or BPOMS’ charter or By-Laws, as applicable, or any applicable contract or agreement as in effect on the date hereof, in each case for a period of six (6) years after the Effective Time. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) the Indemnified Parties may retain any counsel reasonably satisfactory to HealthAxis, (ii) after the Effective Time, HealthAxis shall advance to the Indemnified Party the reasonable fees and expenses of such counsel, and other reasonable costs incurred in the defense of such matter, and (iii) HealthAxis and the Surviving Corporation will cooperate in the defense of any such matter; provided, however, that HealthAxis and/or the Surviving Corporation shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld); and provided, further, that, in the event that any claim or claims for indemnification are asserted or made within such six (6).year period, all rights to indemnification in respect of any such claim or claims shall continue until the disposition of any and all such claims. The Indemnified Parties as a group may retain only one law firm to represent them in each applicable jurisdiction with respect to any single action unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties, in which case each Indemnified Person with respect to whom such a conflict exists (or group of such Indemnified Persons who among them have no such conflict) may retain one separate law firm in each applicable jurisdiction.

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(c)This Section 7.13 shall survive the consummation of the Merger at the Effective Time, is intended to benefit HealthAxis, BPOMS, the Surviving Corporation and the Indemnified Parties, shall be binding on all successors and assigns of the Surviving Corporation and HealthAxis and shall be enforceable by the Indemnified Parties as third-party beneficiaries to this Agreement.

(d)HealthAxis and BPOMS shall, until at least the sixth anniversary of the Effective Time, cause to be maintained in effect, to the extent available, the policies of directors’ and officers’ liability insurance maintained by HealthAxis and the HealthAxis Subsidiaries as of the date hereof (or policies of at least the same coverage and amounts containing terms that are not less advantageous to the insured parties) with respect to claims arising from facts that occurred on or prior to the Effective Time, including without limitation all claims based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the Merger and any and all related events. In lieu of the purchase of such insurance by HealthAxis, HealthAxis may purchase a six (6) year non-cancellable extended reporting period endorsement (“Reporting Tail Coverage”) under HealthAxis’ existing directors’ and officers’ liability insurance coverage, providing that such Reporting Tail Coverage shall extend .the directors’ and officers’ liability coverage in force as of the date hereof for a period of at least six years from the Effective Time for any claim based upon, arising out of, directly or indirectly resulting from, in consequence of, or any way involving acts or omissions occurring or prior to the Effective Time, including without limitation all claims based upon, arising out of, directly or indirectly resulting from, in consequence of, or any way involving this Agreement, all agreements contemplated hereby, the Merger or any and all related events. BPOMS shall cooperate with HealthAxis in obtaining such insurance coverage.

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7.14Restrictions on Transfer.

Subject to the receipt of the California Permit and the continued listing of the HealthAxis Common Stock on the Nasdaq Capital Market , each share of HealthAxis Common or Preferred Stock to be issued hereunder shall be issued without any legend restricting transfer of such shares except (i) as relates to restrictions on the transfer by Affiliates of HealthAxis (following completion of the Merger) pursuant to Rule 144 of the Securities Act, as applicable, and (ii) any legend relating to BPOMS’ Restricted Stock while such shares are subject to any repurchase option, risk of forfeiture or other condition.

ARTICLE 8

CONDITIONS

8.1Conditions to Each Party’s Obligation to Effect the Merger.

The respective obligation of each Party to effect the Merger and the other transactions contemplated herein shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, any or all of which may be waived, in whole or in part by the parties hereto, to the extent permitted by applicable law:

(a)This Agreement and the transactions contemplated hereby shall have been approved by the requisite vote of stockholders of BPOMS and HealthAxis.

(b)The BPOMS Pre-Merger Steps shall have been completed.

(c)The HealthAxis Pre-Merger Steps shall have been consummated.

(d)BPOMS shall have entered into mutually acceptable employment agreements with the four (4) current senior management employees of HealthAxis.  Such employment agreements will become effective at the Effective Time and may provide that they will be assumed by HealthAxis at that time.

8.2Conditions to Obligations of BPOMS to Effect the Merger.

The obligation of BPOMS to effect the Merger and to complete the BPOMS Pre-Merger Steps shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, unless waived by BPOMS:

(a)Each of the representations and warranties of HealthAxis contained in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except to the extent that any changes, circumstances or events making such representations and warranties not true or correct would not, individually or in the aggregate, constitute a HealthAxis Material Adverse Effect (without regard to any materiality qualification contained in such representation or warranty), and BPOMS shall have received a certificate, dated the Closing Date, signed on behalf of HealthAxis by the Chief Executive Officer or Chief Financial Officer of HealthAxis to the foregoing effect.

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(b)HealthAxis shall have performed or complied in all material respects (without regard to any materiality qualification contained in the covenants herein) with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and BPOMS shall have received a certificate, dated the Closing Date, signed on behalf of HealthAxis by the Chief Executive Officer or Chief Financial Officer of HealthAxis to the foregoing effect.

(c)From the date of this Agreement through the Effective Time, there shall not have occurred any change, circumstance or event concerning HealthAxis and the HealthAxis Subsidiaries, taken as a whole, that has had a HealthAxis Material Adverse Effect (it being agreed that none of the matters referred to in Section 6.9 of the HealthAxis Disclosure Letter shall be deemed to constitute a HealthAxis Material Adverse Effect), and BPOMS shall have received a certificate, dated the Closing Date, signed on behalf of HealthAxis by the Chief Executive Officer or Chief Financial Officer of HealthAxis to the foregoing effect to such officer’s knowledge.

(d)The BPOMS Designees shall have been duly elected as directors of HealthAxis and the persons designated by BPOMS to serve as officers of HealthAxis shall have been duly appointed, as of the Effective Time.

(e)All third party consents required in order to enable HealthAxis to consummate the transactions contemplated hereby shall have been obtained on terms and conditions acceptable to BPOMS.

(f)The HealthAxis/Tak Investor Rights Agreement, the HealthAxis/Tak Registration Rights Agreement, the HealthAxis/Preferred Investor Rights Agreement and the HealthAxis/Preferred Registration Rights Agreement shall have been terminated without any liability to HealthAxis, effective as of the Closing Date.

(g)HealthAxis shall not be in default under the terms of the SVB Loan Agreement, HealthAxis shall be entitled to continue to draw on the working capital credit facility under the SVB Loan Agreement and, to the extent required, Silicon Valley Bank shall have consented to the consummation of the transactions contemplated hereby.

8.3Conditions to Obligations of HealthAxis and Merger Sub to Effect the Merger.

The obligations of HealthAxis and Merger Sub to effect the Merger and the HealthAxis Pre-Merger Steps shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, unless waived by HealthAxis:

(a)Each of the representations and warranties of BPOMS contained in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date except to the extent that any changes, circumstances or events making such representations and warranties not true or correct would not, individually or in the aggregate, constitute a BPOMS Material Adverse Effect (without regard to any materiality qualification contained in such representation or warranty), and HealthAxis shall have received a certificate, dated the Closing Date, signed on behalf of BPOMS by the Chief Executive Officer or the Chief Financial Officer of BPOMS to the foregoing effect.

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(b)BPOMS shall have performed or complied in all material respects (without regard to any materiality qualification contained in the covenants herein) with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and HealthAxis shall have received a certificate, dated the Closing Date, signed on behalf of BPOMS by the Chief Executive Officer or the Chief Financial Officer of BPOMS to the foregoing effect.

(c)From the date of this Agreement through the Effective Time, there shall not have occurred any change, circumstance or event, concerning BPOMS and the BPOMS Subsidiaries, taken as a whole, that has had a BPOMS Material Adverse Effect and HealthAxis shall have received a certificate, dated the Closing Date, signed on behalf of BPOMS by the Chief Executive Officer or the Chief Financial Officer of BPOMS to the foregoing effect.

(d)All third party consents required in order to enable BPOMS to consummate the transactions contemplated hereby shall have been obtained on terms and conditions acceptable to HealthAxis.

ARTICLE 9

TERMINATION

9.1Termination.

This Agreement may be terminated and abandoned at any time prior to the Effective Time (whether before or after approval and adoption of this Agreement and/or approval of the issuance of the HealthAxis Shares by the stockholders of HealthAxis):

(a)by mutual written consent authorized by the Board of Directors of HealthAxis and BPOMS;

(b)by either HealthAxis or BPOMS if any United States federal or state court of competent jurisdiction or other governmental entity shall have issued a final order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable, provided that the Party seeking to terminate shall have used its commercially reasonable efforts to appeal such order, decree, ruling or other action;

(c)by HealthAxis upon a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of BPOMS and as a result of such breach the conditions set forth in Section 8.3(a) or Section 8.3(b), as the case may be, would not then be satisfied; provided, that if such breach is capable of being cured by the Termination Date and BPOMS diligently proceeds to cure the breach, then HealthAxis shall not have the right to terminate this Agreement under this Section 9.1(c) unless such breach has not been so cured by the Termination Date;

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(d)by BPOMS upon a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of HealthAxis or Merger Sub and as a result of such breach the conditions set forth in Section 8.2(a) or Section 8.2(b), as the case may be, would not then be satisfied; provided, that if such breach is capable of being cured by the Termination Date and HealthAxis diligently proceeds to cure the breach, then BPOMS shall not have the right to terminate this Agreement under this Section 9.1(d) unless such breach has not been so cured by the Termination Date;

(e)by BPOMS if any of the consents referred to in paragraph 8.2(e) hereof are not obtained prior to the Effective Time, or by HealthAxis if any of the consents referred to in paragraph 8.3(d) hereof are not obtained prior to the Effective Time;

(f)by BPOMS or HealthAxis if (i) the Board of Directors of HealthAxis pursuant to Section 7.3(c) fails to make, withdraws or modifies adversely to BPOMS its approval or recommendation of this Agreement or (ii) HealthAxis enters into a definitive agreement providing for the implementation of a Superior Offer in accordance with the provisions of Section 7.10;

(g)by BPOMS or HealthAxis if (i) the Board of Directors of BPOMS pursuant to Section 7.2(a) fails to make, withdraws or modifies adversely to HealthAxis its approval or recommendation of this Agreement or (ii) BPOMS enters into a definitive agreement providing for the implementation of a Superior Offer in accordance with the provisions of Section 7.10;

(h)by either HealthAxis or BPOMS, if the Merger shall not have been consummated on or before December 31, 2008 (“Termination Date”) (other than due to the failure of the Party seeking to terminate this Agreement to perform its obligations under this Agreement required to be performed by it at or prior to the Effective Time, a breach by such Party of this Agreement or the failure of such Party to satisfy the conditions precedent to the other Party’s obligation to effect the Merger);

(i)by HealthAxis or BPOMS if this Agreement and the transactions contemplated hereby shall have failed to receive the requisite vote for approval and adoption by the commonstockholders of HealthAxis or BPOMS upon the execution of a written consent or the holding of a duly convened stockholders meeting and any adjournments thereof;

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(j)by HealthAxis if BPOMS suffers a BPOMS Material Adverse Effect, or by BPOMS if HealthAxis suffers a HealthAxis Material Adverse Effect (it being agreed that none of the matters referred to in Section 6.9 of the HealthAxis Disclosure Letter shall be deemed to constitute a HealthAxis Material Adverse Effect); or

(k)by either Party, if the other Party becomes unable to pay its liabilities as they come due or seeks protection under any bankruptcy, receivership, trust deed, creditors arrangement, composition or comparable proceeding, or if any such proceeding is instituted against such other Party (and not dismissed within sixty (60) days).

The right of any Party hereto to terminate this Agreement pursuant to this Section 9.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Party hereto, any Person controlling any such Party or any of their respective employees, officers, directors, agents, representatives or advisors, whether prior to or after the execution of this Agreement.

9.2Effect of Termination.

In the event of the termination and abandonment of this Agreement pursuant to Section 9.1 hereof, this Agreement shall forthwith become void and have no effect, without any liability on the part of any Party hereto or its affiliates, directors, officers or stockholders and all rights and obligations of any Party hereto shall cease except for the agreements contained in this Section 9.2 (Effect of Termination), Section 9.3 (Expenses and Termination Fees), Section 9.4 (Extension; Waiver) and Section 10.5 (Confidentiality); provided, however, that nothing contained in this Section 9.2 shall relieve any Party from liability for any breach of this Agreement.

9.3Expenses and Termination Fee.

(a)Except as set forth in this Section 9.3, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such expenses, whether or not the Merger is consummated and irrespective of the failure of any closing condition set forth in Article 8 hereof to be met.

(b)BPOMS shall pay as and when requested all fees and expenses incurred by HealthAxis in listing the HealthAxis Shares on the Nasdaq Capital Market in connection with the Merger and in connection with the substitute listing for the Reverse Split.

(c)HealthAxis shall pay BPOMS a termination fee of $500,000, upon the termination of this Agreement by BPOMS pursuant to Section 9.1(d) or upon termination of this Agreement by BPOMS or HealthAxis pursuant to Section 9.1(f).

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(d)BPOMS shall pay HealthAxis a termination fee of $500,000 upon the termination of this Agreement by HealthAxis pursuant to Section 9.1(c) or upon termination of this Agreement by HealthAxis or BPOMS pursuant to Section 9.1(g).

(e)If either Party fails to pay when due any amount payable by such Party under Section 9.3, then (i) such Party shall reimburse the other Party for reasonable costs and expenses (including reasonable fees and disbursements of counsel) incurred in connection with the collection of such overdue amount and the enforcement by the other Party of its rights under this Section 9.3, and (ii) such Party shall pay to the other Party interest on such overdue amount (for the period commencing as of the date such overdue amount was originally required to be paid and ending on the date such overdue amount is actually paid to the other Party in full) at a rate per annum equal to the “prime rate” (as announced by Bank of America or any successor thereto) in effect on the date such overdue amount was originally required to be paid.

(f)Subject to Section 9.3(g), the remedy set forth in Section 9.3(c) shall be BPOMS’ exclusive remedy in the event of the termination of this Agreement on a basis specified therein, and the remedy set forth in Section 9.3(d) shall be HealthAxis’ exclusive remedy in the event of the termination of this Agreement on a basis specified therein.

(g)BPOMS, HealthAxis and Merger Sub each acknowledges that the agreements contained in this Section 9.3 are an integral part of the transactions contemplated by this Agreement and that the amounts payable hereunder are not a penalty, but rather are liquidated damages in a reasonable amount that will compensate the aggrieved party for the efforts and resources expended and opportunities foregone while negotiating this Agreement and in reliance on this Agreement and on the expectation of the consummation of the transactions contemplated hereby, and for losses and damages likely to be incurred or suffered as a result of termination in the circumstances described in this Section 9.3, which amounts would otherwise be impossible to calculate with precision. In the event that a Party hereto shall fail to pay an amount specified under this Section 9.3 when due, the costs and expenses actually incurred or accrued by the Party entitled thereto shall also be paid by the Party failing to pay the specified amount when due.  Payment of the fees and expenses described in this Section 9.3 shall not be in lieu of any damages incurred in the event of willful breach of this Agreement.

9.4Extension; Waiver.

At any time prior to the Effective Time, any Party hereto, by action taken by its Board of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other Party, (b) waive any inaccuracies in the representations and warranties made to such Party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions for the benefit of such Party contained herein. Any agreement on the part of a Party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party.

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ARTICLE 10

GENERAL PROVISIONS

10.1Nonsurvival of Representations, Warranties and Agreements.

The representations and warranties of HealthAxis, Merger Sub, and BPOMS contained in this Agreement or any certificate or instrument delivered pursuant to this Agreement shall terminate at the Effective Time, and only the covenants that by their terms survive the Effective Time and this Article 10 shall survive the Effective Time.

10.2Notices.

Any notice required to be given hereunder shall be in writing and shall be sent by facsimile transmission (confirmed by any of the methods that follow), courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first class postage prepaid) and addressed as follows:

If to BPOMS:

BPO Management Services Inc.

1290 N. Hancock St.

Suite 202

Anaheim, California    92807

Attn: Chief Executive Officer

Tel.: (714) 974.2670

Fax: (714) 970.1342

With a copy to (which shall not constitute notice):

Cornman & Swartz

19800 MacArthur Blvd., Suite 820

Irvine, CA 92612

Attn: Jack T. Cornman, Esq.

Tel.: (949) 224-1500

Fax: (949) 224-1505

and

If to HealthAxis and Merger Sub:

HealthAxis Inc.

7301 North State Highway 161, Suite 300

Irving, Texas  75039

Attn:  Chief Executive Officer

Tel.:  972-443-5223

Fax:  972-409-0977

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With copies to (which shall not constitute notice):

HealthAxis Inc.

7301 North State Highway 161, Suite 300

Irving, Texas  75039

Attn:  General Counsel

Tel.:  972-443-5241

Fax:  972-409-0977

Locke Lord Bissell & Liddell LLP

2200 Ross Avenue, Suite 2200

Dallas, Texas  75201

Attn:  John B. McKnight, Esq.

Tel.:  214-740-8675

Fax:  214-756-8675

or to such other address as any Party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date received.

10.3Assignment; Binding Effect; Benefit.

Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto or their respective heirs, surviving corporations, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.

10.4Entire Agreement.

This Agreement, the BPOMS Disclosure Letter, the HealthAxis Disclosure Letter, the Schedules, the Exhibits and any documents delivered by the parties in connection herewith constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto, except that the Non-Disclosure Agreement (as hereinafter defined) shall remain in effect and shall be binding upon HealthAxis and BPOMS in accordance with its terms. No addition to or modification of any provision of this Agreement shall be binding upon any Party hereto unless made in writing and signed by all parties hereto.

10.5Confidentiality.

HealthAxis and BPOMS understand and agree that they are and shall remain bound by and subject to the terms of the non-disclosure agreement, dated as of February 8, 2008, by and between HealthAxis and BPOMS (the “Non-Disclosure Agreement”), regardless of any termination of this Agreement.

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10.6Amendment.

This Agreement may be amended by the parties hereto, by action taken by their respective authorized Person, Persons or governing bodies, at any time before or after approval of matters presented in connection with the Merger by the stockholders of BPOMS and HealthAxis, but after any such stockholder approval, no amendment shall be made which by law requires the further approval of stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.

10.7Governing Law; Attorneys’ Fees.

(a)This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to its rules of conflict of laws. Each of HealthAxis and BPOMS hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of Delaware and the United States of America located in the State of Delaware (the “Delaware Courts”) for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agree not to commence any litigation relating thereto except in such courts), consent to the service of process in such Delaware Courts, waive any objection to the laying of venue of any such litigation in the Delaware Courts and agree not to plead or claim in any Delaware Court that such litigation brought therein has been brought in any inconvenient forum.

(b)In any action at law or suit in equity to enforce this Agreement or the rights of any Parties under this Agreement, the prevailing Party in such action or suit shall be entitled to receive a reasonable sum for its attorney’s fees and all other reasonable costs and expenses incurred in such action or suit.

10.8Counterparts.

This Agreement may be executed by the parties hereto in separate counterparts, each of which so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

10.9Headings.

Headings of the Articles and Sections of this Agreement are for the convenience of the parties only, and shall be given no substantive or interpretive effect whatsoever.

10.10Waivers.

Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any Party, shall be deemed to

89

constitute a waiver by the Party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any Party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder.

10.11Incorporation.

The BPOMS Disclosure Letter and the HealthAxis Disclosure Letter and all Schedules attached hereto and thereto and referred to herein and therein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein.

10.12Severability.

Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

10.13Interpretation.

(a)In this Agreement, unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders.

(b)As used in this Agreement, the word “Subsidiary” or “Subsidiaries” when used with respect to any Party means any corporation, partnership, joint venture, business trust or other entity, of which such Party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization.

(c)As used in this Agreement, the word “Person” means an individual, a corporation, a partnership, an association, a joint stock company, a trust, a limited liability company, any unincorporated organization or any other entity.

(d)As used in this Agreement unless otherwise indicated, the word “Affiliate” shall have the meaning set forth in Rule 12b-2 of the Exchange Act.

10.14Specific Performance.

The parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at law would exist, and damages would be difficult to determine, and that the parties shall be entitled to specific performance of the terms hereof, without the posting of any bond whatsoever in addition to any other remedy at law or equity.

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

HEALTHAXIS, INC.
Per:	/s/ John M. Carradine
Per:	CEO and President
OUTSOURCING MERGER SUB, INC.
Per:	/s/ John M. Carradine
Per:	President
BPO MANAGEMENT SERVICES, INC.
Per:	/s/ Patrick Dolan
Per:	Chairman and CEO

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EX-10.65

EXHIBIT 10.65

AMENDMENT TO SERIES D CONVERTIBLE STOCK PURCHASE AGREEMENT

This Amendment, dated as of August 29, 2008 (the “Amendment”), is to that certain Series D Convertible Stock Purchase Agreement, which was dated as of June 13, 2007, by and among BPO Management Services, Inc. (the “Company”), and the purchasers listed on Exhibit A thereto (the “Purchasers”).  The Company and the Purchasers are, together, the “Parties.”

RECITALS

WHEREAS, the Parties entered into that certain Series D Convertible Preferred Stock Purchase Agreement, dated June 13, 2007 (the “Stock Purchase Agreement”), pursuant to which the Purchasers purchased shares of the Company’s Series D Convertible Preferred Stock and warrants to purchase shares of the Company’s Series D-2 Convertible Preferred Stock and Common Stock;

WHEREAS, subsequent to the Closing (as that term is defined in the Stock Purchase Agreement), certain of the Warrants (as that term is defined in the Stock Purchase Agreement) were exercised by certain of the Purchasers;

WHEREAS, subsequent to the Closing, certain of the provisions of the Warrants were amended in the manners provided therein, certain of which amendments included an approval of the Warrant Exchange (as that term is defined hereinbelow);

WHEREAS, subsequent to the Closing, certain provisions of the Company’s Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock and Certificate of Designation of the Relative Rights and Preferences of the Series D-2 Convertible Preferred Stock (collectively, the “D and D-2 Preferred Stock Designations”) were amended in the manner provided therein and in the Stock Purchase Agreement;

WHEREAS, the Company has requested that certain provisions of the Stock Purchase Agreement be amended in the manner set forth hereinbelow and those Purchasers executing this Amendment have been willing so to amend the Stock Purchase Agreement;

WHEREAS, in order to simplify its capital structure, the Company previously decided to offer the Purchasers the opportunity to exchange all of their then-outstanding Series A Warrants to Purchase Shares of Common Stock of the Company, Series B Warrants to Purchase Shares of Common Stock of the Company, and of the Series D Warrants to Purchase Shares of Common Stock of the Company if such Series D Warrants have a warrant price of $1.10 per share for shares of a to-be-designated series of the Company’s preferred stock (the “Warrant Exchange”), which shares of such series of preferred stock will be convertible into shares of the Company’s common stock and have such other rights as will be agreed upon among the Company and the Purchasers and specified in the certificate of designation of rights for such series;

WHEREAS, the Warrant Exchange was previously approved by the Purchasers;

1

WHEREAS, in furtherance of the Warrant Exchange, the Company has decided to offer the Purchasers and their permitted assigns the opportunity (the form of which is attached hereto as Exhibit WE) to exchange all of their outstanding Series A Warrants to Purchase Shares of Common Stock of the Company, Series B Warrants to Purchase Shares of Common Stock of the Company, and Series D Warrants to Purchase Shares of Common Stock of the Company (if such Series D Warrants have a warrant price of $1.10 per share) for shares of its Series F Convertible Preferred Stock (the form of which Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock is attached hereto as Exhibit F) and those Purchasers (including their permitted assigns) who have executed this Amendment have agreed to participate in the Warrant Exchange;

WHEREAS, this Amendment shall be deemed to have been executed by the Company and those Purchasers (including their permitted assigns) whose signatures appear hereinbelow immediately prior to the closing of the Warrant Exchange;

WHEREAS, this Amendment shall be deemed to incorporate by reference any requisite amendments to the Warrants and consents to the D and D-2 Preferred Stock Designations, such that no rights of any of the Purchasers herein or therein and no obligations of the Company herein or therein shall be deemed to have been triggered, or to have been given rise to such triggering, by the transactions contemplated hereby or by the Warrant Exchange;

WHEREAS, the Company and the Purchasers and their permitted assigns whose signatures appear hereinbelow desire to amend Section 9.15 of the Stock Purchase Agreement to increase the number of shares of the Company’s common stock underlying permitted options;

NOW, THEREFORE, in consideration of the promises and covenants made herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE 1

AMENDMENT

1.           Amendment to Section9.15 of the Stock Purchase Agreement.

1.1           Section 9.15 – 2007 Stock Incentive Plan.  Certain changes shall be made to Section 9.15, as follows:

“Remove ‘Four Million Six Hundred Thousand [sic] (4,666,667)’ and in its stead insert ‘Twelve Million Three Hundred Sixty-six Thousand Six Hundred Sixty-seven (12,366,667)’; remove ‘Two Million Three Hundred Thousand [sic] (2,333,334)’ and in its stead insert ‘Eight Million Three Hundred Thirty-three Thousand Three Hundred Thirty-four (8,333,334).’”

1.2           Broad Interpretation.  In addition to the specific amendments made to the text of the Stock Purchase Agreement set as forth herein, it is the intention of the Company and those Purchasers (including their permitted assigns) whose signatures appear hereinbelow that this Amendment be broadly interpreted and construed so that in no event shall any actions taken by the Company in connection herewith or the Warrant Exchange be deemed to trigger, or give rise to the triggering of, any rights of any of the Purchasers or any obligations of the Company in the Stock Purchaser Agreement or herein or in any of the Warrants or in the D and D-2 Preferred Stock Designations.

2

1.3           Effectiveness of Amendment.  The foregoing amendments shall be effective and binding upon the Purchasers and their respective successors and assigns independently of whether the Purchasers (and their permitted assigns) execute and deliver this Amendment to the Company in the event that this document amends the Stock Purchase Agreement in the manner provided for therein.

ARTICLE 2

MISCELLANEOUS PROVISIONS

2.           Miscellaneous Provisions.

2.1           No Further Amendments.  Except as amended by this Amendment and as required for conformity to the previous amendments to the Warrants and to the previous consents of the Purchasers, the Stock Purchase Agreement remains unmodified and in full force and effect.  In the event of any inconsistency between the provisions of the Stock Purchase Agreement, the Warrants (as previously amended), and the provisions of this Amendment, the provisions of this Amendment shall prevail.  This Amendment may only be modified or amended by a written agreement in the manner set provided by the Stock Purchase Agreement.

2.2           Counterparts.  This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute one and the same instrument.  Facsimiles or portable document files transmitted by e-mail containing original signatures shall be deemed for all purposes to be originally signed copies of the documents which are the subject of such facsimiles or files.

2.3           Binding on Successors.This Amendment shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Parties.

2.4           Entire Agreement. The Stock Purchase Agreement, as amended hereby, the Warrants, as previously amended, the D and D-2 Preferred Stock Designations, as previously amended, the Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock, and the Warrant Exchange Agreement collectively contain the entire understanding among the Parties and supersede any prior written or oral agreements among them respecting the subject matter contained herein.  There are no representations, agreements, arrangements or understandings, oral or written, among the Parties relating to the subject matter hereof that are not fully expressed herein and therein.

[SIGNATURE PAGES TO FOLLOW]

3

IN WITNESS WHEREOF, the Parties hereto have executed or have caused a duly authorized officer to execute this Amendment all effective as of the day and year first above written.

THE COMPANY:

BPO MANAGEMENT SERVICES, INC.,

a Delaware corporation

By:	/s/ Patrick A. Dolan
Name:	Patrick A. Dolan
Its:	Chief Executive Officer

THE PURCHASERS:

The undersigned hereby consents to the amendment set forth herein.

VISION OPPORTUNITY MASTER FUND, LTD.
By:	/s/ Adam Benowitz
Name:	Adam Benowitz
Its:	Director
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
By:	/s/ Russell Cleveland
	Russell Cleveland President
RENAISSANCE US GROWTH INVESTMENT TRUST PLC
By:	/s/ Russell Cleveland
	Russell Cleveland President

4

US SPECIAL OPPORTUNITIES TRUST PLC
By:	/s/ Russell Cleveland
	Russell Cleveland President
PREMIER RENN US EMERGING GROWTH FUND LTD.
By:	/s/ Russell Cleveland
	Russell Cleveland President
BRIDGEPOINTE MASTER FUND LTD.
By:
	Name: Title:
HELLER CAPITAL INVESTMENTS LLC
By:	/s/ Russell Cleveland
	Name: Title:

5

EX-10.66

EXHIBIT 10.66

SECOND AMENDMENT TO

SERIES D CONVERTIBLE STOCK PURCHASE AGREEMENT

This Second Amendment, dated as of August 29, 2008 (the “Amendment”), is to that certain Series D Convertible Stock Purchase Agreement, which was dated as of June 13, 2007, as amended on August 29, 2008, by and among BPO Management Services, Inc. (the “Company”) and the purchasers listed on Exhibit A thereto (the “Purchasers”).  The Company and the Purchasers are, together, the “Parties.”  Capitalized terms used but not defined herein shall have the meaning as set forth in the Stock Purchase Agreement (defined below).

RECITALS

WHEREAS, the Parties entered into that certain Series D Convertible Preferred Stock Purchase Agreement, dated June 13, 2007, pursuant to which the Purchasers purchased shares of the Company’s Series D Convertible Preferred Stock and warrants to purchase shares of the Company’s Series D-2 Convertible Preferred Stock and Common Stock;

WHEREAS, the Parties amended the Stock Purchase Agreement on August 29, 2008 to amend certain provisions as described therein (as amended, the “Stock Purchase Agreement”); and

WHEREAS, the Company has requested that certain provisions of the Stock Purchase Agreement be amended in the manner set forth hereinbelow, and certain of the Purchasers, amounting to holders of at least 75% of the Preferred Shares then outstanding, have agreed to amend the Stock Purchase Agreement, thereby amending the Stock Purchase Agreement for all Purchasers, as stated in Section 9.3 of the Stock Purchase Agreement.

NOW, THEREFORE, in consideration of the premises and covenants made herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE 1

AMENDMENT

1.Deletion of Section of Stock Purchase Agreement.  Section 3.25 of the Stock Purchase Agreement is hereby deleted in its entirety and replaced with the following:  “[Reserved].”

ARTICLE 2

MISCELLANEOUS PROVISIONS

2.Miscellaneous Provisions.

2.1No Further Amendments.  Except as amended by this Amendment and as required for conformity to the previous amendments to the Warrants and to the previous consents of the Purchasers, the Stock Purchase Agreement remains unmodified and in full force and effect.  In the event of any inconsistency between the provisions of the Stock Purchase Agreement, the Warrants (as previously amended), and the provisions of this Amendment, the provisions of this Amendment shall prevail.  This Amendment may only be modified or amended by a written agreement in the manner provided by the Stock Purchase Agreement.

1

2.2Counterparts.  This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute one and the same instrument.  Facsimiles or portable document files transmitted by e-mail containing original signatures shall be deemed for all purposes to be originally signed copies of the documents which are the subject of such facsimiles or files.

2.3Binding on Successors.This Amendment shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Parties.

2.4Entire Agreement. The Stock Purchase Agreement, as amended hereby, the Warrants, as previously amended, the D and D-2 Preferred Stock Designations, as previously amended, the Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock, and the Warrant Exchange Agreement collectively contain the entire understanding among the Parties and supersede any prior written or oral agreements among them respecting the subject matter contained herein.  There are no representations, agreements, arrangements or understandings, oral or written, among the Parties relating to the subject matter hereof that are not fully expressed herein and therein.

[SIGNATURE PAGES TO FOLLOW]

2

IN WITNESS WHEREOF, the Parties hereto have executed or have caused a duly authorized officer to execute this Amendment all effective as of the day and year first above written.

THE COMPANY:

BPO MANAGEMENT SERVICES, INC.,

a Delaware corporation

By:	/s/ Patrick A. Dolan
Name:	Patrick A. Dolan
Its:	Chief Executive Officer

THE PURCHASERS:

The undersigned hereby consents to the amendment set forth herein.

VISION OPPORTUNITY MASTER FUND, LTD.
By:	/s/ Adam Benowitz
Name:	Adam Benowitz
Its:	Director
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
By:	/s/ Russell Cleveland
	Russell Cleveland President
RENAISSANCE US GROWTH INVESTMENT TRUST PLC
By:	/s/ Russell Cleveland
	Russell Cleveland President

3

US SPECIAL OPPORTUNITIES TRUST PLC
By:	/s/ Russell Cleveland
	Russell Cleveland President
PREMIER RENN US EMERGING GROWTH FUND LTD.
By:	/s/ Russell Cleveland
	Russell Cleveland President
BRIDGEPOINTE MASTER FUND LTD.
By:
	Name: Title:
HELLER CAPITAL INVESTMENTS LLC
By:	/s/ Ronald J. Heller
	Name: Ronald J. Heller Title: Chief Executive Officer

4

EX-10.67

EXHIBIT 10.67

SECOND AMENDMENT TO SERIES A WARRANT TO PURCHASE SHARES OF
COMMON STOCK OF BPO MANAGEMENT SERVICES, INC.

This Second Amendment to Series A Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. (this “Amendment”) is effective as of August 29, 2008, by BPO Management Services, Inc., a Delaware corporation (“Issuer”), in favor of ________________ (“Holder”).  Issuer and Holder are, together, the “Parties.”  Capitalized terms used but not defined herein shall have the meaning as set forth in the Stock Purchase Agreement (defined below).

RECITALS

WHEREAS, Issuer, Holder and certain other investors entered into that certain Series D Convertible Preferred Stock Purchase Agreement, dated June 13, 2007, which was later amended as of August 29, 2008 and further amended as of August 29, 2008 (collectively, the “Stock Purchase Agreement”), pursuant to which Holder and the other investors purchased shares of Issuer’s Series D Convertible Preferred Stock and warrants to purchase shares of Issuer’s Series D-2 Convertible Preferred Stock and Common Stock (each of such warrants is described below);

WHEREAS, in connection with the Stock Purchase Agreement, Issuer granted to Holder, among other things, that certain Series A Warrant to Purchase Shares of Common Stock of Issuer, which was numbered W-A-07-__, was dated and issued June 13, 2007, and was later amended as of April 18, 2008 (the “Series A Warrant”), and entitled Holder upon exercise thereof in accordance with the terms contained therein to purchase up to a certain number of shares of Issuer’s Common Stock at an initial per-share Warrant Price (as defined in Section 9 of the Series A Warrant) of $0.90;

WHEREAS, the Parties desire to amend the Series A Warrant to delete certain sections, as detailed below; and

WHEREAS, the Series A Warrant shall be deemed amended for all holders of Series A Warrants upon the execution of this Amendment by the Issuer and the Majority Holders, and the amendment to each outstanding Series A Warrant of Holder and all other holders of Series A Warrants shall be effective immediately upon Issuer’s receipt of signed acknowledgements to this Amendment and/or the amendments provided to all other holders of Series A Warrants representing the requisite number of covered shares.

NOW, THEREFORE, in consideration of the premises and covenants made herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE 1

AMENDMENT

1.Amendment to Series A Warrant.  Sections 4(d), 4(e), and 8 of the Series A Warrant shall be deleted in their entirety and replaced with the following:  “[Reserved].”

1

1.1Effectiveness of Amendment.  The foregoing amendment shall be effective and binding upon Holder and its successors and assigns independently of whether Holder executes and delivers this Amendment to Issuer in the event that Issuer receives executed substantially similar written instruments from the Majority Holders.

ARTICLE 2

MISCELLANEOUS PROVISIONS

2.Miscellaneous Provisions.

2.1No Further Amendments.  Except as amended by this Amendment and the previous amendments thereto, the Series A Warrant remains unmodified and in full force and effect.  In the event of any inconsistency between the provisions of the Series A Warrant (as previously amended) and the provisions of this Amendment, the provisions of this Amendment shall prevail.  This Amendment may only be modified or amended by a written agreement executed by Issuer, and consented to by Holder, with the same formalities and in the same manner as this Amendment.

2.2Counterparts.  This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute one and the same instrument.  Facsimiles or portable document files transmitted by e-mail containing original signatures shall be deemed for all purposes to be originally signed copies of the documents which are the subject of such facsimiles or files.

2.3Binding on Successors.This Amendment shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Parties.

2.4Entire Agreement. The Series A Warrant as amended by this Amendment and all prior amendments thereto contains the entire understanding between the Parties and supersedes any prior written or oral agreements between them respecting the subject matter contained herein.  There are no representations, agreements, arrangements or understandings, oral or written, between the Parties relating to the subject matter hereof that are not fully expressed herein.

[SIGNATURE PAGE TO FOLLOW]

2

IN WITNESS WHEREOF, the Parties hereto have executed or have caused a duly authorized officer to execute this Amendment all effective as of the day and year first above written.

ISSUER:
BPO MANAGEMENT SERVICES, INC., a Delaware corporation
By:
Name:	Patrick A. Dolan
Its:	Chief Executive Officer
HOLDER:
The undersigned hereby consents to the amendments set forth herein.
By:
Name:
Its:
Date:

3

EX-10.68

EXHIBIT 10.68

SECOND AMENDMENT TO SERIES B WARRANT TO PURCHASE SHARES OF COMMON STOCK OF BPO MANAGEMENT SERVICES, INC.

This Second Amendment to Series B Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. (this “Amendment”) is effective as of August 29, 2008, by BPO Management Services, Inc., a Delaware corporation (“Issuer”), in favor of ________________ (“Holder”).  Issuer and Holder are, together, the “Parties.”  Capitalized terms used but not defined herein shall have the meaning as set forth in the Stock Purchase Agreement (defined below).

RECITALS

WHEREAS, Issuer, Holder and certain other investors entered into that certain Series D Convertible Preferred Stock Purchase Agreement, dated June 13, 2007, which was later amended as of August 29, 2008 and further amended as of August 29, 2008 (collectively, the “Stock Purchase Agreement”), pursuant to which Holder and the other investors purchased shares of Issuer’s Series D Convertible Preferred Stock and warrants to purchase shares of Issuer’s Series D-2 Convertible Preferred Stock and Common Stock (each of such warrants is described below);

WHEREAS, in connection with the Stock Purchase Agreement, Issuer granted to Holder, among other things, that certain Series B Warrant to Purchase Shares of Common Stock of Issuer, which was numbered W-B-07-__, was dated and issued June 13, 2007, and was later amended as of April 18, 2008  (the “Series B Warrant”), and entitled Holder upon exercise thereof in accordance with the terms contained therein to purchase up to a certain number of shares of Issuer’s Common Stock at an initial per-share Warrant Price (as defined in Section 9 of the Series B Warrant) of $1.25;

WHEREAS, the Parties desire to amend the Series B Warrant to delete certain sections, as detailed below; and

WHEREAS, the Series B Warrant shall be deemed amended for all holders of Series B Warrants upon the execution of this Amendment by the Issuer and the Majority Holders, and the amendment to each outstanding Series B Warrant of Holder and all other holders of Series B Warrants shall be effective immediately upon Issuer’s receipt of signed acknowledgements to this Amendment and/or the amendments provided to all other holders of Series B Warrants representing the requisite number of covered shares.

NOW, THEREFORE, in consideration of the premises and covenants made herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE 1

AMENDMENT

1.           Amendment to Series B Warrant.  Sections 4(d), 4(e), and 8 of the Series B Warrant shall be deleted in their entirety and replaced with the following:  “[Reserved].”

1

1.1           Effectiveness of Amendment.  The foregoing amendment shall be effective and binding upon Holder and its successors and assigns independently of whether Holder executes and delivers this Amendment to Issuer in the event that Issuer receives executed substantially similar written instruments from the Majority Holders.

ARTICLE 2

MISCELLANEOUS PROVISIONS

2.           Miscellaneous Provisions.

2.1           No Further Amendments.  Except as amended by this Amendment and the previous amendments thereto, the Series B Warrant remains unmodified and in full force and effect.  In the event of any inconsistency between the provisions of the Series B Warrant (as previously amended) and the provisions of this Amendment, the provisions of this Amendment shall prevail.  This Amendment may only be modified or amended by a written agreement executed by Issuer, and consented to by Holder, with the same formalities and in the same manner as this Amendment.

2.2           Counterparts.  This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute one and the same instrument.  Facsimiles or portable document files transmitted by e-mail containing original signatures shall be deemed for all purposes to be originally signed copies of the documents which are the subject of such facsimiles or files.

2.3           Binding on Successors.This Amendment shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Parties.

2.4           Entire Agreement. The Series B Warrant as amended by this Amendment and all prior amendments thereto contains the entire understanding between the Parties and supersedes any prior written or oral agreements between them respecting the subject matter contained herein.  There are no representations, agreements, arrangements or understandings, oral or written, between the Parties relating to the subject matter hereof that are not fully expressed herein.

[SIGNATURE PAGE TO FOLLOW]

2

IN WITNESS WHEREOF, the Parties hereto have executed or have caused a duly authorized officer to execute this Amendment all effective as of the day and year first above written.

ISSUER:

BPO MANAGEMENT SERVICES, INC.,

a Delaware corporation

By:

Name: Patrick A. Dolan

Its:      Chief Executive Officer

HOLDER:

The undersigned hereby consents to the amendments set forth herein.

By:   

Name:  

Its: 

Date:    

3

EX-10.69

EXHIBIT 10.69

FOURTH AMENDMENT TO SERIES C WARRANT TO PURCHASE SHARES OF COMMON STOCK OF BPO MANAGEMENT SERVICES, INC.

This Fourth Amendment to Series C Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. (this “Amendment”) is effective as of August 29, 2008, by BPO Management Services, Inc., a Delaware corporation (“Issuer”), in favor of ________________ (“Holder”).  Issuer and Holder are, together, the “Parties.”  Capitalized terms used but not defined herein shall have the meaning as set forth in the Stock Purchase Agreement (defined below).

RECITALS

WHEREAS, Issuer, Holder and certain other investors entered into that certain Series D Convertible Preferred Stock Purchase Agreement, dated June 13, 2007, which was later amended as of August 29, 2008 and further amended as of August 29, 2008 (collectively, the “Stock Purchase Agreement”), pursuant to which Holder and the other investors purchased shares of Issuer’s Series D Convertible Preferred Stock and warrants to purchase shares of Issuer’s Series D-2 Convertible Preferred Stock and Common Stock (each of such warrants is described below);

WHEREAS, in connection with the Stock Purchase Agreement, Issuer granted to Holder, among other things, that certain Series C Warrant to Purchase Shares of Common Stock of Issuer, which was numbered W-C-07-__, was dated and issued June 13, 2007 (as amended from time to time, the “Series C Warrant”), and, subject to certain conditions precedent, entitled Holder upon exercise thereof in accordance with the terms contained therein to purchase up to a certain number of shares of Issuer’s Common Stock (the “Series C Covered Shares”) at an initial per-share Warrant Price (as defined in Section 9 of the Series C Warrant) of $1.35 (the “Series C Original Warrant Price”), as amended by that certain Amendment to Series C Warrant to Purchase Shares of Common Stock of Issuer effective as of September 28, 2007, which, following the Partial Series J Exercise reduced the Series C Original Warrant Price as to a certain number of the Series C Covered Shares to $0.01 for the remainder of the term of the Series C Warrant;

WHEREAS, the Parties desire to amend the Series C Warrant to delete certain sections, as detailed below; and

WHEREAS, the Series C Warrant shall be deemed amended for all holders of Series C Warrants upon the execution of this Amendment by the Issuer and the Majority Holders, and the amendment to each outstanding Series C Warrant of Holder and all other holders of Series C Warrants shall be effective immediately upon Issuer’s receipt of signed acknowledgements to this Amendment and/or the amendments provided to all other holders of Series C Warrants representing the requisite number of covered shares.

NOW, THEREFORE, in consideration of the premises and covenants made herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1

ARTICLE 1

AMENDMENT

1.           Amendment to Series C Warrant.  Sections 4(d), 4(e), and 8 of the Series C Warrant shall be deleted in their entirety and replaced with the following:  “[Reserved].”

1.1           Effectiveness of Amendment.  The foregoing amendment shall be effective and binding upon Holder and its successors and assigns independently of whether Holder executes and delivers this Amendment to Issuer in the event that Issuer receives executed substantially similar written instruments from the Majority Holders.

ARTICLE 2

MISCELLANEOUS PROVISIONS

2.           Miscellaneous Provisions.

2.1           No Further Amendments.  Except as amended by this Amendment and the previous amendments thereto, the Series C Warrant remains unmodified and in full force and effect.  In the event of any inconsistency between the provisions of the Series C Warrant (as previously amended) and the provisions of this Amendment, the provisions of this Amendment shall prevail.  This Amendment may only be modified or amended by a written agreement executed by Issuer, and consented to by Holder, with the same formalities and in the same manner as this Amendment.

2.2           Counterparts.  This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute one and the same instrument.  Facsimiles or portable document files transmitted by e-mail containing original signatures shall be deemed for all purposes to be originally signed copies of the documents which are the subject of such facsimiles or files.

2.3           Binding on Successors.This Amendment shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Parties.

2.4           Entire Agreement. The Series C Warrant as amended by this Amendment and all prior amendments thereto contains the entire understanding between the Parties and supersedes any prior written or oral agreements between them respecting the subject matter contained herein.  There are no representations, agreements, arrangements or understandings, oral or written, between the Parties relating to the subject matter hereof that are not fully expressed herein.

[SIGNATURE PAGE TO FOLLOW]

2

IN WITNESS WHEREOF, the Parties hereto have executed or have caused a duly authorized officer to execute this Amendment all effective as of the day and year first above written.

ISSUER:

BPO MANAGEMENT SERVICES, INC.,

a Delaware corporation

By:

Name: Patrick A. Dolan

Its:      Chief Executive Officer

HOLDER:

The undersigned hereby consents to the amendments set forth herein.

By:  

Name:  

Its:   

Date:  

3

EX-10.70

EXHIBIT 10.70

FOURTH AMENDMENT TO SERIES D WARRANT TO PURCHASE SHARES OF COMMON STOCK OF BPO MANAGEMENT SERVICES, INC.

This Fourth Amendment to Series D Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. (this “Amendment”) is effective as of August 29, 2008, by BPO Management Services, Inc., a Delaware corporation (“Issuer”), in favor of ________________ (“Holder”).  Issuer and Holder are, together, the “Parties.”  Capitalized terms used but not defined herein shall have the meaning as set forth in the Stock Purchase Agreement (defined below).

RECITALS

WHEREAS, Issuer, Holder and certain other investors entered into that certain Series D Convertible Preferred Stock Purchase Agreement, dated June 13, 2007, which was later amended as of August 29, 2008 and further amended as of August 29, 2008 (collectively, the “Stock Purchase Agreement”), pursuant to which Holder and the other investors purchased shares of Issuer’s Series D Convertible Preferred Stock and warrants to purchase shares of Issuer’s Series D-2 Convertible Preferred Stock and Common Stock (each of such warrants is described below);

WHEREAS, in connection with the Stock Purchase Agreement, Issuer granted to Holder, among other things, that certain Series D Warrant to Purchase Shares of Common Stock of Issuer, which was numbered W-D-07-__, was dated and issued June 13, 2007 (as amended from time to time, the “Series D Warrant”), and, subject to certain conditions precedent, entitled Holder upon exercise thereof in accordance with the terms contained therein to purchase up to a certain number of shares of Issuer’s Common Stock (the “Series D Covered Shares”) at an initial per-share Warrant Price (as defined in Section 9 of the Series D Warrant) of $1.87 (the “Series D Original Warrant Price”), as amended by that certain Amendment to Series D Warrant to Purchase Shares of Common Stock of Issuer effective as of September 28, 2007, which following the Partial Series J Exercise reduced the Series D Original Warrant Price as to a certain number of the Series D Covered Shares to $1.10 for the remainder of the term of the Series D Warrant;

WHEREAS, the Parties desire to amend the Series D Warrant to delete certain sections, as detailed below; and

WHEREAS, the Series D Warrant shall be deemed amended for all holders of Series D Warrants upon the execution of this Amendment by the Issuer and the Majority Holders, and the amendment to each outstanding Series D Warrant of Holder and all other holders of Series D Warrants shall be effective immediately upon Issuer’s receipt of signed acknowledgements to this Amendment and/or the amendments provided to all other holders of Series D Warrants representing the requisite number of covered shares.

NOW, THEREFORE, in consideration of the premises and covenants made herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1

ARTICLE 1

AMENDMENT

1.           Amendment to Series D Warrant.  Sections 4(d), 4(e), and 8 of the Series D Warrant shall be deleted in their entirety and replaced with the following:  “[Reserved].”

1.1           Effectiveness of Amendment.  The foregoing amendment shall be effective and binding upon Holder and its successors and assigns independently of whether Holder executes and delivers this Amendment to Issuer in the event that Issuer receives executed substantially similar written instruments from the Majority Holders.

ARTICLE 2

MISCELLANEOUS PROVISIONS

2.           Miscellaneous Provisions.

2.1           No Further Amendments.  Except as amended by this Amendment and the previous amendments thereto, the Series D Warrant remains unmodified and in full force and effect.  In the event of any inconsistency between the provisions of the Series D Warrant (as previously amended) and the provisions of this Amendment, the provisions of this Amendment shall prevail.  This Amendment may only be modified or amended by a written agreement executed by Issuer, and consented to by Holder, with the same formalities and in the same manner as this Amendment.

2.2           Counterparts.  This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute one and the same instrument.  Facsimiles or portable document files transmitted by e-mail containing original signatures shall be deemed for all purposes to be originally signed copies of the documents which are the subject of such facsimiles or files.

2.3           Binding on Successors.This Amendment shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Parties.

2.4           Entire Agreement. The Series D Warrant as amended by this Amendment and all prior amendments thereto contains the entire understanding between the Parties and supersedes any prior written or oral agreements between them respecting the subject matter contained herein.  There are no representations, agreements, arrangements or understandings, oral or written, between the Parties relating to the subject matter hereof that are not fully expressed herein.

[SIGNATURE PAGE TO FOLLOW]

2

IN WITNESS WHEREOF, the Parties hereto have executed or have caused a duly authorized officer to execute this Amendment all effective as of the day and year first above written.

ISSUER:

BPO MANAGEMENT SERVICES, INC.,

a Delaware corporation

By: 

Name: Patrick A. Dolan

Its:      Chief Executive Officer

HOLDER:

The undersigned hereby consents to the amendments set forth herein.

By: 

Name:  

Its:   

Date:  

3

EX-10.71

EXHIBIT 10.71

WAIVER AND AMENDMENT AGREEMENT

This Waiver and Amendment Agreement, dated as of August 29, 2008 (the “Agreement”), is by and among BPO Management Services, Inc. (the “Company”), and the undersigned Purchasers (defined below), on behalf of all Purchasers (the “Purchaser Representatives”).  All capitalized terms used but not defined herein shall have the meaning set forth in that certain Registration Rights Agreement, dated as of June 13, 2007 (the “Registration Rights Agreement”), by and among the Company and those persons listed on Schedule I thereto (the “Purchasers”).  The Company and the Purchasers are, together, the “Parties.”

RECITALS

WHEREAS, the Parties entered into the Registration Rights Agreement to provide the Purchasers with certain registration rights for certain of the securities in the Company owned by them;

WHEREAS, the Company filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission, pursuant to the Registration Rights Agreement, but such Registration Statement has not been declared effective;

WHEREAS, the Purchasers no longer require the Registration Statement to become effective due to the provisions of Rule 144 and certain other legal and business agreements; and

WHEREAS, the Purchaser Representatives, being at least 75% of the Holders of Registrable Securities, desire to waive any liquidated damages owed to the Purchasers by the Company that relate to the Registration Rights Agreement and to amend and restate the Registration Rights Agreement to rid the Company of the requirement to register for re-sale any securities of the Purchasers.

NOW, THEREFORE, in consideration of the premises and covenants made herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE 1

WAIVER

1.           Waiver of Damages.  The undersigned Purchasers, on behalf of all Purchasers, pursuant to Section 7(f) of the Registration Rights Agreement, hereby waive and disclaim any right to any and all damages from and after June 13, 2007, through and including the date hereof, owed or potentially owed by the Company to any of the Purchasers resulting form any provisions of the Registration Rights Agreement, including without limitation any liquidated damages owed or potentially owed by the Company to any of the Purchasers pursuant to Section 7(e) of the Registration Rights Agreement.

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ARTICLE 2

AMENDMENT

2.           Amendment of Registration Rights Agreement.  The Registration Rights Agreement is hereby amended and restated as reflected in Exhibit A of this Agreement.

ARTICLE 3

MISCELLANEOUS PROVISIONS

3.           Miscellaneous Provisions.

3.1           No Further Amendments.  This Agreement may only be modified or amended by a written agreement in the manner provided by the Registration Rights Agreement.

3.2           Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute one and the same instrument.  Facsimiles or portable document files transmitted by e-mail containing original signatures shall be deemed for all purposes to be originally signed copies of the documents which are the subject of such facsimiles or files.

3.3           Binding on Successors.This Agreement shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Parties.

3.4           Entire Agreement. This Agreement contains the entire understanding among the Parties and supersede any prior written or oral agreements among them respecting the subject matter contained herein.  There are no representations, agreements, arrangements or understandings, oral or written, among the Parties relating to the subject matter hereof that are not fully expressed herein and therein.

[SIGNATURE PAGES TO FOLLOW]

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IN WITNESS WHEREOF, the Company and the Purchaser Representatives have executed or have caused a duly authorized officer to execute this Agreement, all effective as of the day and year first above written.

THE COMPANY:

BPO MANAGEMENT SERVICES, INC.,

a Delaware corporation

By:	/s/ Patrick A. Dolan
Name:	Patrick A. Dolan
Its:	Chief Executive Officer

THE PURCHASER REPRESENTATIVES:

VISION OPPORTUNITY MASTER FUND, LTD.

By:	/s/ Adam Benowitz
Name:	Adam Benowitz
Its:	Director

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

By:	/s/ Russell Cleveland
	Russell Cleveland
	President

RENAISSANCE US GROWTH INVESTMENT TRUST PLC

By:	/s/ Russell Cleveland
	Russell Cleveland
	President

US SPECIAL OPPORTUNITIES TRUST PLC

By:	/s/ Russell Cleveland
	Russell Cleveland
	President

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PREMIER RENN US EMERGING GROWTH FUND LTD.

By:	/s/ Russell Cleveland
	Russell Cleveland
	President

BRIDGEPOINTE MASTER FUND LTD.

By:
	Name:
	Title:

HELLER CAPITAL INVESTMENTS LLC

By:	/s/ Ronald J. Heller
	Name: Ronald J. Heller
	Title: Chief Executive Officer

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EXHIBIT A

Amended and Restated Registration Rights Agreement

(attached)

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AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

This Amended and Restated Registration Rights Agreement (this “Agreement”) dated August 29, 2008, amends and restates that certain Registration Rights Agreement, made and entered into as of June 13, 2007 (the “Registration Rights Agreement”), by and among BPO Management Services, Inc., a Delaware corporation (the “Company”), and those persons stated on Schedule I hereto (the “Purchasers”).  This Agreement is being entered into pursuant to Section 7(f) of the Registration Rights Agreement.

The Company and the Purchasers hereby agree as follows:

1.             Definitions.

Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in that certain Series D Convertible Preferred Stock Purchase Agreement, dated as of June 13, 2007, by and among the Company and the Purchasers (“the “Purchase Agreement”).  As used in this Amendment, the following terms shall have the following meanings:

“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person.  For the purposes of this definition, “control,” when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of “affiliated,” “controlling” and “controlled” have meanings correlative to the foregoing.

“Business Day” mans any day except Saturday, Sunday and any date which shall be a legal holiday or a day on which banking institutions in the State of New York generally are authorized or required by law or other government actions to close.

“Common Stock” means the Company’s Common Stock, par value $0.01 per share.

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Losses” shall have the meaning set forth in Section5(a).

“NASD” means the National Association of Securities Dealers, Inc.

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“Person” means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.

“Preferred Stock” means shares of the Company’s Series D Convertible Preferred Stock issued to the Purchasers pursuant to the Purchase Agreement and shares of the Company’s Series D-2 Convertible Preferred Stock issued to the Purchasers upon exercise of the Series J Warrants.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Registrable Securities” means the shares of Common Stock issuable upon conversion of the Preferred Stock and any dividends accrued or payable thereon plus the shares of Common Stock issuable upon exercise of the Warrants.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended.

“Warrants” means the warrants to purchase shares of Common Stock and the warrants to purchase shares of the Company’s Series D-2 Convertible Preferred Stock, all issued to the Purchasers pursuant to the Purchase Agreement.

2.           Registration Requirements.  The Company shall not be required to register any of the securities of any of the Purchasers in any manner and at any time.

3.           Withdrawal of Registration Statement.  The Company is entitled to, at its sole discretion, withdraw any registration statement currently pending with the Securities and Exchange Commission without the Purchasers’ consent, including without limitation that certain Registration No. 333-144570.

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4.           Registration Expenses.

All fees and expenses incident to the performance of or compliance with this Agreement by the Company, except as and to the extent specified in this Section 4, shall be borne by the Company.  The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the OTC Bulletin Boardand/or each other securities exchange or market on which Registrable Securities are required hereunder to be quoted or listed, if any, (B) with respect to filing fees required to be paid to NASD, the NASD Regulation, Inc. and the OTC Compliance Unit, if any, each as applicable, and (C) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Holders in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of a majority of Registrable Securities may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company’s independent public accountants (including the expenses of any comfort letters or costs associated with the delivery by independent public accountants of a comfort letter or comfort letters).  In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.  The Company shall not be responsible for any discounts, commissions, transfer taxes or other similar fees incurred by the Holders in connection with the sales of the Registrable Securities.

5.           Indemnification.

(a)           Indemnification by the Company.  The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, managers, partners, members, shareholders, agents, brokers, investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and reasonable attorneys’ fees) and expenses (collectively, “Losses”) , as incurred, arising out of or relating to any violation of securities laws by the Company.  The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.

(b)           [Reserved].

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(c)           Conduct of Indemnification Proceedings.  If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the “Indemnifying Party) in writing, and the Indemnifying Party shall be entitled to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof (including reasonable attorneys’ fees and expenses); provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such parties shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Party is a party and indemnity has been sought hereunder, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder;provided, that the Indemnified Party shall reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

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(d)           Contribution.  If a claim for indemnification under Section 5(a) is due but unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations.  The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying, Party or Indemnified Party, and theparties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.  In no event shall any selling Holder be required to contribute an amount under this Section 5(d) in excess of the net proceeds received by such Holder upon sale of such Holder’s Registrable Securities.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties pursuant to the law.

6.           Rule 144.

As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act.  As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act.  The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Person to sell Conversion Shares and Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including providing any legal opinions relating to such sale pursuant to Rule 144.  Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements.

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7.           Miscellaneous.

(a)           Remedies.  In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, such Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under thisAgreement.  The Company and each Holder agree that monetary damages would not provideadequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b)           No Inconsistent Agreements.  Neither the Company nor any of its subsidiaries has, as of the date hereof entered into and currently in effect, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.  Except as disclosed in Schedule 2.1(c) of the Purchase Agreement, neither the Company nor any of its subsidiaries has previously entered into any agreement currently in effect granting any registration rights with respect to any of its securities to any Person.  Without limiting the generality of the foregoing, without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Holders set forth herein, and are not otherwise in conflict with the provisions of this Agreement.

(c)           [Reserved].

(d)           [Reserved].

(e)           [Reserved].

(f)           Amendments and Waivers.  The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of seventy-five percent (75%) of the Registrable Securities outstanding.

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(g)           Notices.  Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery, or delivery by telex, e-mail or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Company:	BPO Management Services, Inc. 1290 N. Hancock, Ste 202 Anaheim, CA 92807 Attention: Chief Executive Officer Tel. No.: (714) 974-2670 Fax No.:  (714) 974-4771 E-mail:  patrick.dolan@bpoms.com
with copies (which shall not constitute notice) to:	Bryan Cave LLP 1900 Main Street, Suite 700 Irvine, CA  92614 Attention: Randolf W. Katz, Esq. Tel. No.: (949) 223-7103 Fax No.:  (949) 223-7100 E-mail: rwkatz@bryancave.com
and:
	Cornman & Swartz 19800 MacArthur Blvd., Suite 820 Irvine, CA 92612 Attention: Jack T. Cornman, Esq. Tel. No.:  (949) 224-1500 Fax No.:  (949) 224-1505
If to any Purchaser:	At the address of such Purchaser set forth on Schedule I to this Agreement, with copies to Purchaser’s counsel as set forth below or as specified in writing by such Purchaser:

Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.

(h)           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns and shall inure to the benefit of each Holder and its successors and assigns.  The Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of each Holder.  Each Purchaser may assign its rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

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(i)           [Reserved].

(j)           [Reserved].

(k)          Governing Law; Jurisdiction.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction.  This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted.  The Company and the Holders agree that venue for any dispute arising under this Agreement will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue.  The Company and the Holders irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York.  The Company and the Holders consent to process being served in any such suit, action or proceeding by delivering a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing in this Section 7(k) shall affect or limit any right to serve process in any other manner permitted by law.  The Company and the Holders hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Agreement or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party.  The parties hereby waive all rights to a trial by jury.

(l)           Cumulative Remedies.  The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(m)         Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable in any respect, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declaredto be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(n)          Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

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(o)          Shares Held by the Company and its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than any Holder or transferees or successors or assigns thereof if such Holder is deemed to be an Affiliate solely by reason of its holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

(p)          Independent Nature of Purchasers.  The Company acknowledges that the obligations of each Purchaser under the Transaction Documents are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under the Transaction Documents.  The Company acknowledges that the decision of each Purchaser to purchase Securities pursuant to the Purchase Agreement has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or of its Subsidiaries which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any Purchaser (or any other person) relating to or arising from any such information, materials, statements or opinions.  The Company acknowledges that nothing contained herein, or in any Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Company acknowledges that each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.  The Company acknowledges that for reasons of administrative convenience only, the Transaction Documents have been prepared by counsel for one of the Purchasers and such counsel does not represent all of the Purchasers.  The Company acknowledges that it has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.  The Company acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Purchasers are in any way acting in concert or as a group with respect to the Transaction Documents or the transactions contemplated hereby or thereby.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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Schedule I

Purchasers

Legal Entity Name and Address

of Purchaser

VISION OPPORTUNITY MASTER FUND, LTD.

20 W. 55th Street, 5th floor

New York, NY 10019

Tel: Fax: 212-867-1416

Attn:  Adam Benowitz and Antti Uusiheimala

E-mail: adam@visicap.com & antti@visicap.com

RENAISSANCE US GROWTH INVESTMENT TRUST PLC (“RUSGIT”)

Frost National Bank

100 W. Houston Street

ATTN: Henri Domingues T-8

San Antonio, TX 78205

Contact for docs: Eric Stephens

Tel: (214) 891-8046/ Fax:

Email: estephens@rencapital.com

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. (“RENN3”)

Frost National Bank

100 W. Houston Street

ATTN: Henri Domingues T-8

San Antonio, TX 78205

Contact for docs: Eric Stephens

Tel: (214) 891-8046/ Fax:

Email: estephens@rencapital.com

US SPECIAL OPPORTUNITIES TRUST PLC (“USSO”)

Frost National Bank

100 W. Houston Street

ATTN: Henri Domingues T-8

San Antonio, TX 78205

Contact for docs: Eric Stephens

Tel: (214) 891-8046/ Fax:

Email: estephens@rencapital.com

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PREMIER RENN US EMERGING GROWTH FUND LTD. (“PREMIER”)

Premier RENN US Emerging Growth Fund Ltd.

Acct # PRN01/17-28085

c/o Cristina Ramones

The Northern Trust Company

801 South Canal Street, C-1-North

Chicago, IL 60607

Contact for docs: Eric Stephens

Tel: (214) 891-8046/ Fax:

Email: estephens@rencapital.com

BRIDGEPOINTE MASTER FUND LTD.

1120 Sanctuary Parkway, Suite 325

Alpharetta, GA 30004

Contact for docs: Brad Hathorn

Tel: 770-640-8130 ext 120 Fax: 770.777.5844

Email: bradhathorn@roswellcapitalpartners.com

HELLER CAPITAL INVESTMENTS LLC

700 E. Palisade Ave

Englewood Cliffs, NJ 07632

Contacts for docs: Steven Hart

Tel: 201-816-4235/ Fax:  201-569-5014

Email: shart@hellercapitalpartners.com

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EX-10.72

EXHIBIT 10.72

AMENDED AND RESTATED WARRANT ACKNOWLEDGEMENT

This Amended and Restated Warrant Acknowledgement is made effective as of August 29, 2008 by and between BPO Management Servcies, Inc., a Delaware corporation (together with its successors and assigns, the “Issuer”), and certain Investors (as defined below), whose names are indicated on the signature page hereto.

RECITALS

WHEREAS, the Issuer and certain investors (each an “Investor” and collectively, the “Investors”) previously entered into a Series A Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. issued June 13, 2007, Series B Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. issued June 13, 2007, Series C Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. issued June 13, 2007, and Series D Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc. issued June 13, 2007 (the “Original Warrants”);

WHEREAS, certain terms of certain of the Original Warrants were amended in respect of the Company and certain of the Investors;

WHEREAS, each of the Original Warrants provides for certain anti-dilution protection in the event that the Issuer issues any shares of its Common Stock (as defined therein) or any warrants to purchase its Common Stock for a per-share price less than the then-current “Warrant Price” for such Warrant (the “Price Protections”);

WHEREAS, the Issuer desires to make certain additional amendments to certain of the Original Warrants by amending and restating the same (the “Amended and Restated Warrants”);

WHEREAS, Section 11 of the Original Warrants provides that any provision of the Original Warrants may be amended or waived with the prior written approval of the Issuer and the holders of a majority of the warrant shares issuable upon the exercise of the Original Warrants; and

WHEREAS, the Issuer and each of the Investors who execute this Aemended and Restated Warrant Acknowledgement, by their respective signature below, desire to memorialize their approval of the Amended and Restated Warrants, and all amendments made therein.

ARTICLE 1

AGREEMENT

NOW, THEREFORE, in consideration of the covenants and conditions herein contained, the Issuer and each of the Investors whose signatures appear below (the “Signing Investors”) hereby agree as follows:

1.1           Agreement.  The Issuer and each of the Signing Investors whose signatures appear below approve the amendment and restatement of the Original Warrants in the forms attached hereto as:

(a)           Exhibit A (Amended and Restated Series A Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc.);

(b)           Exhibit B (Amended and Restated Series B Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc.);

(c)           Exhibit C (Amended and Restated Series C Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc.); and

(d)           Exhibit D (Amended and Restated Series D Warrant to Purchase Shares of Common Stock of BPO Management Services, Inc.).

ARTICLE 2

MISCELLANEOUS PROVISIONS.

2.1           No Further Agreements/Waivers.  Except as set forth herein and as previously amended, the Original Warrants, as previously amended, and the provisions of this Amended and Restated Warrant Acknowledgment, the provisions hereof shall prevail.

2.2           Counterparts.  This Amended and Restated Warrant Acknowledgment may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute one and the same instrument.  Facsimiles or portable document files transmitted by e-mail containing original signatures shall be deemed for all purposes to be originally signed copies of the documents which are the subject of such facsimiles or files.

2.3           Binding on Successors.This Amended and Restated Warrant Acknowledgment shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Issuer and the Signing Investors.

2.4           Entire Agreement. The Original Warrant Agreements and the Amended and Restated Warrant Acknowledgment, all as may have been previously amended, and as reflective of the terms hereof, contain the entire understanding between the parties hereto and supersede any prior written or oral agreements between them respecting the subject matter contained herein.  There are no representations, agreements, arrangements or understandings, oral or written, between the parties relating to the subject matter hereof that are not fully expressed herein.

[Signatures on following page(s).]

IN WITNESS WHEREOF, the undersigned have caused this Amended and Restated Warrant Acknowledgement to be duly executed by their respective authorized officers as of the date first above written.

COMPANY:

BPO Management Services, Inc.

By:  

Name:

Title:

INVESTOR:

By:  

Name:

Title:

Exhibit A

THIS AMENDED AND RESTATED WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

AMENDED AND RESTATED SERIES A WARRANT TO PURCHASE

SHARES OF COMMON STOCK

OF

BPO MANAGEMENT SERVICES, INC.

Expires June 13, 2010

No.: W-A-07- __	Number of Shares: ___________
Date of Issuance: June 13, 2007

FOR VALUE RECEIVED, the undersigned, BPO Management Services, Inc., a Delaware corporation (together with its successors and assigns, the "Issuer"), hereby certifies that _______________________________ or its registered assigns is entitled to subscribe for and purchase, during the Term (as hereinafter defined), up to ____________________________________ (_____________) shares (subject to adjustment as hereinafter provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the provisions and upon the terms and conditions hereinafter set forth.  Capitalized terms used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 9 hereof.

1. Term.  The term of this Warrant shall commence on June 13, 2007 and shall expire at 6:00 p.m., eastern time, on June 13, 2010 (such period being the "Term").

2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange.

(a) Time of Exercise.  The purchase rights represented by this Warrant may be exercised in whole or in part during the Term.

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(b) Method of Exercise.  The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this Warrant (with the exercise form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder's election (i) by certified or official bank check or by wire transfer to an account designated by the Issuer, (ii) by "cashless exercise" in accordance with the provisions of subsection (c) of this Section 2, but only when a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect, or (iii) by a combination of the foregoing methods of payment selected by the Holder of this Warrant.

(c) Cashless Exercise.  Notwithstanding any provisions herein to the contrary and commencing one and a half (1.5) years following the Original Issue Date if (i) the Per Share Market Value of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below) and (ii) a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect by the date such registration statement is required to be effective pursuant to the Registration Rights Agreement (as defined in the Purchase Agreement) or not effective at any time during the Effectiveness Period (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, unless the registration statement is not effective as a result of the Issuer exercising its rights under Section 3(n) of the Registration Rights Agreement, in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed Notice of Exercise in which event the Issuer shall issue to the Holder a number of shares of Common Stock computed using the following formula:

X = Y - (A)(Y)

B

Where	X =	the number of shares of Common Stock to be issued to the Holder.
	Y =	the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised.
	A =	the Warrant Price.
	B =	the Per Share Market Value of one share of Common Stock.

(d) Issuance of Stock Certificates.  In the event of any exercise of this Warrant in accordance with and subject to the terms and conditions hereof, certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding three (3) Trading Days after such exercise (the “Delivery Date”) or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the Warrant Stock is then in effect), issued and delivered to the Depository Trust Company (“DTC”) account on the Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”)

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within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the holder of the shares of Warrant Stock so purchased as of the date of such exercise.  Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system.  The Holder shall deliver this original Warrant, or an indemnification undertaking with respect to such Warrant in the case of its loss, theft or destruction, at such time that this Warrant is fully exercised.  With respect to partial exercises of this Warrant, the Issuer shall keep written records of the number of shares of Warrant Stock exercised as of each date of exercise.

(e) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise.  In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Stock pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Stock which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Issuer shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Warrant Stock that the Issuer was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of shares of Warrant Stock for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Issuer timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Issuer shall be required to pay the Holder $1,000.  The Holder shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Issuer.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Issuer’s failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof.

(f) Transferability of Warrant.  Subject to Section 2(h) hereof, this Warrant may be transferred by a Holder, in whole or in part, without the consent of the Issuer.  If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer.  This Warrant is exchangeable at the principal office of the Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange.  All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant thereto.

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(g) Continuing Rights of Holder.  The Issuer will, at the time of or at any time after each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.

(h) Compliance with Securities Laws.

(i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws.

(ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of Warrant Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form:

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

(iii)The Issuer agrees to reissue this Warrant or certificates representing any of the Warrant Stock, without the legend set forth above if at such time, prior to making any transfer of any such securities, the Holder shall give written notice to the Issuer describing the manner and terms of such transfer.  Such proposed transfer will not be effected until: (a) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that the registration of such securities under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Issuer with the Securities and Exchange Commission and has become effective under the Securities Act and the Holder has represented that the Warrant Stock has been or will be sold, (iii) the

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Issuer has received other evidence reasonably satisfactory to the Issuer that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the Holder provides the Issuer with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that registration or qualification under the securities or "blue sky" laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or "blue sky" laws has been effected or a valid exemption exists with respect thereto.  The Issuer will respond to any such notice from a holder within five (5) Trading Days.  In the case of any proposed transfer under this Section 2(h), the Issuer will use reasonable efforts to comply with any such applicable state securities or "blue sky" laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or “blue sky” laws of any state for which registration by coordination is unavailable to the Issuer.  The restrictions on transfer contained in this Section 2(h) shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Warrant.  Whenever a certificate representing the Warrant Stock is required to be issued to a the Holder without a legend, in lieu of delivering physical certificates representing the Warrant Stock, the Issuer shall use its reasonable best efforts to cause its transfer agent to electronically transmit the Warrant Stock to the Holder by crediting the account of the Holder's Prime Broker with DTC through its DWAC system (to the extent not inconsistent with any provisions of this Warrant or the Purchase Agreement).  Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system.

(i) Accredited Investor Status.  In no event may the Holder exercise this Warrant in whole or in part unless the Holder is then an “accredited investor” as defined in Regulation D under the Securities Act.

3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.

(a) Stock Fully Paid.  The Issuer represents, warrants, covenants and agrees that all shares of Warrant Stock which may be issued upon the exercise of this Warrant or otherwise hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by or through the Issuer.  The Issuer further covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of issuance upon exercise of this Warrant a number of shares of Common Stock equal to at least one hundred twenty percent (120%) of the aggregate number of shares of Common Stock issuable upon exercise of this Warrant.

(b) Reservation.  If any shares of Common Stock required to be reserved for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with any governmental authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to cause such shares to be duly registered or qualified.  If the Issuer shall list any shares of Common Stock on any securities exchange or market it will, at its expense, list thereon, maintain and increase when necessary such listing, of, all shares of Warrant Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such Warrant Stock has been registered pursuant to a registration statement under the Securities Act then in effect), and, to the extent permissible under the applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed.  The Issuer will also so list on each securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on such securities exchange or market by the Issuer.

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(c) Loss, Theft, Destruction of Warrants.  Upon receipt of evidence satisfactory to the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same number of shares of Common Stock.

4. Adjustment of Warrant Price and Number of Shares Issuable Upon Exercise.  The Warrant Price and the Warrant Share Number shall be subject to adjustment from time to time as set forth in this Section 4.  The Issuer shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set forth in Section 5.

(a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale.

(i) In case the Issuer after the Original Issue Date shall do any of the following (each, a "Triggering Event"): (a) consolidate or merge with or into any other Person and the Issuer shall not be the continuing or surviving corporation of such consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash or any other property, or (c) transfer all or substantially all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock, then, and in the case of each such Triggering Event, proper provision shall be made to the Warrant Price and the number of shares of Warrant Stock that may be purchased upon exercise of this Warrant so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof at any time after the consummation of such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive at the Warrant Price as adjusted to take into account the consummation of such Triggering Event, in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such Triggering Event, the Securities, to which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights represented by this Warrant immediately prior thereto.  Immediately upon the occurrence of a Triggering Event, the Issuer shall notify the Holder in writing of such Triggering Event and

provide the calculations in determining the number of shares of Warrant Stock issuable upon exercise of the new warrant and the adjusted Warrant Price.  Upon the Holder’s request, the continuing or surviving corporation as a result of such Triggering Event shall issue to the Holder a new warrant of like tenor evidencing the right to purchase the adjusted number of shares of Warrant Stock and the adjusted Warrant Price pursuant to the terms and provisions of this Section 4(a)(i).  Notwithstanding the foregoing to the contrary, this Section 4(a)(i) shall only apply if the surviving entity pursuant to any such Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board.  In the event that the surviving entity pursuant to any such Triggering Event is not a public company that is registered pursuant to the Securities Exchange Act of 1934, as amended, or its common stock is not listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, then the Holder shall have the right to demand that the Issuer pay to the Holder an amount in cash equal to the value of this Warrant as of the date of the Triggering Event calculated in accordance with the Black-Scholes formula.

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(ii) In the event that the Holder has elected not to exercise this Warrant prior to the consummation of a Triggering Event, so long as the surviving entity pursuant to any Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, the surviving entity and/or each Person (other than the Issuer) which may be required to deliver any Securities upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such Holder such Securities as, in accordance with the foregoing provisions of this subsection (a), such Holder shall be entitled to receive, and the surviving entity and/or each such Person shall have similarly delivered to such Holder an opinion of counsel for the surviving entity and/or each such Person, which counsel shall be reasonably satisfactory to such Holder, or in the alternative, a written acknowledgement executed by the President or Chief Financial Officer of the Issuer, stating that this Warrant Amended Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this subsection (a)) shall be applicable to the Securities which the surviving entity and/or each such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto.

(b) Subdivisions and Combinations.  If at any time the Issuer shall:

(i) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

(ii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment.

(c) Other Provisions applicable to Adjustments under this Section.  The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect provided for in this Section 4:

(i) When Adjustments to Be Made.  The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment.  Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made(x) as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or (y) on the date of exercise.  For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.

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(ii) Fractional Interests.  In computing ad-justments under this Section 4, fractional interests in Common Stock shall be taken into account to the near-est one one-hundredth (1/100th) of a share.

(d) Form of Warrant after Adjustments.  The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant.

5. Notice of Adjustments.  Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each adjustment.  Any dispute between the Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to a national or regional accounting firm reasonably acceptable to the Issuer and the Holder, provided that the Issuer shall have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder shall select another such firm and the Issuer shall have no such right of objection.  The firm selected by the Holder of this Warrant as provided in the preceding sentence shall be instructed to deliver a written opinion as to such matters to the Issuer and such Holder within thirty (30) days after submission to it of such dispute.  Such opinion shall be final and binding on the parties hereto.  The costs and expenses of the initial accounting firm shall be paid equally by the Issuer and the Holder and, in the case of an objection by the Issuer, the costs and expenses of the subsequent accounting firm shall be paid in full by the Issuer.

6. Fractional Shares.  No fractional shares of Warrant Stock will be issued in connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall round the number of shares to be issued upon exercise up to the nearest whole number of shares.

7. Ownership Cap and Exercise Restriction.  Notwithstanding anything to the contrary set forth in this Warrant, at no time may a Holder of this Warrant exercise this Warrant if the number of shares of Common Stock to be issued pursuant to such exercise would exceed, when aggregated with all other shares of Common Stock owned by such Holder and its affiliates at such time, the number of shares of Common Stock which would result in such Holder and its affiliates beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.99% of the then issued and outstanding shares of Common Stock; provided, however, that upon a holder of this Warrant providing the Issuer with sixty-one (61) days notice (pursuant to Section 13 hereof) (the "Waiver Notice") that such Holder would like to waive this Section 7 with regard to any or all shares of Common Stock issuable upon exercise of this Warrant, this Section 7 will be of no force or effect with regard to all or a portion of the Warrant referenced in the Waiver Notice; provided, further, that this provision shall be of no further force or effect during the sixty-one (61) days immediately preceding the expiration of the term of this Warrant.  Notwithstanding the foregoing, these exercise restrictions shall not be applicable to Renaissance Capital Group, Inc.  and its affiliates (collectively, "Renn"), if Renn so notifies the Issuer (either in writing or by email) prior to the date of issuance of the securities to which this paragraph is applicable.

8. Definitions.  For the purposes of this Warrant, the following terms have the following meanings:

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“Board" shall mean the Board of Directors of the Issuer.

"Capital Stock" means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type.

"Certificate of Designation" means the Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.

"Certificate of Incorporation" means the Certificate of Incorporation of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.

"Common Stock" means the Common Stock, $0.01 par value per share, of the Issuer and any other Capital Stock into which such stock may hereafter be changed.

"Governmental Authority" means any governmental, regulatory or self-regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign.

"Holders" mean the Persons who shall from time to time own any Warrant.  The term "Holder" means one of the Holders.

"Independent Appraiser" means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant.

"Issuer" means BPO Management Services, Inc., a Delaware corporation, and its successors.

"Majority Holders" means at any time the Holders of Warrants exercisable for a majority of the shares of Warrant Stock issuable under the then-outstanding Warrants.

"Original Issue Date" means June 13, 2007.

"OTC Bulletin Board" means the over-the-counter electronic bulletin board.

"Other Common" means any other Capital Stock of the Issuer of any class which shall be authorized at any time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount.

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“Outstanding Common Stock” means, at any given time, the aggregate amount of outstanding shares of Common Stock, assuming full exercise, conversion or exchange (as applicable) of all options, warrants and other Securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that are outstanding at such time.

"Person" means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature.

"Per Share Market Value" means on any particular date (a) the last closing bid price per share of the Common Stock on such date on the OTC Bulletin Board or a registered national stock exchange on which the Common Stock is then listed, or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date, or (b) if the Common Stock is not quoted or listed then on the OTC Bulletin Board or any registered national stock exchange, the last closing bid price for a share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin Board or in Pink Sheets, LLC or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (c) if the Common Stock is not then reported by the OTC Bulletin Board or Pink Sheets, LLC (or similar organization or agency succeeding to its functions of reporting prices), then the average of the "Pink Sheet" quotes for the applicable Trading Days preceding such date of determination, or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Independent Appraiser selected in good faith by the Majority Holders; provided, however, that the Issuer, after receipt of the determination by such Independent Appraiser, shall have the right to select an additional Independent Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period.  The determination of fair market value by an Independent Appraiser shall be based upon the fair market value of the Issuer determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties.  In determining the fair market value of any shares of Common Stock, no consideration shall be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights.

"Purchase Agreement" means the Series D Convertible Preferred Stock Purchase Agreement dated as of June 13, 2007, among the Issuer and the Purchasers.

"Purchasers" means the purchasers of the Series D Convertible Preferred Stock and the Warrants issued by the Issuer pursuant to the Purchase Agreement.

"Securities" means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security.  "Security" means one of the Securities.

"Securities Act" means the Securities Act of 1933, as amended, or any similar federal statute then in effect.

"Subsidiary" means any corporation at least 50% of whose outstanding Voting Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

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"Term" has the meaning specified in Section 1 hereof.

"Trading Day" means (a) a day on which the Common Stock is quoted on the OTC Bulletin Board, or (b) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by Pink Sheets, LLC (or any similar organization or agency succeeding its functions of reporting prices); provided, however, that in the event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

"Voting Stock" means, as applied to the Capital Stock of any corporation, Capital Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board (or other governing body) of such corporation, other than Capital Stock having such power only by reason of the happening of a contingency.

"Warrants" means the Warrants issued and sold pursuant to the Purchase Agreement, including, without limitation, this Warrant, and any other warrants of like tenor issued in substitution or exchange for any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants.

"Warrant Price" initially means $0.90, as such price may be adjusted from time to time in accordance with the adjustments specified in this Warrant, including Section 4 hereto.

"Warrant Share Number" means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased upon exercise of this Warrant, after giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof.

"Warrant Stock" means Common Stock issuable upon exercise of any Warrant or Warrants or otherwise issuable pursuant to any Warrant or Warrants.

9. Other Notices.  In case at any time:

(A) the Issuer shall make any distributions to the holders of Common Stock; or

(B) the Issuer shall authorize the granting to all holders of its Common Stock of rights to subscribe for or purchase any shares of Capital Stock of any class or other rights; or

(C) there shall be any reclassification of the Capital Stock of the Issuer; or

(D) there shall be any capital reorganization by the Issuer; or

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(E) there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer's property, assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Capital Stock shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or other disposition involving a wholly-owned Subsidiary); or

(F) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Stock;

then, in each of such cases, the Issuer shall give written notice to the Holder of the date on which (i) the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place.  Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be.  Such notice shall be given at least twenty (20) days prior to the action in question and not less than ten (10) days prior to the record date or the date on which the Issuer's transfer books are closed in respect thereto.  This Warrant entitles the Holder to receive copies of all financial and other information distributed or required to be distributed to the holders of the Common Stock.

10.Amendment and Waiver.  Any term, covenant, agreement or condition in this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance), by a written instrument or written instruments executed by the Issuer and the Majority Holders; provided, however, that no such amendment or waiver shall reduce the Warrant Share Number, increase the Warrant Price, shorten the period during which this Warrant may be exercised or modify any provision of this Section 10 without the consent of the Holder of this Warrant.  No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of this Warrant unless the same consideration is also offered to all holders of the Warrants.

11.Governing Law; Jurisdiction.  This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction.  This Warrant shall not be interpreted or construed with any presumption against the party causing this Warrant to be drafted.  The Issuer and the Holder agree that venue for any dispute arising under this Warrant will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue.  The Issuer and the Holder irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York.  The Issuer and the Holder consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing in this Section 12 shall affect or limit any right to serve process in any other manner permitted by law.  The Issuer and the Holder hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Warrant or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party.  The parties hereby waive all rights to a trial by jury.

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12.Notices.  Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or delivery by telecopy, e-mail or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Issuer:

BPO Management Services, Inc.

1290 N.  Hancock, Ste 200

Anaheim, CA 92807

Attention: Chief Executive Officer

Tel.  No.: (714) 974-2670

Fax No.: (714) 974-4771

E-mail: patrick.dolan@bpoms.com

with copies (which copies shall not constitute notice) to:

Bryan Cave LLP

3161 Michelson Drive, Suite 1500

Irvine, CA 92612

Attention: Randolf W.  Katz, Esq.

Tel.  No.: (949) 223-7103

Fax No.: (949) 223-7100

E-mail: rwkatz@bryancavellp.com

and

Cornman & Swartz

19800 MacArthur Blvd., Suite 820

Irvine, CA 92612

Attention: Jack T.  Cornman, Esq.

Tel.  No.: (949) 224-1500

Fax No.: (949) 224-1505

If to any Holder: At the address of such Holder set forth on Exhibit A to the Purchase Agreement or as specified in writing by such Holder with copies to:

Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto.

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13.Warrant Agent.  The Issuer may, by written notice to each Holder of this Warrant, appoint an agent having an office in New York, New York for the purpose of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

14.Remedies.  The Issuer stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

15.Successors and Assigns.  This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Stock.

16.Modification and Severability.  If, in any action before any court or agency legally empowered to enforce any provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency.  If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein.

17.Headings.  The headings of the Sections of this Warrant are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Issuer has executed this Amended and Restated Series A Warrant as of the day and year first above written.

BPO MANAGEMENT SERVICES, INC.

By:       ____________________________

Name:

Title: 

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EXERCISE FORM

AMENDED AND RESTATED SERIES A WARRANT

BPO MANAGEMENT SERVICES, INC.

The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of BPO Management Services, Inc.  covered by the within Warrant.

Dated: _________________

Signature       ________________________________

Address         ________________________________

                        ________________________________    

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: _________________________

The undersigned is an “accredited investor” as defined in Regulation D under the Securities Act of 1933, as amended.

The undersigned intends that payment of the Warrant Price shall be made as (check one):

Cash Exercise_______

Cashless Exercise_______

If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by certified or official bank check (or via wire transfer) to the Issuer in accordance with the terms of the Warrant.

If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole number portion of the product of the calculation set forth below, which is ___________.  The Issuer shall pay a cash adjustment in respect of the fractional portion of the product of the calculation set forth below in an amount equal to the product of the fractional portion of such product and the Per Share Market Value on the date of exercise, which product is ____________.

X = Y - (A)(Y)

                 B

Where:

The number of shares of Common Stock to be issued to the Holder __________________(“X”).

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The number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised ___________________________ (“Y”).

The Warrant Price ______________ (“A”).

The Per Share Market Value of one share of Common Stock _______________________ (“B”).

ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.

Dated: _________________

Signature       ________________________________

Address         ________________________________

                        ________________________________    

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.

Dated: _________________

Signature       ________________________________

Address         ________________________________

                        ________________________________    

FOR USE BY THE ISSUER ONLY:

This Warrant No.  W-___ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No.  W-_____ issued for ____ shares of Common Stock in the name of _______________.

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Exhibit B

THIS AMENDED AND RESTATED WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

AMENDED AND RESTATED SERIES B WARRANT TO PURCHASE

SHARES OF COMMON STOCK

OF

BPO MANAGEMENT SERVICES, INC.

Expires June 13, 2012

No.: W-B-07- __ Number of Shares: ___________

Date of Issuance: June 13, 2007

FOR VALUE RECEIVED, the undersigned, BPO Management Services, Inc., a Delaware corporation (together with its successors and assigns, the "Issuer"), hereby certifies that _______________________________ or its registered assigns is entitled to subscribe for and purchase, during the Term (as hereinafter defined), up to ____________________________________ (_____________) shares (subject to adjustment as hereinafter provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the provisions and upon the terms and conditions hereinafter set forth.  Capitalized terms used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 9 hereof.

1. Term.  The term of this Warrant shall commence on June 13, 2007 and shall expire at 6:00 p.m., eastern time, on June 13, 2012 (such period being the "Term").

2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange.

(a) Time of Exercise.  The purchase rights represented by this Warrant may be exercised in whole or in part during the Term.

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(b) Method of Exercise.  The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this Warrant (with the exercise form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder's election (i) by certified or official bank check or by wire transfer to an account designated by the Issuer, (ii) by "cashless exercise" in accordance with the provisions of subsection (c) of this Section 2, but only when a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect, or (iii) by a combination of the foregoing methods of payment selected by the Holder of this Warrant.

(c) Cashless Exercise.  Notwithstanding any provisions herein to the contrary and commencing one and a half (1.5) years following the Original Issue Date if (i) the Per Share Market Value of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below) and (ii) a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect by the date such registration statement is required to be effective pursuant to the Registration Rights Agreement (as defined in the Purchase Agreement) or not effective at any time during the Effectiveness Period (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, unless the registration statement is not effective as a result of the Issuer exercising its rights under Section 3(n) of the Registration Rights Agreement, in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed Notice of Exercise in which event the Issuer shall issue to the Holder a number of shares of Common Stock computed using the following formula:

X = Y - (A)(Y)

B

Where X = the number of shares of Common Stock to be issued to the Holder.

Y = the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised.

A = the Warrant Price.

B = the Per Share Market Value of one share of Common Stock.

(d) Issuance of Stock Certificates.  In the event of any exercise of this Warrant in accordance with and subject to the terms and conditions hereof, certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding three (3) Trading Days after such exercise (the “Delivery Date”) or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the Warrant Stock is then in effect), issued and delivered to the Depository Trust Company (“DTC”) account on the Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”)

2

within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the holder of the shares of Warrant Stock so purchased as of the date of such exercise.  Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system.  The Holder shall deliver this original Warrant, or an indemnification undertaking with respect to such Warrant in the case of its loss, theft or destruction, at such time that this Warrant is fully exercised.  With respect to partial exercises of this Warrant, the Issuer shall keep written records of the number of shares of Warrant Stock exercised as of each date of exercise.

(e) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise.  In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Stock pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Stock which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Issuer shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Warrant Stock that the Issuer was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of shares of Warrant Stock for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Issuer timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Issuer shall be required to pay the Holder $1,000.  The Holder shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Issuer.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Issuer’s failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof.

(f) Transferability of Warrant.  Subject to Section 2(h) hereof, this Warrant may be transferred by a Holder, in whole or in part, without the consent of the Issuer.  If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer.  This Warrant is exchangeable at the principal office of the Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange.  All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant thereto.

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(g) Continuing Rights of Holder.  The Issuer will, at the time of or at any time after each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.

(h) Compliance with Securities Laws.

(i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws.

(ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of Warrant Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form:

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

(iii) The Issuer agrees to reissue this Warrant or certificates representing any of the Warrant Stock, without the legend set forth above if at such time, prior to making any transfer of any such securities, the Holder shall give written notice to the Issuer describing the manner and terms of such transfer.  Such proposed transfer will not be effected until: (a) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that the registration of such securities under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Issuer with the Securities and Exchange Commission and has become effective under the Securities Act and the Holder has represented that the Warrant Stock has been or will be sold, (iii) the

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Issuer has received other evidence reasonably satisfactory to the Issuer that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the Holder provides the Issuer with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that registration or qualification under the securities or "blue sky" laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or "blue sky" laws has been effected or a valid exemption exists with respect thereto.  The Issuer will respond to any such notice from a holder within five (5) Trading Days.  In the case of any proposed transfer under this Section 2(h), the Issuer will use reasonable efforts to comply with any such applicable state securities or "blue sky" laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or “blue sky” laws of any state for which registration by coordination is unavailable to the Issuer.  The restrictions on transfer contained in this Section 2(h) shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Warrant.  Whenever a certificate representing the Warrant Stock is required to be issued to a the Holder without a legend, in lieu of delivering physical certificates representing the Warrant Stock, the Issuer shall use its reasonable best efforts to cause its transfer agent to electronically transmit the Warrant Stock to the Holder by crediting the account of the Holder's Prime Broker with DTC through its DWAC system (to the extent not inconsistent with any provisions of this Warrant or the Purchase Agreement).  Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system.

(i) Accredited Investor Status.  In no event may the Holder exercise this Warrant in whole or in part unless the Holder is then an “accredited investor” as defined in Regulation D under the Securities Act.

3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.

(a) Stock Fully Paid.  The Issuer represents, warrants, covenants and agrees that all shares of Warrant Stock which may be issued upon the exercise of this Warrant or otherwise hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by or through the Issuer.  The Issuer further covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of issuance upon exercise of this Warrant a number of shares of Common Stock equal to at least one hundred twenty percent (120%) of the aggregate number of shares of Common Stock issuable upon exercise of this Warrant.

(b) Reservation.  If any shares of Common Stock required to be reserved for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with any governmental authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to cause such shares to be duly registered or qualified.  If the Issuer shall list any shares of Common Stock on any securities exchange or market it will, at its expense, list thereon, maintain and increase when necessary such listing, of, all shares of Warrant Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such Warrant Stock has been registered pursuant to a registration statement under the Securities Act then in effect), and, to the extent

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permissible under the applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed.  The Issuer will also so list on each securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on such securities exchange or market by the Issuer.

(c) Loss, Theft, Destruction of Warrants.  Upon receipt of evidence satisfactory to the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same number of shares of Common Stock.

4. Adjustment of Warrant Price and Number of Shares Issuable Upon Exercise.  The Warrant Price and the Warrant Share Number shall be subject to adjustment from time to time as set forth in this Section 4.  The Issuer shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set forth in Section 5.

(a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale.

(i) In case the Issuer after the Original Issue Date shall do any of the following (each, a "Triggering Event"): (a) consolidate or merge with or into any other Person and the Issuer shall not be the continuing or surviving corporation of such consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash or any other property, or (c) transfer all or substantially all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock, then, and in the case of each such Triggering Event, proper provision shall be made to the Warrant Price and the number of shares of Warrant Stock that may be purchased upon exercise of this Warrant so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof at any time after the consummation of such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive at the Warrant Price as adjusted to take into account the consummation of such Triggering Event, in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such Triggering Event, the Securities, to which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights represented by this Warrant immediately prior thereto.  Immediately upon the occurrence of a Triggering Event, the Issuer shall notify the Holder in writing of such Triggering Event and

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provide the calculations in determining the number of shares of Warrant Stock issuable upon exercise of the new warrant and the adjusted Warrant Price.  Upon the Holder’s request, the continuing or surviving corporation as a result of such Triggering Event shall issue to the Holder a new warrant of like tenor evidencing the right to purchase the adjusted number of shares of Warrant Stock and the adjusted Warrant Price pursuant to the terms and provisions of this Section 4(a)(i).  Notwithstanding the foregoing to the contrary, this Section 4(a)(i) shall only apply if the surviving entity pursuant to any such Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board.  In the event that the surviving entity pursuant to any such Triggering Event is not a public company that is registered pursuant to the Securities Exchange Act of 1934, as amended, or its common stock is not listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, then the Holder shall have the right to demand that the Issuer pay to the Holder an amount in cash equal to the value of this Warrant as of the date of the Triggering Event calculated in accordance with the Black-Scholes formula.

(ii) In the event that the Holder has elected not to exercise this Warrant prior to the consummation of a Triggering Event, so long as the surviving entity pursuant to any Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, the surviving entity and/or each Person (other than the Issuer) which may be required to deliver any Securities, upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such Holder such Securities as, in accordance with the foregoing provisions of this subsection (a), such Holder shall be entitled to receive, and the surviving entity and/or each such Person shall have similarly delivered to such Holder an opinion of counsel for the surviving entity and/or each such Person, which counsel shall be reasonably satisfactory to such Holder, or in the alternative, a written acknowledgement executed by the President or Chief Financial Officer of the Issuer, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this subsection (a)) shall be applicable to the Securities, which the surviving entity and/or each such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto.

(b) Subdivisions and Combinations.  If at any time the Issuer shall:

(i) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

(ii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder

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of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment.

(c) Other Provisions applicable to Adjustments under this Section.  The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect provided for in this Section 4:

(i) When Adjustments to Be Made.  The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment.  Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made(x) as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or (y) on the date of exercise.  For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.

(ii) Fractional Interests.  In computing ad-justments under this Section 4, fractional interests in Common Stock shall be taken into account to the near-est one one-hundredth (1/100th) of a share.

(d) Form of Warrant after Adjustments.  The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant.

5. Notice of Adjustments.  Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each adjustment.  Any dispute between the Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to a national or regional accounting firm reasonably acceptable to the Issuer and the Holder, provided that the Issuer shall have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder shall select another such firm and the Issuer shall have no such right of objection.  The firm selected by the Holder of this Warrant as provided in the preceding sentence shall be instructed to deliver a written opinion as to such matters to the Issuer and such Holder within thirty (30) days after submission to it of such dispute.  Such opinion shall be final and binding on the parties hereto.  The costs and expenses of the initial accounting firm shall be paid equally by the Issuer and the Holder and, in the case of an objection by the Issuer, the costs and expenses of the subsequent accounting firm shall be paid in full by the Issuer.

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6. Fractional Shares.  No fractional shares of Warrant Stock will be issued in connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall round the number of shares to be issued upon exercise up to the nearest whole number of shares.

7. Ownership Cap and Exercise Restriction.  Notwithstanding anything to the contrary set forth in this Warrant, at no time may a Holder of this Warrant exercise this Warrant if the number of shares of Common Stock to be issued pursuant to such exercise would exceed, when aggregated with all other shares of Common Stock owned by such Holder and its affiliates and its affiliates at such time, the number of shares of Common Stock which would result in such Holder and its affiliates beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.99% of the then issued and outstanding shares of Common Stock; provided, however, that upon a holder of this Warrant providing the Issuer with sixty-one (61) days notice (pursuant to Section 13 hereof) (the "Waiver Notice") that such Holder would like to waive this Section 7 with regard to any or all shares of Common Stock issuable upon exercise of this Warrant, this Section 7 will be of no force or effect with regard to all or a portion of the Warrant referenced in the Waiver Notice; provided, further, that this provision shall be of no further force or effect during the sixty-one (61) days immediately preceding the expiration of the term of this Warrant.  Notwithstanding the foregoing, these exercise restrictions shall not be applicable to Renaissance Capital Group, Inc.  and its affiliates (collectively, "Renn"), if Renn so notifies the Issuer (either in writing or by email) prior to the date of issuance of the securities to which this paragraph is applicable.

8. Definitions.  For the purposes of this Warrant, the following terms have the following meanings:

 “Board" shall mean the Board of Directors of the Issuer.

"Capital Stock" means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type.

"Certificate of Designation" means the Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.

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"Certificate of Incorporation" means the Certificate of Incorporation of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.

"Common Stock" means the Common Stock, $0.01 par value per share, of the Issuer and any other Capital Stock into which such stock may hereafter be changed.

"Governmental Authority" means any governmental, regulatory or self-regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign.

"Holders" mean the Persons who shall from time to time own any Warrant.  The term "Holder" means one of the Holders.

"Independent Appraiser" means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant.

"Issuer" means BPO Management Services, Inc., a Delaware corporation, and its successors.

"Majority Holders" means at any time the Holders of Warrants exercisable for a majority of the shares of Warrant Stock issuable under the then-outstanding Warrants.

"Original Issue Date" means June 13, 2007.

"OTC Bulletin Board" means the over-the-counter electronic bulletin board.

"Other Common" means any other Capital Stock of the Issuer of any class which shall be authorized at any time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount.

“Outstanding Common Stock” means, at any given time, the aggregate amount of outstanding shares of Common Stock, assuming full exercise, conversion or exchange (as applicable) of all options, warrants and other Securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that are outstanding at such time.

"Person" means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature.

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"Per Share Market Value" means on any particular date (a) the last closing bid price per share of the Common Stock on such date on the OTC Bulletin Board or a registered national stock exchange on which the Common Stock is then listed, or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date, or (b) if the Common Stock is not quoted or listed then on the OTC Bulletin Board or any registered national stock exchange, the last closing bid price for a share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin Board or in Pink Sheets, LLC or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (c) if the Common Stock is not then reported by the OTC Bulletin Board or Pink Sheets, LLC (or similar organization or agency succeeding to its functions of reporting prices), then the average of the "Pink Sheet" quotes for the applicable Trading Days preceding such date of determination, or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Independent Appraiser selected in good faith by the Majority Holders; provided, however, that the Issuer, after receipt of the determination by such Independent Appraiser, shall have the right to select an additional Independent Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period.  The determination of fair market value by an Independent Appraiser shall be based upon the fair market value of the Issuer determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties.  In determining the fair market value of any shares of Common Stock, no consideration shall be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights.

"Purchase Agreement" means the Series D Convertible Preferred Stock Purchase Agreement dated as of June 13, 2007, among the Issuer and the Purchasers.

"Purchasers" means the purchasers of the Series D Convertible Preferred Stock and the Warrants issued by the Issuer pursuant to the Purchase Agreement.

"Securities" means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security.  "Security" means one of the Securities.

"Securities Act" means the Securities Act of 1933, as amended, or any similar federal statute then in effect.

"Subsidiary" means any corporation at least 50% of whose outstanding Voting Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

"Term" has the meaning specified in Section 1 hereof.

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"Trading Day" means (a) a day on which the Common Stock is quoted on the OTC Bulletin Board, or (b) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by Pink Sheets, LLC (or any similar organization or agency succeeding its functions of reporting prices); provided, however, that in the event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

"Voting Stock" means, as applied to the Capital Stock of any corporation, Capital Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board (or other governing body) of such corporation, other than Capital Stock having such power only by reason of the happening of a contingency.

"Warrants" means the Warrants issued and sold pursuant to the Purchase Agreement, including, without limitation, this Warrant, and any other warrants of like tenor issued in substitution or exchange for any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants.

"Warrant Price" initially means $1.25, as such price may be adjusted from time to time in accordance with the adjustments specified in this Warrant, including Section 4 hereto.

"Warrant Share Number" means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased upon exercise of this Warrant, after giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof.

"Warrant Stock" means Common Stock issuable upon exercise of any Warrant or Warrants or otherwise issuable pursuant to any Warrant or Warrants.

9. Other Notices.  In case at any time:

(A) the Issuer shall make any distributions to the holders of Common Stock; or

(B) the Issuer shall authorize the granting to all holders of its Common Stock of rights to subscribe for or purchase any shares of Capital Stock of any class or other rights; or

(C) there shall be any reclassification of the Capital Stock of the Issuer; or

(D) there shall be any capital reorganization by the Issuer; or

(E) there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer's property, assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Capital Stock shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or other disposition involving a wholly-owned Subsidiary); or

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(F) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Stock;

then, in each of such cases, the Issuer shall give written notice to the Holder of the date on which (i) the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place.  Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be.  Such notice shall be given at least twenty (20) days prior to the action in question and not less than ten (10) days prior to the record date or the date on which the Issuer's transfer books are closed in respect thereto.  This Warrant entitles the Holder to receive copies of all financial and other information distributed or required to be distributed to the holders of the Common Stock.

10. Amendment and Waiver.  Any term, covenant, agreement or condition in this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written instrument or written instruments executed by the Issuer and the Majority Holders; provided, however, that no such amendment or waiver shall reduce the Warrant Share Number, increase the Warrant Price, shorten the period during which this Warrant may be exercised or modify any provision of this Section 10 without the consent of the Holder of this Warrant.  No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of this Warrant unless the same consideration is also offered to all holders of the Warrants.

11. Governing Law; Jurisdiction.  This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction.  This Warrant shall not be interpreted or construed with any presumption against the party causing this Warrant to be drafted.  The Issuer and the Holder agree that venue for any dispute arising under this Warrant will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue.  The Issuer and the Holder irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York.  The Issuer and the Holder consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing in this Section 12 shall affect or limit any right to serve process in any other manner permitted by law.  The Issuer and the Holder hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Warrant or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party.  The parties hereby waive all rights to a trial by jury.

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12. Notices.  Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or delivery by telecopy, e-mail or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Issuer: BPO Management Services, Inc. 1290 N.  Hancock, Ste 200 Anaheim, CA 92807 Attention: Chief Executive Officer Tel.  No.: (714) 974-2670 Fax No.: (714) 974-4771 E-mail: patrick.dolan@bpoms.com

with copies (which copies shall not constitute notice) to:

	Bryan Cave LLP 3161 Michelson Drive, Suite 1500 Irvine, CA 92612 Attention: Randolf W.  Katz, Esq. Tel.  No.: (949) 223-7103 Fax No.: (949) 223-7100 E-mail: rwkatz@bryancavellp.com
and
	Cornman & Swartz 19800 MacArthur Blvd., Suite 820 Irvine, CA 92612 Attention: Jack T.  Cornman, Esq. Tel.  No.: (949) 224-1500 Fax No.: (949) 224-1505

If to any Holder: At the address of such Holder set forth on Exhibit A to the Purchase Agreement or as specified in writing by such Holder with copies to:

Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto.

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13. Warrant Agent.  The Issuer may, by written notice to each Holder of this Warrant, appoint an agent having an office in New York, New York for the purpose of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

14. Remedies.  The Issuer stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

15. Successors and Assigns.  This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Stock.

16. Modification and Severability.  If, in any action before any court or agency legally empowered to enforce any provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency.  If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein.

17. Headings.  The headings of the Sections of this Warrant are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Issuer has executed this Amended and Restated Series B Warrant as of the day and year first above written.

BPO MANAGEMENT SERVICES, INC.

By:___________________________

Name:

Title:

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EXERCISE FORM

SERIES B WARRANT

BPO MANAGEMENT SERVICES, INC.

The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of BPO Management Services, Inc.  covered by the within Warrant.

Dated: _________________

Signature   _________________________

Address     _________________________

_________________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: ______________

The undersigned is an “accredited investor” as defined in Regulation D under the Securities Act of 1933, as amended.

The undersigned intends that payment of the Warrant Price shall be made as (check one):

Cash Exercise_______

Cashless Exercise_______

If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by certified or official bank check (or via wire transfer) to the Issuer in accordance with the terms of the Warrant.

If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole number portion of the product of the calculation set forth below, which is ___________.  The Issuer shall pay a cash adjustment in respect of the fractional portion of the product of the calculation set forth below in an amount equal to the product of the fractional portion of such product and the Per Share Market Value on the date of exercise, which product is ____________.

X = Y - (A)(Y)

B

Where:

The number of shares of Common Stock to be issued to the Holder __________________(“X”).

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The number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised ___________________________ (“Y”).

The Warrant Price ______________ (“A”).

The Per Share Market Value of one share of Common Stock _______________________ (“B”).

ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.

Dated: _________________

Signature   _________________________

Address     _________________________

_________________________

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.

Dated: _________________

Signature   _________________________

Address     _________________________

_________________________

FOR USE BY THE ISSUER ONLY:

This Warrant No.  W-___ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No.  W-_____ issued for ____ shares of Common Stock in the name of _______________.

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Exhibit C

THIS AMENDED AND RESTATED WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

AMENDED AND RESTATED SERIES C WARRANT TO PURCHASE

SHARES OF COMMON STOCK

OF

BPO MANAGEMENT SERVICES, INC.

Expires June 13, 2010

No.: W-C-07- __	Number of Shares: ___________
Date of Issuance: June 13, 2007

FOR VALUE RECEIVED, the undersigned, BPO Management Services, Inc., a Delaware corporation (together with its successors and assigns, the "Issuer"), hereby certifies that _______________________________ or its registered assigns is entitled to subscribe for and purchase, during the Term (as hereinafter defined), up to ____________________________________ (_____________) shares (subject to adjustment as hereinafter provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the provisions and upon the terms and conditions hereinafter set forth.  Capitalized terms used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 9 hereof.

1. Term.  The term of this Warrant shall commence on June 13, 2007 and shall expire at 6:00 p.m., eastern time, on June 13, 2010 (such period being the "Term").

2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange.

(a) Time of Exercise.  The purchase rights represented by this Warrant may be exercised in whole or in part during the Term for such number of shares of Common Stock equal to fifty percent (50%) of the number of shares of Common Stock issuable upon conversion of the shares of preferred stock of the Issuer that have been exercised by the Holder pursuant to the Series J Warrant granted by the Issuer to the Holder pursuant to the Purchase Agreement.

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(b) Method of Exercise.  The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this Warrant (with the exercise form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder's election (i) by certified or official bank check or by wire transfer to an account designated by the Issuer, (ii) by "cashless exercise" in accordance with the provisions of subsection (c) of this Section 2, but only when a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect, or (iii) by a combination of the foregoing methods of payment selected by the Holder of this Warrant.

(c) Cashless Exercise.  Notwithstanding any provisions herein to the contrary and commencing one and a half (1.5) years following the Original Issue Date if (i) the Per Share Market Value of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below) and (ii) a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect by the date such registration statement is required to be effective pursuant to the Registration Rights Agreement (as defined in the Purchase Agreement) or not effective at any time during the Effectiveness Period (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, unless the registration statement is not effective as a result of the Issuer exercising its rights under Section 3(n) of the Registration Rights Agreement, in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed Notice of Exercise in which event the Issuer shall issue to the Holder a number of shares of Common Stock computed using the following formula:

X = Y - (A)(Y)

                                  B

Where	X =	the number of shares of Common Stock to be issued to the Holder.
	Y =	the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised.
	A =	the Warrant Price.
	B =	the Per Share Market Value of one share of Common Stock.

(d) Issuance of Stock Certificates.  In the event of any exercise of this Warrant in accordance with and subject to the terms and conditions hereof, certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding three (3) Trading Days after such exercise (the “Delivery Date”) or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the Warrant Stock is then in effect), issued and delivered to the Depository Trust Company (“DTC”) account on the Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the holder of the shares of Warrant

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Stock so purchased as of the date of such exercise.  Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system.  The Holder shall deliver this original Warrant, or an indemnification undertaking with respect to such Warrant in the case of its loss, theft or destruction, at such time that this Warrant is fully exercised.  With respect to partial exercises of this Warrant, the Issuer shall keep written records of the number of shares of Warrant Stock exercised as of each date of exercise.

(e) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise.  In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Stock pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Stock which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Issuer shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Warrant Stock that the Issuer was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of shares of Warrant Stock for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Issuer timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Issuer shall be required to pay the Holder $1,000.  The Holder shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Issuer.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Issuer’s failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof.

(f) Transferability of Warrant.  Subject to Section 2(h) hereof, this Warrant may be transferred by a Holder, in whole or in part, without the consent of the Issuer.  If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer.  This Warrant is exchangeable at the principal office of the Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange.  All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant thereto.

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(g) Continuing Rights of Holder.  The Issuer will, at the time of or at any time after each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.

(h) Compliance with Securities Laws.

(i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws.

(ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of Warrant Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form:

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

(iii)The Issuer agrees to reissue this Warrant or certificates representing any of the Warrant Stock, without the legend set forth above if at such time, prior to making any transfer of any such securities, the Holder shall give written notice to the Issuer describing the manner and terms of such transfer.  Such proposed transfer will not be effected until: (a) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that the registration of such securities under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Issuer with the Securities and Exchange Commission and has become effective under the Securities Act and the Holder has represented that the Warrant Stock has been or will be sold, (iii) the Issuer has received other evidence reasonably satisfactory to the Issuer that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the Holder provides the Issuer with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that registration or qualification under the securities or "blue sky" laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or "blue sky" laws has been effected or a valid exemption exists with respect thereto.  The Issuer will

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respond to any such notice from a holder within five (5) Trading Days.  In the case of any proposed transfer under this Section 2(h), the Issuer will use reasonable efforts to comply with any such applicable state securities or "blue sky" laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or “blue sky” laws of any state for which registration by coordination is unavailable to the Issuer.  The restrictions on transfer contained in this Section 2(h) shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Warrant.  Whenever a certificate representing the Warrant Stock is required to be issued to a the Holder without a legend, in lieu of delivering physical certificates representing the Warrant Stock, the Issuer shall use its reasonable best efforts to cause its transfer agent to electronically transmit the Warrant Stock to the Holder by crediting the account of the Holder's Prime Broker with DTC through its DWAC system (to the extent not inconsistent with any provisions of this Warrant or the Purchase Agreement).  Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system.

(i) Accredited Investor Status.  In no event may the Holder exercise this Warrant in whole or in part unless the Holder is then an “accredited investor” as defined in Regulation D under the Securities Act.

3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.

(a) Stock Fully Paid.  The Issuer represents, warrants, covenants and agrees that all shares of Warrant Stock which may be issued upon the exercise of this Warrant or otherwise hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by or through the Issuer.  The Issuer further covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of issuance upon exercise of this Warrant a number of shares of Common Stock equal to at least one hundred twenty percent (120%) of the aggregate number of shares of Common Stock issuable upon exercise of this Warrant.

(b) Reservation.  If any shares of Common Stock required to be reserved for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with any governmental authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to cause such shares to be duly registered or qualified.  If the Issuer shall list any shares of Common Stock on any securities exchange or market it will, at its expense, list thereon, maintain and increase when necessary such listing, of, all shares of Warrant Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such Warrant Stock has been registered pursuant to a registration statement under the Securities Act then in effect), and, to the extent permissible under the applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed.  The Issuer will also so list on each securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on such securities exchange or market by the Issuer.

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(c) Covenants.  The Issuer shall not by any action including, without limitation, amending the Certificate of Incorporation or the by-laws of the Issuer, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder hereof against dilution (to the extent specifically provided herein) or impairment.  Without limiting the generality of the foregoing, the Issuer will (i) not permit the par value, if any, of its Common Stock to exceed the then effective Warrant Price, (ii) not amend or modify any provision of the Certificate of Incorporation or by-laws of the Issuer in any manner that would adversely affect the rights of the Holders of the Warrants, (iii) take all such action as may be reasonably necessary in order that the Issuer may validly and legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this Warrant, and (iv) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be reasonably necessary to enable the Issuer to perform its obligations under this Warrant.

(d) Loss, Theft, Destruction of Warrants.  Upon receipt of evidence satisfactory to the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same number of shares of Common Stock.

4. Adjustment of Warrant Price and Number of Shares Issuable Upon Exercise.  The Warrant Price and the Warrant Share Number shall be subject to adjustment from time to time as set forth in this Section 4.  The Issuer shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set forth in Section 5.

(a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale.

(i) In case the Issuer after the Original Issue Date shall do any of the following (each, a "Triggering Event"): (a) consolidate or merge with or into any other Person and the Issuer shall not be the continuing or surviving corporation of such consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash or any other property, or (c) transfer all or substantially all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock, then, and in the case of each such Triggering Event, proper provision shall be made to the Warrant Price and the number of shares of Warrant Stock that may be purchased upon exercise of this Warrant so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof at any time after the consummation of such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive at the Warrant Price as adjusted to take into account the consummation of such Triggering Event, in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such Triggering Event, the Securities to which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights represented by this Warrant immediately prior thereto.  Immediately upon the occurrence of a Triggering Event, the Issuer shall notify the Holder in writing of such Triggering Event and

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provide the calculations in determining the number of shares of Warrant Stock issuable upon exercise of the new warrant and the adjusted Warrant Price.  Upon the Holder’s request, the continuing or surviving corporation as a result of such Triggering Event shall issue to the Holder a new warrant of like tenor evidencing the right to purchase the adjusted number of shares of Warrant Stock and the adjusted Warrant Price pursuant to the terms and provisions of this Section 4(a)(i).  Notwithstanding the foregoing to the contrary, this Section 4(a)(i) shall only apply if the surviving entity pursuant to any such Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board.  In the event that the surviving entity pursuant to any such Triggering Event is not a public company that is registered pursuant to the Securities Exchange Act of 1934, as amended, or its common stock is not listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, then the Holder shall have the right to demand that the Issuer pay to the Holder an amount in cash equal to the value of this Warrant as of the date of the Triggering Event calculated in accordance with the Black-Scholes formula.

(ii) In the event that the Holder has elected not to exercise this Warrant prior to the consummation of a Triggering Event, so long as the surviving entity pursuant to any Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, the surviving entity and/or each Person (other than the Issuer) which may be required to deliver any Securities upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such Holder such Securities as, in accordance with the foregoing provisions of this subsection (a), such Holder shall be entitled to receive, and the surviving entity and/or each such Person shall have similarly delivered to such Holder an opinion of counsel for the surviving entity and/or each such Person, which counsel shall be reasonably satisfactory to such Holder, or in the alternative, a written acknowledgement executed by the President or Chief Financial Officer of the Issuer, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this subsection (a)) shall be applicable to the Securities which the surviving entity and/or each such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto.

(b) Subdivisions and Combinations.  If at any time the Issuer shall:

(i) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

(ii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment.

(c) Other Provisions applicable to Adjustments under this Section.  The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect provided for in this Section 4:

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(i) When Adjustments to Be Made.  The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment.  Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made(x) as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or (y) on the date of exercise.  For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.

(ii) Fractional Interests.  In computing ad-justments under this Section 4, fractional interests in Common Stock shall be taken into account to the near-est one one-hundredth (1/100th) of a share.

(d) Form of Warrant after Adjustments.  The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant.

5. Notice of Adjustments.  Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each adjustment.  Any dispute between the Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to a national or regional accounting firm reasonably acceptable to the Issuer and the Holder, provided that the Issuer shall have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder shall select another such firm and the Issuer shall have no such right of objection.  The firm selected by the Holder of this Warrant as provided in the preceding sentence shall be instructed to deliver a written opinion as to such matters to the Issuer and such Holder within thirty (30) days after submission to it of such dispute.  Such opinion shall be final and binding on the parties hereto.  The costs and expenses of the initial accounting firm shall be paid equally by the Issuer and the Holder and, in the case of an objection by the Issuer, the costs and expenses of the subsequent accounting firm shall be paid in full by the Issuer.

6. Fractional Shares.  No fractional shares of Warrant Stock will be issued in connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall round the number of shares to be issued upon exercise up to the nearest whole number of shares.

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7. Ownership Cap and Exercise Restriction.  Notwithstanding anything to the contrary set forth in this Warrant, at no time may a Holder of this Warrant exercise this Warrant if the number of shares of Common Stock to be issued pursuant to such exercise would exceed, when aggregated with all other shares of Common Stock owned by such Holder and its affiliates at such time, the number of shares of Common Stock which would result in such Holder and its affiliates beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.99% of the then issued and outstanding shares of Common Stock; provided, however, that upon a holder of this Warrant providing the Issuer with sixty-one (61) days notice (pursuant to Section 13 hereof) (the "Waiver Notice") that such Holder would like to waive this Section 7 with regard to any or all shares of Common Stock issuable upon exercise of this Warrant, this Section 7 will be of no force or effect with regard to all or a portion of the Warrant referenced in the Waiver Notice; provided, further, that this provision shall be of no further force or effect during the sixty-one (61) days immediately preceding the expiration of the term of this Warrant.  Notwithstanding the foregoing, these exercise restrictions shall not be applicable to Renaissance Capital Group, Inc.  and its affiliates (collectively, "Renn"), if Renn so notifies the Issuer (either in writing or by email) prior to the date of issuance of the securities to which this paragraph is applicable.

8. Definitions.  For the purposes of this Warrant, the following terms have the following meanings:

“Board" shall mean the Board of Directors of the Issuer.

"Capital Stock" means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type.

"Certificate of Designation" means the Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.

"Certificate of Incorporation" means the Certificate of Incorporation of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.

"Common Stock" means the Common Stock, $0.01 par value per share, of the Issuer and any other Capital Stock into which such stock may hereafter be changed.

"Governmental Authority" means any governmental, regulatory or self-regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign.

"Holders" mean the Persons who shall from time to time own any Warrant.  The term "Holder" means one of the Holders.

"Independent Appraiser" means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant.

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"Issuer" means BPO Management Services, Inc., a Delaware corporation, and its successors.

"Majority Holders" means at any time the Holders of Warrants exercisable for a majority of the shares of Warrant Stock issuable under the then-outstanding Warrants.

"Original Issue Date" means June 13, 2007.

"OTC Bulletin Board" means the over-the-counter electronic bulletin board.

"Other Common" means any other Capital Stock of the Issuer of any class which shall be authorized at any time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount.

“Outstanding Common Stock” means, at any given time, the aggregate amount of outstanding shares of Common Stock, assuming full exercise, conversion or exchange (as applicable) of all options, warrants and other Securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that are outstanding at such time.

"Person" means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature.

"Per Share Market Value" means on any particular date (a) the last closing bid price per share of the Common Stock on such date on the OTC Bulletin Board or a registered national stock exchange on which the Common Stock is then listed, or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date, or (b) if the Common Stock is not quoted or listed then on the OTC Bulletin Board or any registered national stock exchange, the last closing bid price for a share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin Board or in Pink Sheets, LLC or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (c) if the Common Stock is not then reported by the OTC Bulletin Board or Pink Sheets, LLC (or similar organization or agency succeeding to its functions of reporting prices), then the average of the "Pink Sheet" quotes for the applicable Trading Days preceding such date of determination, or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Independent Appraiser selected in good faith by the Majority Holders; provided, however, that the Issuer, after receipt of the determination by such Independent Appraiser, shall have the right to select an additional Independent Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period.  The determination of fair market value by an Independent Appraiser shall be based upon the fair market value of the Issuer determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties.  In determining the fair market value of any shares of Common Stock, no consideration shall be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights.

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"Purchase Agreement" means the Series D Convertible Preferred Stock Purchase Agreement dated as of June 13, 2007, among the Issuer and the Purchasers.

"Purchasers" means the purchasers of the Series D Convertible Preferred Stock and the Warrants issued by the Issuer pursuant to the Purchase Agreement.

"Securities" means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security.  "Security" means one of the Securities.

"Securities Act" means the Securities Act of 1933, as amended, or any similar federal statute then in effect.

"Subsidiary" means any corporation at least 50% of whose outstanding Voting Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

"Term" has the meaning specified in Section 1 hereof.

"Trading Day" means (a) a day on which the Common Stock is quoted on the OTC Bulletin Board, or (b) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by Pink Sheets, LLC (or any similar organization or agency succeeding its functions of reporting prices); provided, however, that in the event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

"Voting Stock" means, as applied to the Capital Stock of any corporation, Capital Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board (or other governing body) of such corporation, other than Capital Stock having such power only by reason of the happening of a contingency.

"Warrants" means the Warrants issued and sold pursuant to the Purchase Agreement, including, without limitation, this Warrant, and any other warrants of like tenor issued in substitution or exchange for any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants.

"Warrant Price" initially means $1.35, as such price may be adjusted from time to time in accordance with the adjustments specified in this Warrant, including Section 4 hereto.

"Warrant Share Number" means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased upon exercise of this Warrant, after giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof.

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"Warrant Stock" means Common Stock issuable upon exercise of any Warrant or Warrants or otherwise issuable pursuant to any Warrant or Warrants.

9. Other Notices.  In case at any time:

(A) the Issuer shall make any distributions to the holders of Common Stock; or

(B) the Issuer shall authorize the granting to all holders of its Common Stock of rights to subscribe for or purchase any shares of Capital Stock of any class or other rights; or

(C) there shall be any reclassification of the Capital Stock of the Issuer; or

(D) there shall be any capital reorganization by the Issuer; or

(E) there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer's property, assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Capital Stock shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or other disposition involving a wholly-owned Subsidiary); or

(F) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Stock;

then, in each of such cases, the Issuer shall give written notice to the Holder of the date on which (i) the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place.  Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be.  Such notice shall be given at least twenty (20) days prior to the action in question and not less than ten (10) days prior to the record date or the date on which the Issuer's transfer books are closed in respect thereto.  This Warrant entitles the Holder to receive copies of all financial and other information distributed or required to be distributed to the holders of the Common Stock.

10.Amendment and Waiver.  Any term, covenant, agreement or condition in this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written instrument or written instruments executed by the Issuer and the Majority Holders; provided, however, that no such amendment or waiver shall reduce the Warrant Share Number, increase the Warrant Price, shorten the period during which this Warrant may be exercised or modify any provision of this Section 10 without the consent of the Holder of this Warrant.  No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of this Warrant unless the same consideration is also offered to all holders of the Warrants.

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11.Governing Law; Jurisdiction.  This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction.  This Warrant shall not be interpreted or construed with any presumption against the party causing this Warrant to be drafted.  The Issuer and the Holder agree that venue for any dispute arising under this Warrant will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue.  The Issuer and the Holder irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York.  The Issuer and the Holder consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing in this Section 12 shall affect or limit any right to serve process in any other manner permitted by law.  The Issuer and the Holder hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Warrant or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party.  The parties hereby waive all rights to a trial by jury.

12.Notices.  Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or delivery by telecopy, e-mail or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Issuer:

BPO Management Services, Inc.

1290 N.  Hancock, Ste 200

Anaheim, CA 92807

Attention: Chief Executive Officer

Tel.  No.: (714) 974-2670

Fax No.: (714) 974-4771

E-mail: patrick.dolan@bpoms.com

with copies (which copies shall not constitute notice) to:

Bryan Cave LLP

3161 Michelson Drive, Suite 1500

Irvine, CA 92612

Attention: Randolf W.  Katz, Esq.

Tel.  No.: (949) 223-7103

Fax No.: (949) 223-7100

E-mail: rwkatz@bryancavellp.com

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and

Cornman & Swartz

19800 MacArthur Blvd., Suite 820

Irvine, CA 92612

Attention: Jack T.  Cornman, Esq.

Tel.  No.: (949) 224-1500

Fax No.: (949) 224-1505

If to any Holder: At the address of such Holder set forth on Exhibit A to the Purchase Agreement or as specified in writing by such Holder with copies to:

Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto.

13. Warrant Agent.  The Issuer may, by written notice to each Holder of this Warrant, appoint an agent having an office in New York, New York for the purpose of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

14. Remedies.  The Issuer stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

15. Successors and Assigns.  This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Stock.

16. Modification and Severability.  If, in any action before any court or agency legally empowered to enforce any provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency.  If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein.

17. Headings.  The headings of the Sections of this Warrant are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Issuer has executed this Amended and Restated Series A Warrant as of the day and year first above written.

BPO MANAGEMENT SERVICES, INC.

By:      ____________________________

Name:

Title: 

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EXERCISE FORM

SERIES C WARRANT

BPO MANAGEMENT SERVICES, INC.

The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of BPO Management Services, Inc.  covered by the within Warrant.

Dated: _________________

Signature   ______________________________________________     

Address     ________________________________________

               ________________________________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: _________________________

The undersigned is an “accredited investor” as defined in Regulation D under the Securities Act of 1933, as amended.

The undersigned intends that payment of the Warrant Price shall be made as (check one):

Cash Exercise_______

Cashless Exercise_______

If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by certified or official bank check (or via wire transfer) to the Issuer in accordance with the terms of the Warrant.

If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole number portion of the product of the calculation set forth below, which is ___________.  The Issuer shall pay a cash adjustment in respect of the fractional portion of the product of the calculation set forth below in an amount equal to the product of the fractional portion of such product and the Per Share Market Value on the date of exercise, which product is ____________.

X = Y - (A)(Y)

                  B

Where:

The number of shares of Common Stock to be issued to the Holder __________________(“X”).

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The number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised ___________________________ (“Y”).

The Warrant Price ______________ (“A”).

The Per Share Market Value of one share of Common Stock _______________________ (“B”).

ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.

Dated: _________________

Signature   ______________________________________________     

Address     ________________________________________

               ________________________________________

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.

Dated: _________________

Signature   ______________________________________________     

Address     ________________________________________

               ________________________________________

FOR USE BY THE ISSUER ONLY:

This Warrant No.  W-___ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No.  W-_____ issued for ____ shares of Common Stock in the name of _______________.

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Exhibit D

THIS AMENDED AND RESTATED WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

AMENDED AND RESTATED SERIES D WARRANT TO PURCHASE

SHARES OF COMMON STOCK

OF

BPO MANAGEMENT SERVICES, INC.

Expires June 13, 2012

No.: W-D-07- __	Number of Shares: 1,041,667
Date of Issuance: June 13, 2007

FOR VALUE RECEIVED, the undersigned, BPO Management Services, Inc., a Delaware corporation (together with its successors and assigns, the "Issuer"), hereby certifies that US Special Opportunities Trust PLC or its registered assigns is entitled to subscribe for and purchase, during the Term (as hereinafter defined), up to One Million Forty-One Thousand Six Hundred Sixty-Seven (1,041,667) shares (subject to adjustment as hereinafter provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the provisions and upon the terms and conditions hereinafter set forth.  Capitalized terms used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 9 hereof.

1. Term.  The term of this Warrant shall commence on June 13, 2007 and shall expire at 6:00 p.m., eastern time, on June 13, 2012 (such period being the "Term").

2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange.

(a) Time of Exercise.  The purchase rights represented by this Warrant may be exercised in whole or in part during the Term for such number of shares of Common Stock equal to one hundred percent (100%) of the number of shares of Common Stock issuable upon conversion of the shares of preferred stock of the Issuer that have been exercised by the Holder pursuant to the Series J Warrant granted by the Issuer to the Holder pursuant to the Purchase Agreement.

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(b) Method of Exercise.  The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this Warrant (with the exercise form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder's election (i) by certified or official bank check or by wire transfer to an account designated by the Issuer, (ii) by "cashless exercise" in accordance with the provisions of subsection (c) of this Section 2, but only when a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect, or (iii) by a combination of the foregoing methods of payment selected by the Holder of this Warrant.

(c) Cashless Exercise.  Notwithstanding any provisions herein to the contrary and commencing one and a half (1.5) years following the Original Issue Date if (i) the Per Share Market Value of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below) and (ii) a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect by the date such registration statement is required to be effective pursuant to the Registration Rights Agreement (as defined in the Purchase Agreement) or not effective at any time during the Effectiveness Period (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, unless the registration statement is not effective as a result of the Issuer exercising its rights under Section 3(n) of the Registration Rights Agreement, in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed Notice of Exercise in which event the Issuer shall issue to the Holder a number of shares of Common Stock computed using the following formula:

X = Y - (A)(Y)

                                 B

Where	X =	the number of shares of Common Stock to be issued to the Holder.
	Y =	the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised.
	A =	the Warrant Price.
	B =	the Per Share Market Value of one share of Common Stock.

(d) Issuance of Stock Certificates.  In the event of any exercise of this Warrant in accordance with and subject to the terms and conditions hereof, certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding three (3) Trading Days after such exercise (the “Delivery Date”) or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the Warrant Stock is then in effect), issued and delivered to the Depository Trust Company (“DTC”) account on the Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the holder of the shares of Warrant

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Stock so purchased as of the date of such exercise.  Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system.  The Holder shall deliver this original Warrant, or an indemnification undertaking with respect to such Warrant in the case of its loss, theft or destruction, at such time that this Warrant is fully exercised.  With respect to partial exercises of this Warrant, the Issuer shall keep written records of the number of shares of Warrant Stock exercised as of each date of exercise.

(e) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise.  In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Stock pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Stock which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Issuer shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Warrant Stock that the Issuer was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of shares of Warrant Stock for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Issuer timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Issuer shall be required to pay the Holder $1,000.  The Holder shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Issuer.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Issuer’s failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof.

(f) Transferability of Warrant.  Subject to Section 2(h) hereof, this Warrant may be transferred by a Holder, in whole or in part, without the consent of the Issuer.  If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer.  This Warrant is exchangeable at the principal office of the Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange.  All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant thereto.

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(g) Continuing Rights of Holder.  The Issuer will, at the time of or at any time after each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.

(h) Compliance with Securities Laws.

(i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws.

(ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of Warrant Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form:

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

(iii)The Issuer agrees to reissue this Warrant or certificates representing any of the Warrant Stock, without the legend set forth above if at such time, prior to making any transfer of any such securities, the Holder shall give written notice to the Issuer describing the manner and terms of such transfer.  Such proposed transfer will not be effected until: (a) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that the registration of such securities under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Issuer with the Securities and Exchange Commission and has become effective under the Securities Act and the Holder has represented that the Warrant Stock has been or will be sold, (iii) the Issuer has received other evidence reasonably satisfactory to the Issuer that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the Holder provides the Issuer with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that registration or qualification under the securities or "blue sky" laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or "blue sky" laws has been effected or a valid exemption exists with respect thereto.  The Issuer will

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respond to any such notice from a holder within five (5) Trading Days.  In the case of any proposed transfer under this Section 2(h), the Issuer will use reasonable efforts to comply with any such applicable state securities or "blue sky" laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or “blue sky” laws of any state for which registration by coordination is unavailable to the Issuer.  The restrictions on transfer contained in this Section 2(h) shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Warrant.  Whenever a certificate representing the Warrant Stock is required to be issued to a the Holder without a legend, in lieu of delivering physical certificates representing the Warrant Stock, the Issuer shall use its reasonable best efforts to cause its transfer agent to electronically transmit the Warrant Stock to the Holder by crediting the account of the Holder's Prime Broker with DTC through its DWAC system (to the extent not inconsistent with any provisions of this Warrant or the Purchase Agreement).  Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system.

(i) Accredited Investor Status.  In no event may the Holder exercise this Warrant in whole or in part unless the Holder is then an “accredited investor” as defined in Regulation D under the Securities Act.

3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.

(a) Stock Fully Paid.  The Issuer represents, warrants, covenants and agrees that all shares of Warrant Stock which may be issued upon the exercise of this Warrant or otherwise hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by or through the Issuer.  The Issuer further covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of issuance upon exercise of this Warrant a number of shares of Common Stock equal to at least one hundred twenty percent (120%) of the aggregate number of shares of Common Stock issuable upon exercise of this Warrant.

(b) Reservation.  If any shares of Common Stock required to be reserved for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with any governmental authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to cause such shares to be duly registered or qualified.  If the Issuer shall list any shares of Common Stock on any securities exchange or market it will, at its expense, list thereon, maintain and increase when necessary such listing, of, all shares of Warrant Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such Warrant Stock has been registered pursuant to a registration statement under the Securities Act then in effect), and, to the extent permissible under the applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed.  The Issuer will also so list on each securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on such securities exchange or market by the Issuer.

(c) Loss, Theft, Destruction of Warrants.  Upon receipt of evidence satisfactory to the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same number of shares of Common Stock.

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4. Adjustment of Warrant Price and Number of Shares Issuable Upon Exercise.  The Warrant Price and the Warrant Share Number shall be subject to adjustment from time to time as set forth in this Section 4.  The Issuer shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set forth in Section 5.

(a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale.

(i) In case the Issuer after the Original Issue Date shall do any of the following (each, a "Triggering Event"): (a) consolidate or merge with or into any other Person and the Issuer shall not be the continuing or surviving corporation of such consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash or any other property, or (c) transfer all or substantially all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock, then, and in the case of each such Triggering Event, proper provision shall be made to the Warrant Price and the number of shares of Warrant Stock that may be purchased upon exercise of this Warrant so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof at any time after the consummation of such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive at the Warrant Price as adjusted to take into account the consummation of such Triggering Event, in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such Triggering Event, the Securities, to which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights represented by this Warrant immediately prior thereto.  Immediately upon the occurrence of a Triggering Event, the Issuer shall notify the Holder in writing of such Triggering Event and provide the calculations in determining the number of shares of Warrant Stock issuable upon exercise of the new warrant and the adjusted Warrant Price.  Upon the Holder’s request, the continuing or surviving corporation as a result of such Triggering Event shall issue to the Holder a new warrant of like tenor evidencing the right to purchase the adjusted number of shares of Warrant Stock and the adjusted Warrant Price pursuant to the terms and provisions of this Section 4(a)(i).  Notwithstanding the foregoing to the contrary, this Section 4(a)(i) shall only apply if the surviving entity pursuant to any such Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board.  In the event that the surviving entity pursuant to any such Triggering Event is not a public company that is registered pursuant to the Securities Exchange Act of 1934, as amended, or its common stock is not listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, then the Holder shall have the right to demand that the Issuer pay to the Holder an amount in cash equal to the value of this Warrant as of the date of the Triggering Event calculated in accordance with the Black-Scholes formula.

(ii) In the event that the Holder has elected not to exercise this Warrant prior to the consummation of a Triggering Event, so long as the surviving entity pursuant to any Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, the surviving entity and/or each Person (other than the Issuer) which may be required to deliver any Securities, upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such Holder such Securitiesas, in accordance with the foregoing provisions of this subsection (a), such Holder shall be entitled to receive, and the surviving entity and/or each such Person shall have similarly delivered

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to such Holder an opinion of counsel for the surviving entity and/or each such Person, which counsel shall be reasonably satisfactory to such Holder, or in the alternative, a written acknowledgement executed by the President or Chief Financial Officer of the Issuer, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this subsection (a)) shall be applicable to the Securities which the surviving entity and/or each such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto.

(b) Subdivisions and Combinations.  If at any time the Issuer shall:

(i) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

(ii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment.

(c) Other Provisions applicable to Adjustments under this Section.  The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect provided for in this Section 4:

(i) When Adjustments to Be Made.  The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment.  Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made(x) as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or (y) on the date of exercise.  For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.

(ii) Fractional Interests.  In computing ad-justments under this Section 4, fractional interests in Common Stock shall be taken into account to the near-est one one-hundredth (1/100th) of a share.

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(d) Form of Warrant after Adjustments.  The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant.

5. Notice of Adjustments.  Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each adjustment.  Any dispute between the Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to a national or regional accounting firm reasonably acceptable to the Issuer and the Holder, provided that the Issuer shall have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder shall select another such firm and the Issuer shall have no such right of objection.  The firm selected by the Holder of this Warrant as provided in the preceding sentence shall be instructed to deliver a written opinion as to such matters to the Issuer and such Holder within thirty (30) days after submission to it of such dispute.  Such opinion shall be final and binding on the parties hereto.  The costs and expenses of the initial accounting firm shall be paid equally by the Issuer and the Holder and, in the case of an objection by the Issuer, the costs and expenses of the subsequent accounting firm shall be paid in full by the Issuer.

6. Fractional Shares.  No fractional shares of Warrant Stock will be issued in connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall round the number of shares to be issued upon exercise up to the nearest whole number of shares.

7. Ownership Cap and Exercise Restriction.  Notwithstanding anything to the contrary set forth in this Warrant, at no time may a Holder of this Warrant exercise this Warrant if the number of shares of Common Stock to be issued pursuant to such exercise would exceed, when aggregated with all other shares of Common Stock owned by such Holder and its affiliates at such time, the number of shares of Common Stock which would result in such Holder and its affiliates beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.99% of the then issued and outstanding shares of Common Stock; provided, however, that upon a holder of this Warrant providing the Issuer with sixty-one (61) days notice (pursuant to Section 13 hereof) (the "Waiver Notice") that such Holder would like to waive this Section 7 with regard to any or all shares of Common Stock issuable upon exercise of this Warrant, this Section 7 will be of no force or effect with regard to all or a portion of the Warrant referenced in the Waiver Notice; provided, further, that this provision shall be of no further force or effect during the sixty-one (61) days immediately preceding the expiration of the term of this Warrant.  Notwithstanding the foregoing, these exercise restrictions shall not be applicable to Renaissance Capital Group, Inc.  and its affiliates (collectively, "Renn"), if Renn so notifies the Issuer (either in writing or by email) prior to the date of issuance of the securities to which this paragraph is applicable.

8. Definitions.  For the purposes of this Warrant, the following terms have the following meanings:

“Board" shall mean the Board of Directors of the Issuer.

"Capital Stock" means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type.

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"Certificate of Designation" means the Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.

"Certificate of Incorporation" means the Certificate of Incorporation of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.

"Common Stock" means the Common Stock, $0.01 par value per share, of the Issuer and any other Capital Stock into which such stock may hereafter be changed.

"Governmental Authority" means any governmental, regulatory or self-regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign.

"Holders" mean the Persons who shall from time to time own any Warrant.  The term "Holder" means one of the Holders.

"Independent Appraiser" means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant.

"Issuer" means BPO Management Services, Inc., a Delaware corporation, and its successors.

"Majority Holders" means at any time the Holders of Warrants exercisable for a majority of the shares of Warrant Stock issuable under the then-outstanding Warrants.

"Original Issue Date" means June 13, 2007.

"OTC Bulletin Board" means the over-the-counter electronic bulletin board.

"Other Common" means any other Capital Stock of the Issuer of any class which shall be authorized at any time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount.

“Outstanding Common Stock” means, at any given time, the aggregate amount of outstanding shares of Common Stock, assuming full exercise, conversion or exchange (as applicable) of all options, warrants and other Securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that are outstanding at such time.

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"Person" means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature.

"Per Share Market Value" means on any particular date (a) the last closing bid price per share of the Common Stock on such date on the OTC Bulletin Board or a registered national stock exchange on which the Common Stock is then listed, or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date, or (b) if the Common Stock is not quoted or listed then on the OTC Bulletin Board or any registered national stock exchange, the last closing bid price for a share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin Board or in Pink Sheets, LLC or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (c) if the Common Stock is not then reported by the OTC Bulletin Board or Pink Sheets, LLC (or similar organization or agency succeeding to its functions of reporting prices), then the average of the "Pink Sheet" quotes for the applicable Trading Days preceding such date of determination, or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Independent Appraiser selected in good faith by the Majority Holders; provided, however, that the Issuer, after receipt of the determination by such Independent Appraiser, shall have the right to select an additional Independent Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period.  The determination of fair market value by an Independent Appraiser shall be based upon the fair market value of the Issuer determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties.  In determining the fair market value of any shares of Common Stock, no consideration shall be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights.

"Purchase Agreement" means the Series D Convertible Preferred Stock Purchase Agreement dated as of June 13, 2007, among the Issuer and the Purchasers.

"Purchasers" means the purchasers of the Series D Convertible Preferred Stock and the Warrants issued by the Issuer pursuant to the Purchase Agreement.

"Securities" means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security.  "Security" means one of the Securities.

"Securities Act" means the Securities Act of 1933, as amended, or any similar federal statute then in effect.

"Subsidiary" means any corporation at least 50% of whose outstanding Voting Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

"Term" has the meaning specified in Section 1 hereof.

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"Trading Day" means (a) a day on which the Common Stock is quoted on the OTC Bulletin Board, or (b) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by Pink Sheets, LLC (or any similar organization or agency succeeding its functions of reporting prices); provided, however, that in the event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

"Voting Stock" means, as applied to the Capital Stock of any corporation, Capital Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board (or other governing body) of such corporation, other than Capital Stock having such power only by reason of the happening of a contingency.

"Warrants" means the Warrants issued and sold pursuant to the Purchase Agreement, including, without limitation, this Warrant, and any other warrants of like tenor issued in substitution or exchange for any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants.

"Warrant Price" initially means $1.87, as such price may be adjusted from time to time in accordance with the adjustments specified in this Warrant, including Section 4 hereto.

"Warrant Share Number" means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased upon exercise of this Warrant, after giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof.

"Warrant Stock" means Common Stock issuable upon exercise of any Warrant or Warrants or otherwise issuable pursuant to any Warrant or Warrants.

9. Other Notices.  In case at any time:

(A) the Issuer shall make any distributions to the holders of Common Stock; or

(B) the Issuer shall authorize the granting to all holders of its Common Stock of rights to subscribe for or purchase any shares of Capital Stock of any class or other rights; or

(C) there shall be any reclassification of the Capital Stock of the Issuer; or

(D) there shall be any capital reorganization by the Issuer; or

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(E) there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer's property, assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Capital Stock shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or other disposition involving a wholly-owned Subsidiary); or

(F) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Stock;

then, in each of such cases, the Issuer shall give written notice to the Holder of the date on which (i) the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place.  Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be.  Such notice shall be given at least twenty (20) days prior to the action in question and not less than ten (10) days prior to the record date or the date on which the Issuer's transfer books are closed in respect thereto.  This Warrant entitles the Holder to receive copies of all financial and other information distributed or required to be distributed to the holders of the Common Stock.

10.Amendment and Waiver.  Any term, covenant, agreement or condition in this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written instrument or written instruments executed by the Issuer and the Majority Holders; provided, however, that no such amendment or waiver shall reduce the Warrant Share Number, increase the Warrant Price, shorten the period during which this Warrant may be exercised or modify any provision of this Section 10 without the consent of the Holder of this Warrant.  No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of this Warrant unless the same consideration is also offered to all holders of the Warrants.

11.Governing Law; Jurisdiction.  This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction.  This Warrant shall not be interpreted or construed with any presumption against the party causing this Warrant to be drafted.  The Issuer and the Holder agree that venue for any dispute arising under this Warrant will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue.  The Issuer and the Holder irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York.  The Issuer and the Holder consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing in this Section 12 shall affect or limit any right to serve process in any other manner permitted by law.  The Issuer and the Holder hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Warrant or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party.  The parties hereby waive all rights to a trial by jury.

12

12.Notices.  Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or delivery by telecopy, e-mail or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Issuer:

BPO Management Services, Inc.

1290 N.  Hancock, Ste 200

Anaheim, CA 92807

Attention: Chief Executive Officer

Tel.  No.: (714) 974-2670

Fax No.: (714) 974-4771

E-mail: patrick.dolan@bpoms.com

with copies (which copies shall not constitute notice) to:

Bryan Cave LLP

3161 Michelson Drive, Suite 1500

Irvine, CA 92612

Attention: Randolf W.  Katz, Esq.

Tel.  No.: (949) 223-7103

Fax No.: (949) 223-7100

E-mail: rwkatz@bryancavellp.com

and

Cornman & Swartz

19800 MacArthur Blvd., Suite 820

Irvine, CA 92612

Attention: Jack T.  Cornman, Esq.

Tel.  No.: (949) 224-1500

Fax No.: (949) 224-1505

If to any Holder: At the address of such Holder set forth on Exhibit A to the Purchase Agreement or as specified in writing by such Holder with copies to:

13

Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto.

13. Warrant Agent.  The Issuer may, by written notice to each Holder of this Warrant, appoint an agent having an office in New York, New York for the purpose of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

14. Remedies.  The Issuer stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

15. Successors and Assigns.  This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Stock.

16. Modification and Severability.  If, in any action before any court or agency legally empowered to enforce any provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency.  If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein.

17. Headings.  The headings of the Sections of this Warrant are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

14

IN WITNESS WHEREOF, the Issuer has executed this Amended and Restated Series A Warrant as of the day and year first above written.

BPO MANAGEMENT SERVICES, INC.

By:        __________________________     

Name:

Title: 

15

EXERCISE FORM

SERIES D WARRANT

BPO MANAGEMENT SERVICES, INC.

The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of BPO Management Services, Inc.  covered by the within Warrant.

Dated: _________________

Signature       ________________________________________         

Address       ___________________________________

                  ___________________________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: _________________________

The undersigned is an “accredited investor” as defined in Regulation D under the Securities Act of 1933, as amended.

The undersigned intends that payment of the Warrant Price shall be made as (check one):

Cash Exercise_______

Cashless Exercise_______

If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by certified or official bank check (or via wire transfer) to the Issuer in accordance with the terms of the Warrant.

If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole number portion of the product of the calculation set forth below, which is ___________.  The Issuer shall pay a cash adjustment in respect of the fractional portion of the product of the calculation set forth below in an amount equal to the product of the fractional portion of such product and the Per Share Market Value on the date of exercise, which product is ____________.

X = Y - (A)(Y)

                  B

Where:

The number of shares of Common Stock to be issued to the Holder __________________(“X”).

16

The number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised ___________________________ (“Y”).

The Warrant Price ______________ (“A”).

The Per Share Market Value of one share of Common Stock _______________________ (“B”).

ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.

Dated: _________________

Signature       ________________________________________         

Address       ___________________________________

                  ___________________________________

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.

Dated: _________________

Signature       ________________________________________         

Address       ___________________________________

                  ___________________________________

FOR USE BY THE ISSUER ONLY:

This Warrant No.  W-___ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No.  W-_____ issued for ____ shares of Common Stock in the name of _______________.

17

 

EX-10.73

EXHIBIT 10.73

SECOND THIRD AMENDMENT TO

SERIES D CONVERTIBLE STOCK PURCHASE AGREEMENT

NOTE:  Scrivener’s error in the title to, and references in, this document.  Document no. 373488.1 is the correct, properly entitled Second Amendment to that certain Series D Convertible Preferred Stock Purchase Agreement, which was dated as of June 13, 2007, and previously amended.  This document is the Third Amendment to such Agreement and all references to the “Second Amendment” herein shall be deemed corrected to read “Third Amendment.”

SECOND AMENDMENT TO SERIES D CONVERTIBLE STOCK PURCHASE AGREEMENT

This Second Amendment, dated as of August 29, 2008 (the “Second Amendment”), is to that certain Series D Convertible Preferred Stock Purchase Agreement, which was dated as of June 13, 2007, and amended on August 29, 2008, by and among BPO Management Services, Inc. (the “Company”), and the purchasers listed on the signature pages hereto (the “Purchasers”).  The Company and the Purchasers are, together, the “Parties.”

RECITALS

WHEREAS, the Parties entered into that certain Series D Convertible Preferred Stock Purchase Agreement, dated June 13, 2007 (the “Stock Purchase Agreement”), pursuant to which the Purchasers purchased shares of the Company’s Series D Convertible Preferred Stock and warrants to purchase shares of the Company’s Series D-2 Convertible Preferred Stock and Common Stock;

WHEREAS, the Parties entered into that certain Amendment to Series D Convertible Stock Purchase Agreement , dated August 29, 2008 (the “First Amendment”), pursuant to which Section 9.15 of the Stock Purchase Agreement was amended to increase the number of shares of the Company’s common stock underlying permitted options;

WHEREAS, the Company anticipates that it will enter into a business combination transaction with Healthaxis Inc., a Pennsylvania corporation (“Healthaxis”), as a result of which the Company will become a wholly-owned subsidiary of Healthaxis and which transaction will be accounted as a reverse takeover (the “Potential Healthaxis Transaction”);

WHEREAS, one of the conditions to the closing of the Potential Healthaxis Transaction is the elimination of any and all duties or obligations of the Company under the Stock Purchase Agreement;

WHEREAS, the Company and the Purchasers and their permitted assigns whose signatures appear hereinbelow are not opposed to the closing of the Potential Healthaxis Transaction and, accordingly, desire to amend the Stock Purchase Agreement in such a manner as to eliminate any and all of the Company’s duties or obligations thereunder and to eliminate any and all rights of the other parties thereto;

WHEREAS, to effectuate such elimination, the Parties desire to delete in its entirety each and every provision of the Stock Purchase Agreement and the First Amendment such that (i) it shall be of no further force or effect, (ii) the Company shall no longer have any duties or obligations thereunder, (iii) the other parties thereto shall no longer have any rights thereunder, and (iv) thereafter, none of the Parties shall be deemed to be bound thereby; and

WHEREAS, the Company and certain of the Purchasers are parties to that certain Amended and Restated Warrant Acknowledgement dated August __, 2008 (the “Warrant Acknowledgement”), pursuant to which the parties thereto amended the “Original Warrants” referenced therein (as previously amended, the “Original Warrants”), and the Parties to this Second Amendment desire to clarify that it was their intent in the Warrant Acknowledgment to amend all of the Original Warrants.

NOW, THEREFORE, in consideration of the promises and covenants made herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

-1-

ARTICLE 1

AMENDMENT

1.           Amendment.

1.1           Subject to the provisions of Section 1.2, below, each and every provision of the Stock Purchase Agreement and the First Amendment is hereby deleted in its entirety such that (i) the Stock Purchase Agreement and the First Amendment shall have no further force or effect, (ii) the Company shall no longer have any duties or obligations thereunder, (iii) the other parties thereto shall no longer have any rights thereunder, and, henceforth, none of the Parties shall be deemed to be bound thereby.

1.2           Effectiveness.  If, as of the date hereof, the undersigned Purchasers hold at least 75% of the “Preferred Shares” referenced in the Stock Purchase Agreement and hold at least a majority of the shares issuable under the currently outstanding Original Warrants, (a) the foregoing amendment shall be effective and binding upon all of the Purchasers and their respective successors and assigns independently of whether all of the Purchasers (and their permitted assigns) have executed and delivered this Second Amendment to the Company and (b) it is hereby expressly stipulated and agreed by the undersigned Purchasers that the terms of the Warrant Acknowledgement shall be deemed to apply to, and therefore amend, all of the Original Warrants, including those Original Warrants held by any Purchaser who did not execute the Warrant Acknowledgment.  Notwithstanding the foregoing, this Second Amendment shall not become effective or deemed to become effective other than upon the closing of the Potential Healthaxis Transaction, upon which closing this Second Amendment, if executed and delivered by the Parties required to amend the Stock Purchase Agreement and the Original Warrants, shall become effective.

ARTICLE 2

MISCELLANEOUS PROVISIONS

2.           Miscellaneous Provisions.

2.1           No Further Amendments.  In the event of any inconsistency between the provisions of the Stock Purchase Agreement, the Original Warrants, the Warrant Acknowledgment, and the provisions of this Second Amendment, the provisions of this Second Amendment shall prevail.

2.2           Counterparts.  This Second Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute one and the same instrument.  Facsimiles or portable document files transmitted by e-mail containing original signatures shall be deemed for all purposes to be originally signed copies of the documents which are the subject of such facsimiles or files.

2.3           Binding on Successors.This Second Amendment shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Parties.

2.4           Entire Agreement. The Stock Purchase Agreement, as amended hereby, contains the entire understanding among the Parties and supersedes any prior written or oral agreements among them respecting the subject matter contained herein.  There are no representations, agreements, arrangements or understandings, oral or written, among the Parties relating to the subject matter hereof that are not fully expressed or otherwise referenced herein and therein.

[SIGNATURE PAGES TO FOLLOW]

-2-

IN WITNESS WHEREOF, the Parties hereto have executed or have caused a duly authorized officer to execute this Second Amendment all effective as of the day and year first above written.

THE COMPANY:

BPO MANAGEMENT SERVICES, INC.,

a Delaware corporation

By:	/s/ Patrick A. Dolan
Name:	Patrick A. Dolan
Its:	Chief Executive Officer

THE PURCHASERS:

The undersigned hereby consents to the second amendment set forth herein.

VISION OPPORTUNITY MASTER FUND, LTD.

By:	/s/ Adam Benowitz
Name:	Adam Benowitz
Its:	Director

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

By:	/s/ Russell Cleveland
	Russell Cleveland
	President

RENAISSANCE US GROWTH INVESTMENT TRUST PLC

By:	/s/ Russell Cleveland
	Russell Cleveland
	President

US SPECIAL OPPORTUNITIES TRUST PLC

By:	/s/ Russell Cleveland
	Russell Cleveland
	President

-3-

PREMIER RENN US EMERGING GROWTH FUND LTD.

By:	/s/ Russell Cleveland
	Russell Cleveland
	President

BRIDGEPOINTE MASTER FUND LTD.

By:
	Name:
	Title:

HELLER CAPITAL INVESTMENTS LLC

By:	/s/ Ronald J. Heller
	Name: Ronald J. Heller
	Title: Chief Executive Officer

-4-

EX-10.74

EXHIBIT 10.74

SERIES F CONVERTIBLE PREFERRED STOCK ISSUANCE

AGREEMENT

Dated as of August 29, 2008

among

BPO MANAGEMENT SERVICES, INC.

and

THE EXCHANGING HOLDERS LISTED ON EXHIBIT A

TABLE OF CONTENTS

			Page
ARTICLE I ISSUANCE OF PREFERRED STOCK			3
	1.1	Exchange of Warrants and Issuance of Stock	3
	1.2	Conversion Shares	3
	1.3	Exchanged Warrants and Closing	3
ARTICLE II REPRESENTATIONS AND WARRANTIES			4
	2.1	Representations and Warranties of the Company	4
	2.2	Representations and Warranties of the Exchanging Holders	8
ARTICLE III COVENANTS			11
	3.1	Securities Compliance	11
	3.2	Compliance with Laws	11
	3.3	Amendments	11
	3.4	Other Agreements	11
	3.5	Reservation of Shares	11
	3.6	Transfer Agent Instructions	12
	3.7	Disclosure of Transaction	12
	3.8	Disclosure of Material Information	12
	3.9	Pledge of Securities	13
ARTICLE IV CONDITIONS			13
	4.1	Conditions Precedent to the Obligation of the Company to Issue the Shares	13
	4.2	Conditions Precedent to the Obligation of the Exchanging Holders to Purchase the Shares	14
ARTICLE V STOCK CERTIFICATE LEGEND			15
	5.1	Legend	15
ARTICLE VI INDEMNIFICATION			16
	6.1	Company Indemnity	16
	6.2	Indemnification Procedure	16
ARTICLE VII MISCELLANEOUS			17
	7.1	Fees and Expenses	17
	7.2	Specific Enforcement, Consent to Jurisdiction	17
	7.3	Entire Agreement; Amendment	18
	7.4	Notices	18
	7.5	Waivers	19
	7.6	Headings	19
	7.7	Successors and Assigns	19
	7.8	No Third-Party Beneficiaries	19
	7.9	Governing Law	19
	7.10	Survival	19
	7.11	Counterparts	20
	7.12	Publicity	20
	7.13	Severability	20
	7.14	Further Assurances	20
	7.15	2007 Stock Incentive Plan Amendment	20

-i-

SERIES F CONVERTIBLE PREFERRED STOCK ISSUANCE AGREEMENT

This SERIES F CONVERTIBLE PREFERRED STOCK ISSUANCE AGREEMENT (the “Agreement”) is dated as of August 29, 2008 by and among BPO Management Services, Inc., a Delaware corporation (the “Company”), and each of the persons who are exchanging certain warrants for shares of Series F Convertible Preferred Stock of the Company, whose names are set forth on Exhibit A hereto (individually, an “Exchanging Holder” and collectively, the “Exchanging Holders”).

The parties hereto agree as follows:

ARTICLE I

ISSUANCE OF PREFERRED STOCK

1.1           Exchange of Warrants and Issuance of Stock.    Upon the following terms and conditions, the Company shall issue to the Exchanging Holders that number of shares of the Company’s Series F Convertible Preferred Stock, par value $0.01 per share and stated value of $4.25 per share (the “Preferred Shares”), each Preferred Share initially convertible into shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) at the Conversion Price (as defined in the Certificate of Designation (as defined below)), which Conversion Price shall initially be $0.17, subject to adjustment as set forth therein, in the amounts set forth opposite such Exchanging Holder’s name on Exhibit A hereto and, in exchange therefor, each of the Exchanging Holders shall transfer to the Company for cancellation all and not less than all of the Series A Warrants to Purchase Shares of Common Stock of the Company, Series B Warrants to Purchase Shares of Common Stock of the Company, and those Series D Warrants to Purchase Shares of Common Stock of the Company that have a current exercise price of $1.10 that are owned by such Exchanging Holders (collectively, the “Warrants”), which Warrants are presently exercisable for shares of Common Stock, in the amounts set forth opposite such Exchanging Holder’s name on Exhibit A hereto.  The designation, rights, preferences, and other terms and provisions of the Series F Convertible Preferred Stock are set forth in the Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock attached hereto as Exhibit B (the “Certificate of Designation”).  The Company and the Exchanging Holders are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded by Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”), or Section 4(2) of the Securities Act.

1.2           Conversion Shares.    The Company has authorized and, subject to an amendment of its Certificate of Designation, has reserved and covenants to continue to reserve, free of preemptive rights and other similar contractual rights of stockholders, a number of shares of Common Stock equal to one hundred twenty percent (120%) of the number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Preferred Shares then outstanding, which reservation shall be in effect not later than one year following the Closing Date and thereafter.  The Preferred Shares and the Conversion Shares are collectively referred to as the “Shares.”

1.3           Exchanged Warrants and Closing.    Subject to the terms and conditions hereof, the Company agrees to issue to the Exchanging Holders and, in consideration of and in express reliance upon the representations, warranties, covenants, terms, and conditions of this Agreement, the Exchanging Holders, severally but not jointly, agree to exchange all and not less than all of the Warrants for the Preferred Shares.  The Preferred Shares shall be issued in a single closing (the “Closing”).  The Closing shall take place not later than upon the execution of this Agreement by the minimum number of parties required to amend the Series D Convertible Stock Purchase Agreement (the “Closing Date”).  The Closing shall take place at the offices of Bryan Cave LLP, 1900 Main Street, Suite 700, Irvine, California 92614 at 10:00 a.m., California time, on such date.  Subject to the terms and conditions of this Agreement, at the Closing, (x) the Company shall deliver or cause to be delivered to each Exchanging Holder a certificate for the number of Preferred Shares as is set forth opposite the name of such Exchanging Holder on Exhibit A attached hereto, (y) each Exchanging Holder shall deliver or cause to be delivered to the Company certificates representing all and not less than all of its Warrants as is set forth opposite the name of such Exchanging Holder on Exhibit A attached hereto, and (z) each of the Company and each Exchanging Holder shall deliver or cause to be delivered to the relevant party any other documents required to be delivered pursuant to Article IV hereof.

-3-

ARTICLE II

REPRESENTATIONS AND WARRANTIES

2.1           Representations and Warranties of the Company.    The Company hereby represents and warrants to the Exchanging Holders, as of the date hereof and the Closing Date (except as set forth on the Schedule of Exceptions attached hereto with each numbered Schedule corresponding to the section number herein), as follows:

(a)           Organization, Good Standing and Power.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware  and has the requisite corporate power to own, lease and operate its properties and assets and to conduct its business as it is now being conducted.  The Company does not have any subsidiaries except as referenced in Section 2.1(g), below.  The Company and each such subsidiary is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary except for any jurisdiction(s) (alone or in the aggregate) in which the failure to be so qualified will not have a Material Adverse Effect (as defined in Section 2.1(h) hereof) on the Company’s financial condition.

(b)           Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 3.8), and the Certificate of Designation (collectively, the “Transaction Documents”) and to issue the Preferred Shares in accordance with the terms hereof.  The execution, delivery and performance of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors or stockholders is required.  This Agreement has been duly executed and delivered by the Company.  This Agreement constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership, or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.

-4-

(c)           Capitalization.  The authorized capital stock of the Company and the shares thereof issued and outstanding as of March 31, 2008 are set forth on the Company’s Quarterly Report on Form 10-Q, as filed with the United States Securities and Exchange Commission (the “Commission”) on May 20, 2008.  All of the outstanding shares of the Common Stock and the Preferred Shares have been duly and validly authorized.  The offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Closing complied with all applicable Federal and state securities laws, and no stockholder has a right of rescission or claim for damages with respect thereto.  The Company has furnished or made available to the Exchanging Holders true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (the “Certificate”), and the Company’s Bylaws as in effect on the date hereof (the “Bylaws”).

(d)           Issuance of Shares.  The Preferred Shares to be issued at the Closing have been duly authorized by all necessary corporate action and the Preferred Shares, when issued in accordance with the terms hereof, shall be validly issued and outstanding, fully paid and nonassessable and entitled to the rights and preferences set forth in the Certificate of Designation.  When the Conversion Shares are issued in accordance with the terms of the Certificate of Designation, such shares will be duly authorized by all necessary corporate action and validly issued and outstanding, fully paid and nonassessable, and the holders shall be entitled to all rights accorded to a holder of Common Stock.

(e)           No Conflicts.  The execution, delivery and performance of the Transaction Documents by the Company, the performance by the Company of its obligations under the Certificate of Designation and the consummation by the Company of the transactions contemplated herein and therein do not and will not (i) violate any provision of the Company’s Certificate or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration, or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument, or obligation to which the Company is a party or by which it or its properties or assets are bound, (iii) create or impose a lien, mortgage, security interest, charge, or encumbrance of any nature on any property of the Company under any agreement or any commitment to which the Company is a party or by which the Company is bound or by which any of its respective properties or assets are bound, or (iv) result in a violation of any federal, state, local, or foreign statute, rule, regulation, order, judgment, or decree (including Federal and state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries are bound or affected, except, in cases other than violations pursuant to clauses (i) and (iv) above, for such conflicts, defaults, terminations, amendments, accelerations, and violations as would not, individually or in the aggregate, have a Material Adverse Effect.  The business of the Company and its subsidiaries is not being conducted in violation of any laws, ordinances, or regulations of any governmental entity, except for possible violations which singularly or in the aggregate do not or will not have a Material Adverse Effect.  The Company is not required under Federal, state, or local law, rule, or regulation to obtain any consent, authorization, or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver, or perform any of its obligations under the Transaction Documents, or issue the Preferred Shares and the Conversion Shares in accordance with the terms hereof or thereof (other than any filings which may be required to be made by the Company with the Commission or state securities administrators subsequent to the Closing, or any other Transaction Document); provided that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of the Exchanging Holders herein.

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(f)           Financial Statements.  The Company’s audited financial statements for the fiscal year ended December 31, 2007 and unaudited financial statements for the fiscal quarter ended March 31, 2008 (the “Unaudited Financial Statements Date”) (such annual and quarterly financial statements are collectively referred to herein as the “Financial Statements”) have been filed with the Commission as part of the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007, and Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2008.  The Financial Statements complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the Commission promulgated thereunder, and the Financial Statements do not contain any untrue statement of a material fact or omit to state a 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.  As of their respective dates, the Financial Statements were complete and correct in all material respects and complied with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto.  Such Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the Notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial position of the Company and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

(g)           Subsidiaries.  The subsidiaries of the Company are listed on Exhibit 21 to the Company’s Annual Report on Form 10-KSB, as filed with the Commission on April 15, 2008.  For the purposes of this Agreement, “subsidiary” shall mean any corporation or other entity of which at least a majority of the securities or other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other subsidiaries.  All of the outstanding shares of capital stock of each subsidiary have been duly authorized and validly issued, and are fully paid and nonassessable.  There are no outstanding preemptive, conversion, or other rights, options, warrants, or agreements granted or issued by or binding upon any subsidiary for the purchase or acquisition of any shares of capital stock of any subsidiary or any other securities convertible into, exchangeable for, or evidencing the rights to subscribe for any shares of such capital stock.  Neither the Company nor any subsidiary is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of the capital stock of any subsidiary or any convertible securities, rights, warrants, or options of the type described in the preceding sentence.  Neither the Company nor any subsidiary is party to, nor has any knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of any subsidiary.

(h)           Material Adverse Effect.  For the purposes of this Agreement, “Material Adverse Effect” means any material adverse effect on the business, properties, assets, operations, results of operations, condition (financial or otherwise) or prospects of the Company and its subsidiaries, taken as a whole, or on the transactions contemplated hereby and the other Transaction Document or by the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to perform any of its obligations under the Transaction Documents in any material respect.

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(i)            No Undisclosed Events or Circumstances.  No event or circumstance has occurred or exists with respect to the Company or its subsidiaries or their respective businesses, properties, prospects, operations, or financial condition, which, under applicable law, rule, or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed.

(j)            Compliance with Law.  The business of the Company and the subsidiaries has been and is presently being conducted in accordance with all applicable federal, state, and local governmental laws, rules, regulations, and ordinances, except for such noncompliance that, individually or in the aggregate, would not cause a Material Adverse Effect.  The Company and each of its subsidiaries have all franchises, permits, licenses, consents, and other governmental or regulatory authorizations, and approvals necessary for the conduct of its business as now being conducted by it unless the failure to possess such franchises, permits, licenses, consents, and other governmental or regulatory authorizations and approvals, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

(k)           Certain Fees.  No brokers, finders or financial advisory fees or commissions will be payable by the Company or any subsidiary or any Exchanging Holder with respect to the transactions contemplated by this Agreement.

(l)            Disclosure.  Neither this Agreement or the Schedules hereto nor any other documents, certificates or instruments furnished to the Exchanging Holders by or on behalf of the Company or any subsidiary in connection with the transactions contemplated by this Agreement contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein or therein, in the light of the circumstances under which they were made herein or therein, not misleading.

(m)           Securities Act of 1933.  Based in part upon the representations herein of the Exchanging Holders, the Company has complied and will comply with all applicable federal and state securities laws in connection with the offer and issuance of the Shares hereunder.  Neither the Company nor anyone acting on its behalf, directly or indirectly, has or will sell, offer to sell or solicit offers to buy any of the Shares or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any person, or has taken or will take any action so as to bring the issuance and sale of any of the Shares under the registration provisions of the Securities Act and applicable state securities laws, and neither the Company nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the issuance of any of the Shares.

(n)           Governmental Approvals.  Except for the filing of any notice prior or subsequent to the Closing Date that may be required under applicable state and/or Federal securities laws (which, if required, shall be filed on a timely basis), including the filing of the Certificate of Designation with the Secretary of State for the State of Delaware, no authorization, consent, approval, license, exemption of, filing, or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic, or foreign, is or will be necessary for, or in connection with, the execution or delivery of the Preferred Shares, or for the performance by the Company of its obligations under the Transaction Documents.

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(o)           Dilutive Effect.  The Company understands and acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Shares in accordance with this Agreement and the Certificate of Designation, is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interest of other stockholders of the Company.

(p)           Independent Nature of Exchanging Holders.  The Company acknowledges that the obligations of each Exchanging Holder under the Transaction Documents are several and not joint with the obligations of any other Exchanging Holder, and no Exchanging Holder shall be responsible in any way for the performance of the obligations of any other Exchanging Holder under the Transaction Documents.  The Company acknowledges that the decision of each Exchanging Holder to purchase securities pursuant to this Agreement has been made by such Exchanging Holder independently of any other purchase and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or of its subsidiaries which may have made or given by any other Exchanging Holder or by any agent or employee of any other Exchanging Holder, and no Exchanging Holder or any of its agents or employees shall have any liability to any Exchanging Holder (or any other person) relating to or arising from any such information, materials, statements or opinions.  The Company acknowledges that nothing contained herein, or in any Transaction Document, and no action taken by any Exchanging Holder pursuant hereto or thereto, shall be deemed to constitute the Exchanging Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Exchanging Holders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Company acknowledges that each Exchanging Holder shall be entitled to protect and enforce its rights independently, including without limitation, the rights arising out of this Agreement or out of the other Transaction Document, and it shall not be necessary for any other Exchanging Holder to be joined as an additional party in any proceeding for such purpose.  The Company acknowledges that it has elected to provide all Exchanging Holders with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Exchanging Holders.  The Company acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Exchanging Holders are in any way acting in concert or as a group with respect to the Transaction Documents or the transactions contemplated hereby or thereby.

(q)           No General Solicitation; Placement Agent’s Fees.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Shares.  The Company has not engaged any placement agent or other agent in connection with the issuance of the Shares or the transactions contemplated herein.

2.2           Representations and Warranties of the Exchanging Holders.    Each of the Exchanging Holders hereby makes the following representations and warranties to the Company with respect solely to itself and not with respect to any other Exchanging Holder:

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(a)           Incorporation and Standing of the Exchanging Holders.  If the Exchanging Holder is an entity, such Exchanging Holder is a corporation, limited liability company or partnership duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation.

(b)           Authorization and Power.  Each Exchanging Holder has the requisite power and authority to enter into and perform this Agreement and to exchange the Warrants for the Preferred Shares being issued to it hereunder.  The execution, delivery and performance of this Agreement by such Exchanging Holder and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate or partnership action, and no further consent or authorization of such Exchanging Holder or its Board of Directors, stockholders, or partners, as the case may be, is required.  This Agreement has been duly authorized, executed, and delivered by such Exchanging Holder and constitutes a valid and binding obligation of the Exchanging Holder enforceable against the Exchanging Holder in accordance with the terms thereof.

(c)           No Conflicts.  The execution, delivery and performance of this Agreement and the consummation by such Exchanging Holder of the transactions contemplated hereby or relating hereto do not and will not (i) result in a violation of such Exchanging Holder’s charter documents or bylaws or other organizational documents or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or instrument or obligation to which such Exchanging Holder is a party or by which its properties or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Exchanging Holder or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a Material Adverse Effect on such Exchanging Holder).  Such Exchanging Holder is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or to exchange the Warrants for the Preferred Shares in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, such Exchanging Holder is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

(d)           Acquisition for Investment.  Each Exchanging Holder is acquiring the Preferred Shares solely for its own account, or that of its Affiliates, for the purpose of investment and not with a view to or for sale in connection with distribution.  Each Exchanging Holder does not have a present intention to sell the Preferred Shares, except to an Affiliate, nor a present arrangement (whether or not legally binding) or intention to effect any distribution of the Preferred Shares to or through any person or entity, except to an Affiliate; provided, however, that by making the representations herein and subject to Sections 2.2(h) and (k) below, such Exchanging Holder does not agree to hold the Shares for any minimum or other specific term and reserves the right to dispose of the Shares at any time in accordance with Federal and state securities laws applicable to such disposition.  Each Exchanging Holder acknowledges that it is able to bear the financial risks associated with an investment in the Preferred Shares and that it has been given full access to such records of the Company and the subsidiaries and to the officers of the Company and the subsidiaries and received such information as it has deemed necessary or appropriate to conduct its due diligence investigation and has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company’s stage of development so as to be able to evaluate the risks and merits of its exchange of the Warrants for the Preferred Shares.

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(e)           Status of Exchanging Holders.  Each Exchanging Holder is an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act.  Each Exchanging Holder has knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of purchasing the Shares.  Such Exchanging Holder is not required to be registered as a broker-dealer under Section 15 of the Exchange Act and such Exchanging Holder is not a broker-dealer.

(f)           Opportunities for Additional Information.  Each Exchanging Holder acknowledges that such Exchanging Holder has had the opportunity to ask questions of and receive answers from, or obtain additional information from, the executive officers of the Company concerning the financial and other affairs of the Company, and to the extent deemed necessary in light of such Exchanging Holder’s personal knowledge of the Company’s affairs, such Exchanging Holder has asked such questions and received answers to the full satisfaction of such Exchanging Holder, and such Exchanging Holder desires to invest in the Company.

(g)           No General Solicitation.  Each Exchanging Holder acknowledges that the Preferred Shares were not offered to such Exchanging Holder by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which such Exchanging Holder was invited by any of the foregoing means of communications.

(h)           Rule 144.  Such Exchanging Holder understands that the Shares must be held indefinitely unless such Shares are registered under the Securities Act or an exemption from registration is available.  Such Exchanging Holder acknowledges that such Exchanging Holder is familiar with Rule 144 of the rules and regulations of the Commission, as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that such person has been advised that Rule 144 permits resales only under certain circumstances.  Such Exchanging Holder understands that to the extent that Rule 144 is not available, such Exchanging Holder will be unable to sell any Shares without either registration under the Securities Act or the existence of another exemption from such registration requirement.

(i)           General.  Such Exchanging Holder understands that the Preferred Shares are being offered in exchange for the Warrants in reliance on a securities exemption from the registration requirement of Federal and state securities laws and the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments, and understandings of such Exchanging Holder set forth herein in order to determine the applicability of such exemptions and the suitability of such Exchanging Holder to acquire the Preferred Shares.

(j)           Independent Investment.  Except as may be disclosed in any filings with the Commission by the Exchanging Holders under Section 13 and/or Section 16 of the Exchange Act, no Exchanging Holder has agreed to act with any other Exchanging Holder for the purpose of acquiring, holding, voting or disposing of the Shares purchased hereunder for purposes of Section 13(d) under the Exchange Act, and each Exchanging Holder is acting independently with respect to its investment in the Shares.

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(k)           Trading Activities; No Short Sales.  Each Exchanging Holder’s trading activities with respect to the Shares shall be in compliance with all applicable federal and state securities laws.  No Exchanging Holder or any of its affiliates has an open short position in the Common Stock.  Each Exchanging Holder, whether in its own capacity or through a representative, agent, or affiliate agrees that it will not enter into or effect any “short sales” (as such term is defined in Rule 3b-3 of the Exchange Act) of the Shares or any hedging transaction, including obtaining borrow, which establishes a net short position with respect to the Shares, whether on a U.S. domestic exchange or any foreign exchange.  Additionally, each Exchanging Holder further agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales with respect to the Common Stock.

ARTICLE III

COVENANTS

The Company covenants with each of the Exchanging Holders as follows, which covenants are for the benefit of the Exchanging Holders and their permitted assignees (as defined herein).

3.1           Securities Compliance.    The Company shall notify the Commission in accordance with their rules and regulations, of the transactions contemplated by any of the Transaction Documents, including filing a Current Report on Form 8-K with respect to the transactions contemplated hereby, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Preferred Shares and the Conversion Shares to the Exchanging Holders or subsequent holders.

3.2           Compliance with Laws.    The Company shall comply, and cause each subsidiary to comply, with all applicable laws, rules, regulations, and orders, noncompliance with which could have a Material Adverse Effect.

3.3           Amendments.    Except as otherwise provided herein, the Company shall not amend or waive any provision of the Certificate or Bylaws of the Company in any way that would adversely affect the liquidation preferences, dividends rights, conversion rights, or voting rights of the Preferred Shares; provided, however, that any creation and issuance of another series of Junior Stock (as defined in the Certificate of Designation) or any other class or series of equity securities which by its terms shall rank on parity with the Preferred Shares shall not be deemed to materially and adversely affect such rights, preferences or privileges.

3.4           Other Agreements.    The Company shall not enter into any agreement in which the terms of such agreement would restrict or impair the right or ability to perform of the Company or any subsidiary under any Transaction Document.

3.5           Reservation of Shares.    From and after the first anniversary hereof and thereafter so long as any of the Preferred Shares remain outstanding, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than one hundred twenty percent (120%) the aggregate number of shares of Common Stock needed to provide for the issuance of the Conversion Shares.

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3.6           Transfer Agent Instructions.    The Company shall issue irrevocable instructions to its transfer agent, and any subsequent transfer agent, to issue certificates, registered in the name of each Exchanging Holder or its respective nominee(s), for the Conversion Shares in such amounts as specified from time to time by each Exchanging Holder to the Company upon conversion of the Preferred Shares in the form substantially similar to one previously used by the Company (the “Irrevocable Transfer Agent Instructions”).  The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 3.6 will be given by the Company to its transfer agent and that the Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement.  If an Exchanging Holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Shares may be made without registration under the Securities Act or the Exchanging Holder provides the Company with reasonable assurances that the Shares can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Exchanging Holder and without any restrictive legend.  The Company acknowledges that a breach by it of its obligations under this Section 3.6 will cause irreparable harm to the Exchanging Holders by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 3.6 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 3.6, that the Exchanging Holders shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.

3.7           Disclosure of Transaction.    The Company shall issue a press release describing the material terms of the transactions contemplated hereby (the “Press Release”) as soon as practicable after the Closing but in no event later than 9:00 A.M. Eastern Time on the first Trading Day following the Closing Date.  The Press Release shall be subject to prior review and comment by the Exchanging Holders.  “Trading Day” means any day during which the OTC Bulletin Board (or other quotation venue or principal exchange on which the Common Stock is quoted or traded) shall be open for trading.

3.8           Disclosure of Material Information.    The Company covenants and agrees that neither it nor any other person acting on its behalf has provided or will provide any Exchanging Holder or its agents or counsel with any information that the Company believes constitutes material non-public information (other than with respect to the transactions contemplated by this Agreement or information provided in the ordinary course to a member of the Board of Directors in his capacity as such), unless prior thereto such Exchanging Holder shall have executed a written agreement regarding the confidentiality and use of such information.  The Company understands and confirms that each Exchanging Holder shall be relying on the foregoing representations in effecting transactions in securities of the Company.  Notwithstanding the requirements in this Section 3.8 in the event of a breach of the foregoing covenant by the Company, any of its subsidiaries, or any of its or their respective officers, directors, employees, and agents, in addition to any other remedy provided herein or in the Transaction Documents, an Exchanging Holder shall have the right to make a public disclosure, in the form of a press release, public advertisement, or otherwise, of such material, nonpublic information without the prior approval by the Company, its subsidiaries, or any of its or their respective officers, directors, employees, or agents.  No Exchanging Holder shall have any liability to the Company, its subsidiaries, or any of its or their respective officers, directors, employees, stockholders, or agents for any such disclosure.

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3.9           Pledge of Securities.    The Company acknowledges and agrees that the Shares may be pledged by an Exchanging Holder in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Common Stock.  The pledge of Common Stock shall not be deemed to be a transfer, sale, or assignment of the Common Stock hereunder, and no Exchanging Holder effecting a pledge of Common Stock shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document; provided that an Exchanging Holder and its pledgee shall be required to comply with the provisions of Article V hereof in order to effect a sale, transfer or assignment of Common Stock to such pledgee.  At the Exchanging Holders’ expense, the Company hereby agrees to execute and deliver such documentation as a pledgee of the Common Stock may reasonably request in connection with a pledge of the Common Stock to such pledgee by an Exchanging Holder.  Notwithstanding the above, no Exchanging Holder shall permit any such pledgee, or such pledgee’s affiliates, to engage in any short sales in respect of any such pledged shares.

ARTICLE IV

CONDITIONS

4.1           Conditions Precedent to the Obligation of the Company to Issue the Shares.    The obligation hereunder of the Company to issue the Preferred Shares to the Exchanging Holders is subject to the satisfaction or waiver, at or before the Closing, of each of the conditions set forth below.  These conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion.

(a)           Accuracy of Each Exchanging Holder’s Representations and Warranties.  The representations and warranties of each Exchanging Holder shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time, except for representations and warranties that are expressly made as of a particular date, which shall be true and correct in all material respects as of such date.

(b)           Performance by the Exchanging Holders.  Each Exchanging Holder shall have performed, satisfied, and complied in all respects with all covenants, agreements, and conditions required by this Agreement to be performed, satisfied, or complied with by such Exchanging Holder at or prior to the Closing.

(c)           No Injunction.  No statute, rule, regulation, executive order, decree, ruling, or injunction shall have been enacted, entered, promulgated, or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

(d)           Delivery of the Warrants.  The Warrants have been delivered to the Company at the Closing Date.

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(e)           Delivery of Transaction Documents.  The Transaction Documents, as relevant, shall have been duly executed and delivered by the Exchanging Holders to the Company.

4.2           Conditions Precedent to the Obligation of the Exchanging Holders to Purchase the Shares.    The obligation hereunder of each Exchanging Holder to deliver the Warrants to the Company in exchange for the Preferred Shares is subject to the satisfaction or waiver, at or before the Closing, of each of the conditions set forth below.  These conditions are for each Exchanging Holder’s sole benefit and may be waived by such Exchanging Holder at any time in its sole discretion.

(a)           Accuracy of the Company’s Representations and Warranties.  Each of the representations and warranties of the Company in this Agreement shall be true and correct in all respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that are expressly made as of a particular date), which shall be true and correct in all respects as of such date.

(b)           Performance by the Company.  The Company shall have performed, satisfied, and complied in all respects with all covenants, agreements, and conditions required by this Agreement to be performed, satisfied, or complied with by the Company at or prior to the Closing.

(c)           No Injunction.  No statute, rule, regulation, executive order, decree, ruling, or injunction shall have been enacted, entered, promulgated, or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

(d)           No Proceedings or Litigation.  No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been threatened, against the Company or any subsidiary, or any of the officers, directors, or affiliates of the Company or any subsidiary seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions.

(e)           Delivery of Transaction Documents.  The Transaction Documents shall have been duly executed and, as relevant, delivered by the Company to the Exchanging Holders.

(f)           Certificate of Designation of Rights and Preferences.  Prior to the Closing, the Certificate of Designation in the form of Exhibit B attached hereto shall have been filed with the Secretary of State of the State of Delaware.

(g)           Certificates.  The Company shall have executed and delivered to the Exchanging Holders the certificates (in such denominations as such Exchanging Holder shall request) for the Preferred Shares being issued to such Exchanging Holder at the Closing (in such denominations as such Exchanging Holder shall request).

(h)           Resolutions.  The Board of Directors of the Company shall have adopted resolutions consistent with Section 2.1(b) hereof in a form reasonably acceptable to such Exchanging Holder (the “Resolutions”).

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(i)            Reservation of Shares.  Not later than one year following the Closing Date and thereafter, the Company shall reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, a number of shares of Common Stock equal to one hundred twenty percent (120%) of the aggregate number of Conversion Shares issuable upon conversion of the Preferred Shares outstanding on the Closing Date.

(j)            Material Adverse Effect.  No Material Adverse Effect shall have occurred at or before the Closing Date.

ARTICLE V

STOCK CERTIFICATE LEGEND

5.1           Legend.    Each certificate representing the Preferred Shares and the Conversion Shares, if appropriate, shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required by applicable state securities or “blue sky” laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR BPO MANAGEMENT SERVICES, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

The Company agrees to reissue certificates representing any of the Conversion Shares, without the legend set forth above if at such time, prior to making any transfer of any such securities, such holder thereof shall give written notice to the Company describing the manner and terms of such transfer and removal as the Company may reasonably request.  Such proposed transfer and removal will not be effected until:  (a) either (i) the Company has received an opinion of counsel reasonably satisfactory to the Company, to the effect that the registration of the Conversion Shares under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Company with the Commission and has become effective under the Securities Act, (iii) the Company has received other evidence reasonably satisfactory to the Company that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the holder provides the Company with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Company has received an opinion of counsel reasonably satisfactory to the Company, to the effect that registration or qualification under the securities or “blue sky” laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or “blue sky” laws has been effected or a valid exemption exists with respect thereto.  The Company will respond to any such notice from a holder within five (5) business days.  In the case of any proposed transfer under this Section 5.1, the Company will use reasonable efforts to comply with any such applicable state securities or “blue sky” laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or “blue sky” laws of any state for which registration by coordination is unavailable to the Company.  The restrictions on transfer contained in this Section 5.1 shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Agreement.  Whenever a certificate representing the Conversion Shares is required to be issued to an Exchanging Holder without a legend, in lieu of delivering physical certificates representing the Conversion Shares, the Company shall cause its transfer agent to electronically transmit the Conversion Shares or Warrant Shares to an Exchanging Holder by crediting the account of such Exchanging Holder’s Prime Broker with the Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”) system (to the extent not inconsistent with any provisions of this Agreement and provided that the provisions of Rule 144 so permit) provided that the Company and the Company’s transfer agent are participating in DTC through the DWAC system.

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ARTICLE VI

INDEMNIFICATION

6.1           Company Indemnity.    The Company agrees to indemnify and hold harmless the Exchanging Holders (and their respective directors, officers, managers, partners, members, stockholders, affiliates, agents, successors and assigns) from and against any and all losses, liabilities, deficiencies, costs, damages, and expenses (including, without limitation, reasonable attorneys’ fees, charges, and disbursements) incurred by the Exchanging Holders as a result of any inaccuracy in or breach of the representations, warranties, or covenants made by the Company herein.

6.2           Indemnification Procedure.    Any party entitled to indemnification under this Article VI (an “indemnified party”) will give written notice to the indemnifying party of any matters giving rise to a claim for indemnification; provided, that the failure of any party entitled to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Article VI except to the extent that the indemnifying party is actually prejudiced by such failure to give notice.  In case any action, proceeding or claim is brought against an indemnified party in respect of which indemnification is sought hereunder, the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment of the indemnified party a conflict of interest between it and the indemnifying party may exist with respect of such action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party.  In the event that the indemnifying party advises an indemnified party that it will contest such a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the indemnified party may, at its option, defend, settle or otherwise compromise or pay such action or claim.  In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the indemnified party’s costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder.  The indemnified party shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the indemnified party which relates to such action or claim.  The indemnifying party shall keep the indemnified party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto.  If the indemnifying party elects to defend any such action or claim, then the indemnified party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense.  The indemnifying party shall not be liable for any settlement of any action, claim, or proceeding effected without its prior written consent.  Notwithstanding anything in this Article VII to the contrary, the indemnifying party shall not, without the indemnified party’s prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the indemnified party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the indemnified party of a release from all liability in respect of such claim.  The indemnification required by this Article VI shall be made by periodic payments of the amount thereof during the course of investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred, so long as the indemnified party irrevocably agrees to refund such moneys if it is ultimately determined by a court of competent jurisdiction that such party was not entitled to indemnification.  The indemnity agreements contained herein shall be in addition to (a) any cause of action or similar rights of the indemnified party against the indemnifying party or others, and (b) any liabilities the indemnifying party may be subject to pursuant to the law.

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ARTICLE VII

MISCELLANEOUS

7.1           Fees and Expenses.    Each party shall pay the fees and expenses of its advisors, counsel, accountants, and other experts, if any, and all other expenses, incurred by such party incident to the negotiation, preparation, execution, delivery, and performance of this Agreement.

7.2           Specific Enforcement, Consent to Jurisdiction

(a)           The Company and the Exchanging Holders acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement or the other Transaction Document were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.

(b)           Each of the Company and the Exchanging Holders (i) hereby irrevocably submits to the jurisdiction of the United States District Court sitting in the Southern District of New York and the courts of the State of New York located in New York county for the purposes of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Transaction Document or the transactions contemplated hereby or thereby and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.  Each of the Company and the Exchanging Holders consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing in this Section 9.2 shall affect or limit any right to serve process in any other manner permitted by law.

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7.3           Entire Agreement; Amendment.    This Agreement and the Transaction Documents contain the entire understanding and agreement of the parties with respect to the matters covered hereby and, except as specifically set forth herein or in the Transaction Documents, neither the Company nor any of the Exchanging Holders makes any representations, warranty, covenant, or undertaking with respect to such matters and they supersede all prior understandings and agreements with respect to said subject matter, all of which are merged herein.  No provision of this Agreement may be waived or amended other than by a written instrument signed by the Company and the holders of at least seventy-five percent (75%) of the Preferred Shares then outstanding, and no provision hereof may be waived other than by an a written instrument signed by the party against whom enforcement of any such amendment or waiver is sought.  No such amendment shall be effective to the extent that it applies to less than all of the holders of the Preferred Shares then outstanding.  No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents or holders of Preferred Shares, as the case may be.

7.4           Notices.    Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or delivery by telex (with correct answer back received), e-mail or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:

If to the Company:	BPO Management Services, Inc. 1290 N. Hancock, Ste 202 Anaheim, CA  92807 Attention: Chief Executive Officer Tel. No.:  (714) 974-2670 Fax No.:  (714) 974-4771 E-mail:  patrick.dolan@bpoms.com
with copies to (which copy shall not constitute notice):	Bryan Cave LLP 1900 Main Street, Suite 700 Irvine, CA  92614 Attention: Randolf W. Katz, Esq. Tel. No.:  (949) 223-7103 Fax No.:  (949) 223-7100 E-mail: rwkatz@bryancave.com

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and:
	Cornman & Swartz 19800 MacArthur Blvd., Suite 820 Irvine, CA  92612 Attention: Jack T. Cornman, Esq. Tel. No.:  (949) 224-1500 Fax No.:  (949) 224-1505
If to any Exchanging Holder:	At the address of such Exchanging Holder set forth on Exhibit A to this Agreement, with copies to Exchanging Holder’s counsel as set forth on Exhibit A or as specified in writing by such Exchanging Holder
with copies to (which copy shall not constitute notice):

Any party hereto may from time to time change its address for notices by giving at least ten (10) days’ written notice of such changed address to the other party hereto.

7.5           Waivers.    No waiver by either party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter.

7.6           Headings.    The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof.

7.7           Successors and Assigns.    This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.

7.8           No Third-Party Beneficiaries.    This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

7.9           Governing Law.    This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction.  This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted.

7.10         Survival.    The representations and warranties of the Company and the Exchanging Holders shall survive the execution and delivery hereof and the Closing until the second anniversary of the Closing Date, except the agreements and covenants set forth in Articles I, III, V, VI, and VII of this Agreement shall survive the execution and delivery hereof and the Closing hereunder, provided, that the covenants set forth in Article III of this Agreement which contain a term shall so survive only until expiration of said term.

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7.11         Counterparts.    This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

7.12         Publicity.    The Company agrees that it will not disclose, and will not include in any public announcement, the name of the Exchanging Holders without the consent of the Exchanging Holders unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement.

7.13         Severability.    The provisions of this Agreement and the Transaction Documents are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement or the Transaction Documents shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision or part of a provision of this Agreement or the Transaction Documents and such provision shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible.

7.14         Further Assurances.    From and after the date of this Agreement, upon the request of any Exchanging Holder or the Company, each of the Company and the Exchanging Holders shall execute and deliver such instrument, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement and the Certificate of Designation.

7.15         2007 Stock Incentive Plan Amendment.    The Exchanging Holders hereby acknowledge and agree that the Company shall have the right to amend the 2007 Stock Incentive Plan (the “Plan”), if unanimously approved by the Board of Directors for the benefit of the current and future management of the Company and its subsidiaries pursuant to which up to Twelve Million Three Hundred Sixty-six Thousand Six Hundred Sixty-seven (12,366,667) shares of Common Stock may be issued, provided that options to purchase up to an aggregate Eight Million Three Hundred Thirty-three Thousand Three Hundred Thirty-four (8,333,334) shares of the Common Stock available for issuance under the Plan shall be granted (including options to purchase Common Stock) to Patrick Dolan and James Cortens.  The vesting provisions of stock options pursuant to the Plan shall be on terms no more favorable than the Company’s vesting provisions for awards of stock options under its 2007 Stock Incentive Plan.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officer as of the date first above written.

BPO MANAGEMENT SERVICES, INC.

By: /s/ Patrick A. Dolan

  Name: Patrick A. Dolan

  Title: Chief Executive Officer

VISION OPPORTUNITY MASTER FUND, LTD.

By: /s/ Adam Benowitz

  Name: Adam Benowitz

  Title: Director

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

By: /s/ Russell Cleveland

  Russell Cleveland

  President

RENAISSANCE US GROWTH INVESTMENT TRUST PLC

By: /s/ Russell Cleveland

  Russell Cleveland

  President

US SPECIAL OPPORTUNITIES TRUST PLC

By:  /s/ Russell Cleveland

 Russell Cleveland

 President

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PREMIER RENN US EMERGING GROWTH FUND LTD.

By: /s/ Russell Cleveland

  Russell Cleveland

  President

BRIDGEPOINTE MASTER FUND LTD.

By:  

  Name:

  Title:

HELLER CAPITAL INVESTMENTS LLC

By: /s/ Ronald J. Heller

  Name: Ronald J. Heller

  Title: Chief Executive Officer

EXHIBIT A to the

SERIES F CONVERTIBLE PREFERRED STOCK ISSUANCE AGREEMENT FOR

BPO MANAGEMENT SERVICES, INC.

Legal Entity Name and Address of Exchanging Holder	Number of Preferred Shares Issued	Number and Class of Warrants Exchanged
VISION OPPORTUNITY MASTER FUND, LTD.
20 W. 55th Street, 5th floor	145,057	A-Warrant	5,666,667
New York, NY 10019	226,667	B-Warrant	11,333,334
Tel: Fax: 212-867-1416	164,267	D-Warrant	7,333,334
Attn:  Adam Benowitz and Antti Uusiheimala	536,001
E-mail: adam@visicap.com & antti@visicap.com
RENAISSANCE US GROWTH INVESTMENT TRUST PLC (“RUSGIT”)
Frost National Bank	26,667	A-Warrant	1,041,667
100 W. Houston Street	41,667	B-Warrant	2,083,334
ATTN: Henri Domingues T-8	23,334	D-Warrant	1,041,667
San Antonio, TX 78205	91,668		4,166,668
Contact for docs: Eric Stephens
Tel: (214) 891-8046/ Fax:
Email: estephens@rencapital.com
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. (“RENN3”)
Frost National Bank	21,334	A-Warrant	833,334
100 W. Houston Street	33,334	B-Warrant	1,666,667
ATTN: Henri Domingues T-8	18,667	D-Warrant	833,334
San Antonio, TX 78205	73,335		3,333,335
Contact for docs: Eric Stephens
Tel: (214) 891-8046/ Fax:
Email: estephens@rencapital.com
US SPECIAL OPPORTUNITIES TRUST PLC (“USSO”)
Frost National Bank	26,667	A-Warrant	1,041,667
100 W. Houston Street	41,667	B-Warrant	2,083,334
ATTN: Henri Domingues T-8	23,334	D-Warrant	1,041,667
San Antonio, TX 78205	91,668		4,166,668
Contact for docs: Eric Stephens
Tel: (214) 891-8046/ Fax:
Email: estephens@rencapital.com

PREMIER RENN US EMERGING GROWTH FUND LTD. (“PREMIER”)
Premier RENN US Emerging Growth Fund Ltd.
Acct # PRN01/17-28085	10,667	A-Warrant	416,667
c/o Cristina Ramones	16,667	B-Warrant	833,334
The Northern Trust Company	9,334	D-Warrant	416,667
801 South Canal Street, C-1-North	36,668		1,666,668
Chicago, IL 60607
Contact for docs: Eric Stephens
Tel: (214) 891-8046/ Fax:
Email: estephens@rencapital.com
BRIDGEPOINTE MASTER FUND LTD.
1120 Sanctuary Parkway, Suite 325	42,667	A-Warrant	1,666,667
Alpharetta, GA 30004	66,667	B-Warrant	3,333,334
Contact for docs: Brad Hathorn	42,400	D-Warrant	1,000,000
Tel: 770-640-8130 ext 120 Fax: 770.777.5844	131,734		6,000,001
Email: bradhathorn@roswellcapitalpartners.com
HELLER CAPITAL INVESTMENTS LLC
700 E. Palisade Ave
Englewood Cliffs, NJ 07632	25,601	A-Warrant	1,000,001
Contacts for docs: Steven Hart	40,001	B-Warrant	2,000,001
Tel: 201-816-4235/ Fax:  201-569-5014	00,000	D-Warrant	0,000,000
Email: shart@hellercapitalpartners.com	65,602		3,000,002

EXHIBIT B to the

SERIES F CONVERTIBLE PREFERRED STOCK ISSUANCE AGREEMENT FOR

BPO MANAGEMENT SERVICES, INC.

FORM OF CERTIFICATE OF DESIGNATION

EXHIBIT C

BPO MANAGEMENT SERVICES, INC.

CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series F Convertible Preferred Stock of BPO Management Services, Inc. (the “Certificate of Designation”).  In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series F Convertible Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of BPO Management Services, Inc., a Delaware corporation (the “Company”), indicated below into shares of Common Stock, par value $0.01 per share (the “Common Stock”), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

Date of Conversion: 

Number of Preferred Shares to be converted:  

Stock certificate no(s). of Preferred Shares to be converted:    

Please confirm the following information:

Conversion Price:  

Number of shares of Common Stock to be issued:  

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion: _________________________

Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:

Issue to:
Facsimile Number:
Authorization:
	By:
	Title:
Dated: