Document:

EX-10.3

 

 

    EXHIBIT 10.3

 

    EXECUTIVE
    STRATEGIC INCENTIVE PLAN

 

		
	
    1.  
	
    Purpose

 

    This document sets forth the Executive Strategic Incentive Plan
    applicable to employees of Eaton Corporation (the
    “Company”) who are executives of the Company,
    including those whose long-term incentive compensation for any
    taxable year of the Company commencing on or after
    January 1, 2008 the Committee (as hereinafter defined)
    anticipates would not be deductible due to Section 162(m)
    of the Internal Revenue Code of 1986, as amended (the
    “Code”). This plan, as amended and restated, is
    hereinafter referred to as the “Plan”.

 

    The purpose of the Plan is to promote the growth and
    profitability of the Company through the granting of incentives
    intended to motivate executives of the Company to achieve
    demanding long-term corporate objectives and to attract and
    retain executives of outstanding ability.

 

		
	
    2.  
	
    Administration

 

    The Plan shall be administered by the Compensation and
    Organization Committee (the “Committee”) of the Board
    of Directors (the “Board”). The Committee shall be
    comprised exclusively of three or more directors selected by the
    Board who are not employees and who are “outside
    directors” within the meaning of Section 162(m)(4)(C)
    of the Code. The Committee will approve the goals, participation
    eligibility, target bonus awards, actual bonus awards, timing of
    payments and other actions necessary to the administration of
    the Plan. Any determination by the Committee pursuant to the
    Plan shall be final, binding and conclusive on all employees and
    participants and anyone claiming under or through any of them.

 

		
	
    3.  
	
    Eligibility

 

    Any executive of the Company designated by the Committee in its
    sole discretion shall be eligible to participate in the Plan.

 

		
	
    4.  
	
    Incentive
    Targets, Maximum Awards, Award Periods, Objectives and
    Payments

 

		
	
    (A) 
	
    Establishment of
    Incentive Targets and Conversion to Phantom Share
    Units

 

    Individual Incentive Targets for each participant with respect
    to each Plan Award Period (as defined below) shall be
    established in writing by the Committee within the first 90 days
    of the Award Period. With respect to Award Periods beginning on
    or after January 1, 2008, participant incentive targets
    will be expressed in the form of Phantom Share Units (with one
    unit being equal to one common share of the Company) which will
    be determined by: (a) first establishing the Individual
    Incentive Target in cash for each participant with respect to
    each Award Period and (b) then dividing such Individual
    Incentive Target by the average of the mean prices for the
    Company’s common shares for the first twenty(20) trading
    days of each Award Period. In all cases, the resulting Phantom
    Share Units shall be rounded up to the nearest 50 whole units.
    For purposes of the Plan, “mean price” shall be the
    mean of the highest and lowest selling prices for Company common
    shares quoted on the New York Stock Exchange on the relevant
    trading day. Notwithstanding the foregoing provisions of this
    Section 4(A), the Committee may, in its sole discretion,
    use a different method for valuing Phantom Share Units or for
    establishing incentive targets for participants under the Plan,
    but in no event may the final award be greater than the maximum
    specified in Section 4(B).

 

		
	
    (B) 
	
    Maximum Number of
    Phantom Share Units

 

    No employee may receive an award in any Plan Award Period of
    more than 200,000 Phantom Share Units, subject to adjustment
    pursuant to Section 6.

 

		
	
    (C) 
	
    Award
    Periods

 

    Each Award Period shall be the four-calendar year period
    commencing as of the first day of the calendar year in which the
    performance objectives are established for the Award Period as
    described in Sections 4(D) and (E). A new Award Period
    shall commence as of the first day of each calendar year, unless
    otherwise specified by the Committee.

    

    1

 

		
	
    (D) 
	
    Establishment of
    Company Performance Objectives

 

    No later than March 30 of the first year of each Award Period,
    threshold, target, and maximum Company performance objectives
    for such Award Period shall be established in writing by the
    Committee.

 

		
	
    (E) 
	
    Performance
    Objectives

 

    (i) The performance objectives shall consist of objective
    tests based on one or more of the following: the Company’s
    earnings, cash flow, cash flow return on gross capital,
    revenues, financial return ratios, market performance,
    shareholder return
    and/or
    value, operating profits, net profits, earnings per share,
    operating earnings per share, profit returns and margins, share
    price, working capital, and changes between years or periods, or
    returns over years or periods that are determined with respect
    to any of the above-listed performance criteria.

 

    (ii) Award Periods may overlap one another, although no two
    performance periods may consist solely of the same calendar
    years. Performance objectives may be measured solely on a
    corporate, subsidiary or business unit basis, or a combination
    thereof. Further, performance objectives may reflect absolute
    entity performance or a relative comparison of entity
    performance to the performance of a peer group of entities or
    other external measure of the selected performance objectives.

 

    (iii) When the Performance Objectives for any Award are
    established, the formula for any award may include or exclude
    items to measure specific objectives, such as losses from
    discontinued operations, extraordinary gains or losses, the
    cumulative effect of accounting changes, acquisitions or
    divestitures, foreign exchange impacts and any unusual,
    nonrecurring gain or loss, and will be based on accounting rules
    and related Company accounting policies and practices in effect
    on the date of the award.

 

		
	
    (F) 
	
    Determination of
    Payments

 

    For each Award Period, Final Individual Phantom Share Unit
    Awards may range from 0% to 200% of the Phantom Share Units
    credited under Section 4(A), depending upon achievement of
    the applicable performance objectives and other conditions as
    described in Section 7. The Final Individual Phantom Common
    Share Unit Award shall be converted to cash at a market value of
    Company common shares as determined by the average of the mean
    prices for the Company’s common shares for the final twenty
    (20) trading days of the Award Period, and distributed to
    the participant no later than March 15 of the year following the
    award period, unless the participant has made an irrevocable
    election to defer all or part of the amount of his or her award
    pursuant to any applicable long term incentive compensation
    deferral plan adopted by the Committee or the Company. Each
    participant will be credited with a dividend equivalent amount
    equal to the aggregate dividends paid during the Award Period on
    a number of Company shares equal to the number of Phantom Share
    Units finally awarded to the participant for that Award Period.
    The dividend equivalent amount will be paid to the participant
    in cash at the time the Award is paid.

 

    Awards shall be paid under the Plan for any Award Period solely
    on account of the attainment of the performance objectives
    established by the Committee with respect to such Award Period.
    The method to determine the Award shall be stated in terms of
    objective formulas that preclude discretion to increase the
    amount of the award that would otherwise be due upon attainment
    of the goal. No provision of the Plan shall preclude the
    Committee from exercising negative discretion to reduce the
    amount of any award hereunder.

 

		
	
    5.  
	
    Prorata
    Payments

 

    Awards shall be contingent on continued employment by the
    Company during each Award Period; provided, however, that this
    requirement will not apply in the event of termination of
    employment by reason of death or disability (as determined by
    the Committee), but only if and to the extent it will not
    prevent any award payable hereunder from qualifying as
    “performance-based compensation” under
    Section 162(m) of the Code. In the event of termination of
    employment of a participant for the reasons stated in this
    Section 5 during any incomplete Award Periods, awards for
    such Awards Periods shall be prorated for the amount of service
    during each Award Period and shall be payable to the participant
    (or his or her estate) at the same time as awards for such Award
    Periods are paid to all other participants and subject to the
    same requirements for attainment of the specified Performance
    Objectives as apply to such other participants’ awards.

    

    2

 

		
	
    6.  
	
    Other
    Provisions

 

		
	
    (A) 
	
    Adjustments upon
    Certain Changes

 

    In the event of a reorganization, merger, consolidation,
    reclassification, recapitalization, combination or exchange of
    shares, stock split, stock dividend, rights offering or similar
    event affecting shares of the Company, the following shall be
    equitably adjusted: (a) the number of outstanding awards
    denominated in Phantom Share Units, (b) the prices relating
    to outstanding awards, and (c) the appropriate fair market
    value and other price determinations for such awards.

 

		
	
    (B) 
	
    Change of Control
    Defined

 

    For purposes of the Plan, a Change of Control of the Company
    shall mean:

 

    (i) The acquisition by any individual, entity or group
    (within the meaning of Section 13(d)(3) or 14(d)(2) of the
    Securities Exchange Act of 1934, as amended (the “Exchange
    Act”)) (a “Person”) of beneficial ownership
    (within the meaning of
    Rule 13d-3
    promulgated under the Exchange Act) of 25% or more of either
    (x) the then outstanding common shares of the Company (the
    “Outstanding Company Common Shares”) or (y) the
    combined voting power of the then outstanding voting securities
    of the Company entitled to vote generally in the election of
    directors (the “Outstanding Company Voting
    Securities”); provided, however, that for purposes of this
    subsection (i), the following acquisitions shall not constitute
    a Change of Control: (x) any acquisition directly from the
    Company, (y) any acquisition by the Company, or
    (z) any acquisition by any employee benefit plan (or
    related trust) sponsored or maintained by the Company or any
    corporation controlled by the Company; or

 

    (ii) Individuals who, as of the date hereof, constitute the
    Board (the “Incumbent Board”) cease for any reason to
    constitute at least a majority of the Board; provided, however,
    that any individual becoming a director subsequent to the date
    hereof whose election, or nomination for election by the
    Company’s shareholders, was approved by a vote of at least
    two-thirds of the directors then comprising the Incumbent Board
    shall be considered as though such individual were a member of
    the Incumbent Board, but excluding, for this purpose, any such
    individual whose initial assumption of office occurs as a result
    of an actual or threatened election contest with respect to the
    election or removal of directors or other actual or threatened
    solicitation of proxies or consents by or on behalf of a Person
    other than the Board; or

 

    (iii) Consummation by the Company of a reorganization,
    merger or consolidation or sale or other disposition of all or
    substantially all of the assets of the Company or the
    acquisition of assets of another corporation (a “Business
    Combination”), in each case, unless, following such
    Business Combination, (x) all or substantially all of the
    individuals and entities who were the beneficial owners,
    respectively, of the Outstanding Company Common Shares and
    Outstanding Company Voting Securities immediately prior to such
    Business Combination beneficially own, directly or indirectly,
    more than 55% of, respectively, the then outstanding shares of
    common stock and the combined voting power of the then
    outstanding voting securities entitled to vote generally in the
    election of directors, as the case may be, of the corporation
    resulting from such Business Combination (including, without
    limitation, a corporation which as a result of such transaction
    owns the Company or all or substantially all of the
    Company’s assets either directly or through one or more
    subsidiaries) in substantially the same proportions as their
    ownership, immediately prior to such Business Combination of the
    Outstanding Company Common Shares and Outstanding Company Voting
    Securities, as the case may be, (y) no Person (excluding
    any employee benefit plan (or related trust) of the Company or
    such corporation resulting from such Business Combination)
    beneficially owns, directly or indirectly, 25% or more of,
    respectively, the then outstanding shares of common stock of the
    corporation resulting from such Business Combination or the
    combined voting power of the then outstanding voting securities
    of such corporation except to the extent that such ownership
    existed prior to the Business Combination and (z) at least
    a majority of the members of the board of directors of the
    corporation resulting from such Business Combination were
    members of the Incumbent Board at the time of the execution of
    the initial agreement, or of the action of the Board, providing
    for such Business Combination; or

 

    (iv) Approval by the shareholders of the Company of a
    complete liquidation or dissolution of the Company.

    

    3

 

		
	
    (C) 
	
    Non-Transferability

 

    No right to payment under the Plan shall be subject to debts,
    contract liabilities, engagements or torts of the participant,
    nor to transfer, anticipation, alienation, sale, assignment,
    pledge or encumbrance by the participant except by will or the
    law of descent and distribution or pursuant to a qualified
    domestic relations order.

 

		
	
    (D) 
	
    Compliance with
    Law and Approval of Regulatory Bodies

 

    No payment shall be made under the Plan except in compliance
    with all applicable federal and state laws and regulations
    including, without limitation, compliance with tax requirements.

 

		
	
    (E) 
	
    No Right to
    Employment

 

    Neither the adoption of the Plan nor its operation, nor any
    document describing or referring to the Plan, or any part
    thereof, shall confer upon any participant under the Plan any
    right to continue in the employ of the Company or any
    subsidiary, or shall in any way affect the right and power of
    the Company or any subsidiary to terminate the employment of any
    participant under the Plan at any time with or without assigning
    a reason therefore, to the same extent as the Company might have
    done if the Plan had not been adopted.

 

		
	
    (F) 
	
    Interpretation of
    the Plan

 

    Headings are given to the sections of the Plan solely as a
    convenience to facilitate reference; such headings, numbering
    and paragraphing shall not in any case be deemed in any way
    material or relevant to the construction of the Plan or any
    provisions thereof. The use of the masculine gender shall also
    include within its meaning the feminine. The use of the singular
    shall also include within its meaning the plural and vice versa.

 

		
	
    (G) 
	
    Amendment and
    Termination

 

    The Committee may at any time suspend, amend or terminate the
    Plan. Notwithstanding the foregoing, upon the occurrence of a
    Change of Control, no amendment, suspension or termination of
    the Plan shall, without the consent of the participant, alter or
    impair any rights or obligations under the Plan with respect to
    such participant.

 

		
	
    7.  
	
    Qualified
    Performance-Based Awards

 

    (A) The provisions of the Plan are intended to ensure that
    all awards granted hereunder to any individual who is or may be
    a “covered employee” (within the meaning of
    Section 162(m)(3) of the Code) qualify for the
    Section 162(m) exception (the “Section 162(m)
    Exception”) for performance-based compensation (a
    “Qualified Performance-Based Award”), and all awards
    and the Plan shall be interpreted and operated consistent with
    that intention.

 

    (B) Each Qualified Performance-Based Award shall be earned,
    vested and payable (as applicable) only upon the achievement of
    one or more performance objectives, together with the
    satisfaction of any other conditions, such as continued
    employment, as the Committee may determine to be appropriate.
    Qualified Performance-Based Awards may not be amended, nor may
    the Committee exercise discretionary authority in any manner
    that would cause the Qualified Performance-Based Award to cease
    to qualify for the Section 162(m) Exception.

 

    (C) The Committee shall certify in writing as to the
    measurement of performance by the Company and the business units
    relative to Performance Objectives and the resulting number of
    earned Phantom Share Units. The Committee shall rely on such
    financial information and other materials as it deems necessary
    and appropriate to enable it to certify to the achievement of
    Performance Objectives. The Committee shall make its
    determination not later than March 15 following the end of
    the Award Period.

 

		
	
    8.  
	
    Effective Dates
    of the Plan

 

    The Plan was originally adopted by the Board on April 24,
    1991 but with an effective date of January 1, 1991. The
    Plan was amended and restated as of June 21, 1994,
    July 25, 1995, April 21, 1998, April 1, 1999 and
    January 1, 2001 (which includes changes which affect Awards
    granted on or after January 1, 1998). This Amendment and
    Restatement of the Plan was adopted by the Board of Directors on
    January 22, 2008 and is subject to the approval by the
    Shareholders of the Company.

    

    4

 

		
	
    9.  
	
    Shareholder
    Approval and Committee Certification Contingencies; Payment of
    Awards.

 

    Awards and payment of any awards under the Plan shall be
    contingent upon the affirmative vote of the shareholders of at
    least a majority of the votes cast (including abstentions) at
    the annual meeting of the shareholders held in 2008. Unless and
    until such shareholder approval is obtained, no award shall be
    paid pursuant to the Plan. Payment of any award under the Plan
    shall also be contingent upon the Committee’s certifying in
    writing that the performance objectives and any other material
    terms applicable to such award were in fact satisfied, in
    accordance with applicable regulations under Section 162(m)
    of the Code. Unless and until the Committee so certifies, such
    award shall not be paid.

 

    To the extent necessary for purposes of Section 162(m) of
    the Code, the Plan shall be resubmitted to shareholders for
    their reapproval in 2013 with respect to awards payable for the
    tax year commencing on and after January 1, 2014.

 

    If the shareholders do not approve the Plan, payments that would
    have been made pursuant to any awards granted by the Committee
    that were contingent upon receipt of such approval will not be
    made. Nothing in the Plan shall preclude the Committee from
    making any payments or granting any awards outside the Plan
    whether or not such payments or awards qualify for tax
    deductibility under Section 162(m) of the Code.

    

    5bpo_ex1055.htm

EXHIBIT 10.55

    SECOND AMENDMENT TO SERIES J
WARRANT TO PURCHASE SHARES OF PREFERRED STOCK OF BPO MANAGEMENT SERVICES,
INC.

     

    This
Second Amendment to Series J Warrant to Purchase Shares of Preferred Stock of
BPO Management Services, Inc. (this “Amendment”) is effective as of
March 24, 2008, by BPO Management Services, Inc., a Delaware corporation (“Issuer”), in favor of
_________________ (“Holder”).  Issuer
and Holder are, together, the “Parties.”

     

    RECITALS

     

    WHEREAS,
Issuer, Holder and certain other investors entered into that certain Series D
Convertible Preferred Stock Purchase Agreement, dated June 13, 2007 (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 previously granted to
Holder that certain Series J Warrant to Purchase Shares of Preferred Stock of
Issuer, which was numbered W-J-07-__, was dated and issued June 13, 2007
(the “Series J
Warrant”), and entitled Holder to exercise the Series J Warrant in
accordance with the terms contained therein for the purchase of up to
_____________ shares of Issuer’s Series D-2 Convertible Preferred Stock (the
“Series J Covered
Shares”) at an initial per-share Warrant Price (as defined in Section 9
of the Series J Warrant) of $14.40 (the “Series J Original Warrant
Price”);

     

    WHEREAS,
effective as of September 28, 2007, Issuer amended the Series J Warrant pursuant
to that certain Amendment to Series J Warrant to Purchase Shares of Preferred
Stock of Issuer (the “First
Amendment”) in order to reduce the Series J Warrant Price from $14.40 to
$9.60 for the period commencing on September 28, 2007 and ending on October 10,
2007;

     

    WHEREAS,
pursuant to the First Amendment, Holder exercised the Series J Warrant with
respect to _________ percent (or _________) of the Series J Covered Shares (the
“Partial Series J
Exercise”);

     

    WHEREAS,
in connection with the Stock Purchase Agreement, Issuer also previously granted
to Holder (a) 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
(the “Series A
Warrant”), and entitled Holder to exercise the Series A Warrant in
accordance with the terms contained therein for the purchase of up to
___________ 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; (b) 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 (the “Series B Warrant”), and
entitled Holder to exercise the Series B Warrant in accordance with the terms
contained therein for the purchase of up to ___________ 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; (c) 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 to exercise the Series
C Warrant in accordance with the terms contained therein for the purchase of up
to ___________ 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 __________ percent of the Series C Covered
Shares to $0.01 for the remainder of the term of the Series C Warrant; and (d)
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,
together with the Series J Warrant, the Series A Warrant, the Series B Warrant,
and the Series C Warrant, the “Warrants”), and entitled
Holder to exercise the Series D Warrant in accordance with the terms contained
therein for the purchase of up to ___________ 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 ____________ percent of the Series D Covered Shares to $1.10
for the remainder of the term of the Series D Warrant;

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    WHEREAS,
Issuer has determined that it will provide another enhanced opportunity to
obtain financing from Holder and certain other parties who originally received
warrants at the same time and on the same terms as the Warrants (the “Other Warrant Holders”), by
offering a reduction to the Series J Original Warrant Price for all of the
remaining, unexercised Series J Covered Shares, which reduction shall be
available until April 18, 2008;

     

    WHEREAS,
in furtherance of the foregoing, Issuer has also determined that, in the event
that Holder exercises any portion of the remaining, unexercised Series J Warrant
affected by such reduction to the Series J Original Warrant Price, the Series C
Original Warrant Price and Series D Original Warrant Price shall be reduced by
amendments to the Series C Warrant and the Series D Warrant  effective
for the remainder of the term of the Series C Warrant and the Series D Warrant,
respectively, to $0.01 per share and $0.01 per share, respectively, for the same
percentage of the Series C Covered Shares and Series D Covered Shares as the
percentage of such Series J Covered Shares exercised between the date hereof and
April 18, 2008 (i.e.,
if Holder exercises one-quarter (1/4) of the Series J Warrant during said
period, the Series C Original Warrant Price and the Series D Original Warrant
Price shall be reduced as described herein for an additional one-quarter (1/4)
of the original Series C Warrant and Series D Warrant);

     

    WHEREAS,
the Certificate of Designation of the Relative Rights and Preferences of the
Series D Convertible Preferred Stock of Issuer (the “Series D Certificate of
Designation”) and the Certificate of Designation of the Relative Rights
and Preferences of the Series D-2 Convertible Preferred Stock of Issuer (the
“Series D-2 Certificate of
Designation” and, together with the Series D Certificate of Designation,
the “Certificates of
Designation”) provide for certain anti-dilution protection in the event
that Issuer issues any shares of its Common Stock or any warrants to purchase
its Common Stock for a per-share price less than the then-current applicable
conversion price of the Series D Convertible Preferred Stock and Series D-2
Convertible Preferred Stock of Issuer, respectively;

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

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

     

    WHEREAS,
Section 11 of the Series J Warrant requires that the Series J Warrant be amended
only by written instrument(s) executed by Issuer and the holders of warrants
exercisable for a majority of the shares of Series D-2 Convertible Preferred
Stock of Issuer issuable upon exercise of the then-outstanding Series J Warrants
issued to Holder and the Other Warrant Holders (the “Majority
Holders”);

     

    WHEREAS,
Issuer shall be deemed to have obtained the signature of the Majority Holders
upon its receipt of signed acknowledgements to this Amendment and/or the
amendments provided to the Other Warrant Holders representing the requisite
number of covered shares and, if Holder has not provided its signed
acknowledgement to this Amendment by the time Issuer has obtained the written
consent of the Majority Holders, Holder’s signature shall only be required to
evidence its agreement that this Amendment and the other amendments referenced
herein do not trigger any anti-dilution protection set forth in the Warrants or
the Certificates of Designation; and

     

    WHEREAS,
the Parties desire to amend the Series J Warrant to memorialize this
understanding and to execute amendments to the Series C Warrant and the Series D
Warrant (in form and substance which is substantially similar to this
Amendment).

     

    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;
Waiver.

     

    1.1         
Amendment to Series J
Warrant.  Effective solely for any exercise by Holder of any
remaining, unexercised Series J Warrant (i.e., up to ____________
shares of Issuer’s Series D-2 Convertible Preferred Stock) (collectively, the
“Amended Warrant Price
Shares”) occurring during the period commencing on the date hereof and
ending on April 18, 2008 (the “Amendment Effective Period”),
the “Warrant Price” specified in Section 9 of the Series J Warrant shall be
$9.60 per share of such Covered Shares.  With respect to those Amended
Warrant Price Shares that are not purchased through the exercise of the Series J
Warrant during the Amendment Effective Period, immediately upon expiration
thereof and without any further act of the Parties, the Series J Original
Warrant Price shall be reinstated to such unpurchased Amended Warrant Price
Shares and thereafter apply to all Series J Covered Shares and this Amendment
shall be of no further force and effect.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    1.2         
Waiver of Certain
Anti-Dilution Protections.  Issuer hereby represents that,
concurrently with the delivery of this Amendment to Holder, it is delivering to
each of the Other Warrant Holders an amendment to its respective outstanding
Series J Warrant for its consideration and acceptance, which amendment is
identical to this Amendment in form and substance.  Accordingly, the
Parties agree that neither the contemplated amendments to, nor any offer or
exercise of, the warrants held by the Other Warrant Holders at the prices
contained herein shall be deemed to trigger, or give rise to the triggering of,
any anti-dilution protection contained in the Warrants or the Certificates of
Designation.  Notwithstanding anything to the contrary contained in
the Warrants or the Certificates of Designation, neither the transactions
contemplated by this Amendment nor the issuance of any of the Amended Warrant
Price Shares during the Amendment Effective Period to Holder, any Other Warrant
Holder, or any of their respective affiliates shall result in the imposition of
any of the anti-dilution protections in favor of the Holder contained in the
Warrants or the Certificates of Designation.  The waivers set forth in
this Section 1.2 shall be effective independently of whether Holder exercises
its Series J Warrant during the Amendment Effective Period.

     

    ARTICLE
2

    MISCELLANEOUS
PROVISIONS

     

    2.            
Miscellaneous
Provisions.

     

    2.1         
No Further
Amendments.  Except as amended by this Amendment and the First
Amendment, the Series J Warrant remains unmodified and in full force and
effect.  In the event of any inconsistency between the provisions of
the Series J Warrant 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 J
Warrant as amended by this Amendment 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]

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

     

    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 and waivers set forth herein
      and

               

              [  ]           Exercises
      __________ of the Series J Warrant as of the date hereof, and attached is
      the exercise notice required by the Series J Warrant; or

               

              [  ]           Does
      not exercise any of the Series J Warrant as of the date
      hereof.

               

              ____________________________________

            
	 
      
	
              By:                                                                

              Name:                                                          

              Its:                                                                

              Date:                                                             

            
	 
      

    

    

     

    
 

     

     

     

    5

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