Document:

Employment Agreement effective as of August 1,2000

  
 10.20 
  
 EMPLOYMENT AGREEMENT 
  
 This Employment Agreement
(“Employment Agreement”) effective as of August 1, 2000 (the “Effective Date”) is made by and between J. D. EDWARDS & COMPANY, a Delaware corporation (“J. D. Edwards”) and MICHAEL MADDEN (“Madden”).

  
 RECITALS 
  

	A.
	 
	J. D. Edwards is engaged in the business of developing, marketing and supporting enterprise software and supply chain computing solutions. 

  

	B.
	 
	Madden is currently employed by J. D. Edwards in the position of Vice President and J. D. Edwards wishes to retain Madden in the employment of J. D. Edwards for
a period of at least three (3) years from the Effective Date of this Employment Agreement. 
 

  
 It is agreed between J. D.
Edwards and Madden as follows: 
  

	1.
	 
	Employment.  J. D. Edwards hereby agrees to employ Madden in the position of Vice President, Chief Technology Officer, to perform the duties
and responsibilities set forth in the job description attached as Attachment A to this Employment Agreement together with such other duties and responsibilities as shall be assigned to him from time to time by J. D. Edwards senior management which
shall be consistent with Madden’s job description. Madden accepts such employment with J. D. Edwards upon the terms and conditions of this Employment Agreement and agrees to perform the duties and responsibilities described in this Section in
accordance with all policies, procedures, rules and regulations adopted by J. D. Edwards Board of Directors or senior management. During the term of his employment, Madden agrees to devote his full time and attention, skills and efforts to the
performance of his duties and responsibilities on behalf of J. D Edwards and to maintain and promote the business of J. D. Edwards 
 

  

	2.
	 
	Term.  Subject to the terms of Section 8, Termination, Madden shall be employed by J. D. Edwards for a period of not less than three (3) years
commencing on the Effective Date (the “Initial Employment Term”). 
 

  

	3.
	 
	Compensation. 
 

  

	 	3.1
	 
	Annual Base Salary and Bonus.  Madden’s compensation from the Effective Date until April 1, 2001 shall be set at an annual base salary of
$275,000 with an annual bonus incentive of up to forty percent (40%) the sum of such base salary plus the annual portion (25%) of the Retention Bonus in accordance with Section 3.2 below, based upon the achievement of those certain objectives as
determined and approved by the Compensation Committee of the Board of Directors of J. D. Edwards. Compensation for subsequent periods shall be established by a written addendum to this Employment Agreement as approved by the Compensation Committee
of J. D. Edwards Board of Directors based upon the achievement of those 
 

 
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 certain objectives as determined and approved by the Compensation Committee of the Board of Directors of J.D. Edwards.

  

	 	3.2
	 
	Retention Bonus.  J.D. Edwards will pay to Madden a retention bonus in a total amount of $275,000 (“Retention Bonus”) payable as
follows: 25% upon the execution of this Employment Agreement by Madden, and 25% on each of the first, second and third anniversaries of the Effective Date provided Madden is a current J.D Edwards employee on each such anniversary date. The Madden
Retention Bonus will be in addition to the annual compensation received by Madden during the term of this Employment Agreement. 
 

  

	4.
	 
	Stock Option Grant.  Madden will be granted 150,000 stock options to purchase the common stock of J.D. Edwards pursuant to the terms of J.D.
Edwards 1997 Equity Incentive Plan, or its successor option plan, if any, at the option of price of $13.063 per option (the “Stock Option Grant”). The Stock Option Grant shall vest and become exercisable as to twenty five percent (25%) of
the shares subject to the option on the Effective Date of this Employment Agreement and 1/36 of the shares subject to the grant per month thereafter. Should Madden resign from employment with J. D. Edwards or be terminated by J.D. Edwards for
Cause at any time during the Initial Employment Term, the Stock Option Grant will be cancelled effective upon the date of resignation or termination for Cause and Madden will have the right to exercise any portion of the Stock Option Grant vested in
accordance with the above vesting schedule up to the date of such termination. Madden may exercise such options in accordance with the J.D. Edwards 1997 Equity Incentive Plan for up to ninety (90) days after the date of termination. 

  
  

	5.
	 
	Employee Benefits.  Madden will be eligible to participate in all employee benefits provided by J.D. Edwards to employees, based upon
his position and tenure, including the following: 
 

  

	 	5.1.
	 
	Health and Life Insurance.  J.D. Edwards agrees to provide to Madden (and his spouse and dependents) coverage under J.D. Edwards group health
and life insurance plan, the coverage, terms and benefits of which shall be determined, from time to time, in the sole discretion of J.D. Edwards Board of Directors. 
 

  

	 	5.2.
	 
	Paid Time Off.  Madden shall be entitled to the maximum paid time off provided for in J.D. Edwards paid time off policy in effect from time to
time. 
 

  

	 	5.3.
	 
	Qualified/Non-Qualified Plan(s).  Madden shall be entitled to participate in any qualified or nonqualified plans) adopted by J.D. Edwards Board
of Directors and Madden fulfills all eligibility requirements under the terms and conditions of such plan. The J.D. Edwards Board of Directors reserves the sole right and discretion to adopt or terminate a plan and to establish all eligibility
requirements and other terms and conditions of such plan. 
 

  

	6.
	 
	Severance Pay.  If Madden is terminated by J.D. Edwards for Performance or disability, Madden shall be entitled to receive severance pay in
accordance with the standard J.D. Edwards severance pay policy for an employee of Madden’s position and time of service in the amount of one year’s then current base salary. If Madden 
 

 
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 is terminated by J.D. Edwards for other than Cause, Performance or disability,
Madden shall be entitled to receive severance pay in accordance with the standard J.D. Edwards severance pay policy for an employee of Madden’s position and time of service of one year’s then current on target earning (annual base salary
plus bonus). This severance payment would be made in a one-time, lump sum payment subject to appropriate tax withholding. Notwithstanding the foregoing, however, no severance allowance shall be paid if termination is for Cause or if Madden
voluntarily terminates employment. 
  

	 	6.1.
	 
	COBRA Medical Insurance.  If the Madden’s employment is terminated without Cause, in addition to the severance payment in accordance with
Section 5, Madden will be eligible for medical insurance (for himself and his spouse and dependants) under COBRA commencing on the date of his termination for a period of one (1) year in accordance with the standard J.D. Edwards policy at J.D.
Edwards sole expense. Madden will be eligible to continue coverage at his cost beyond such date if he should so elect as as provided by applicable law. 
 

  

	 	6.2
	 
	Management Change in Control Plan.  The J.D. Edwards & Company Management Change in Control Plan will remain in full force and effect for
the term of this Employment Agreement and will continue thereafter only so long as Madden remains an employee of J.D. Edwards. 
 

  

	7.
	 
	Confidentiality and Non-Solicitation.  Madden acknowledges that he has signed the J.D. Edwards Employee Nondisclosure Agreement effective June
8, 1998 and confirms that he will continue to abide by the obligations contained therein. 
 

  

	8.
	 
	Termination.  J.D. Edwards shall have the right to terminate this Employment Agreement prior to its expiration only for “Cause” or
“Performance” as set forth below. 
 

  

	 	8.1
	 
	Termination for Cause.  For the purposes of this Employment Agreement, “Cause” means the following: 
 

 

	 	(a)
	 
	the willful and material breach of duty by the Madden in the course of his employment; 
 

	 	(b)
	 
	the habitual neglect by the Madden of his employment duties; 
 

	 	(c)
	 
	the continued incapacity, whether physical or mental, of the Madden to perform his duties, unless waived by J.D. Edwards; or 
 

	 	(d)
	 
	Madden’s gross misconduct resulting in material damage to J.D. Edwards. 
 

  

	 	8.2
	 
	Termination for Performance.  For the purposes of this Employment Agreement, termination for “Performance” shall be as determined by
the J.D. Edwards Board of Directors in the good faith exercise of their business judgment. 
 

  

	 	8.3
	 
	Dispute Resolution.  Should Madden dispute whether J.D. Edwards has been reasonable in interpreting “Cause” or
“Performance” then in such event Madden may submit the matter to arbitration. The arbitration proceeding 
 

 
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 shall be conducted under the applicable rules of the American Arbitration Association and shall be located in Denver,
Colorado. If such organization ceases to exist, the arbitration shall be conducted by its successor, or by a similar arbitration organization, at the time a demand for arbitration is made. The decision of the arbitrator shall be final and binding on
both parties. Each party shall be responsible for its or his own expenses for the arbitrator’s fee, attorney’s fees, expert testimony, and for other expenses of presenting its or his case. Other arbitration costs, including fees for
records or transcripts, shall be borne equally by the parties. 
  

	 	8.4
	 
	Compensation Earned Prior to Termination.  In the event that J.D. Edwards terminates Madden for Cause, Madden shall be entitled to the
compensation earned, prior to the date of termination as provided for in this Employment Agreement computed pro rata up to and including that date, including any prorata bonuses accrued and determined in accordance with the J.D. Edwards Executive
Bonus Plan for the fiscal year in which Madden is so terminated. Madden shall be entitled to no further compensation as of the date of termination. 
 

  

	 	8.5
	 
	Renewal.  This Employment Agreement shall be deemed automatically renewed for successive one (1) year periods without any further act of the
J.D. Edwards, unless, not later than thirty (30) days prior to the end of any period, either party provides the other with written notice of its intent not to renew; notwithstanding the foregoing, however, the following Sections of this Employment
Agreement shall not apply to any such renewal periods after the initial three (3) year period: Sections 3.2, Retention Bonus, and 4, Stock Option Grant. 
 

  

	 	8.6
	 
	Non-renewal.  Any non-renewal of this Employment Agreement shall be treated as a termination of Madden without Cause and be governed by the
provisions of this Employment Agreement applicable to terminations without Cause, including, but not limited, to the payments and benefits due to Madden under Section 3. 
 

  

	9.
	 
	Waiver and Release.  Madden acknowledges and agrees that he is aware of his legal rights concerning his employment with J.D. Edwards. Madden
(for himself and his heirs, legal representatives and assigns) hereby waives, and generally releases J.D. Edwards and all affiliates, officers, directors, employees and agents of J.D. Edwards from, and agrees not to sue J.D. Edwards for, any claims
or causes of action, whether known or unknown, which Madden has or may have against J.D. Edwards. This includes, but is not limited to, any claims or causes of action arising under any federal, state or local laws dealing with employment
discrimination (including, but not limited to, Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act of 1967, as amended; the Older Workers Benefit Protection Act; the American with Disabilities Act of 1990;
the National Labor Relations Act, as amended; the Family Medical Leave Act; and any applicable state local discrimination provisions) and any claims or causes of action for or wrongful discharge relating to Madden’s employment and termination
of employment other than for termination for Cause or for Performance which, if any dispute arises 
 

 
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 between the parties, will be subject to the terms of Section 8.3, Dispute Resolution, above. 
  

	10.
	 
	Cooperation.  The parties hereto mutually agree that, at all times during Madden’s employment, and following termination of his
employment, any remarks about the other party, which for J.D. Edwards shall include its affiliates, officers, directors, employees and agents, shall be favorable. Each party shall avoid making any remarks about the other party, which for J.D.
Edwards shall include its affiliates, officers, directors, employees and agents, that would tend to disparage or injure the reputation of the other party. 
 

  

	11.
	 
	Miscellaneous. 
 

  

	 	11.1.
	 
	Assignment.  Neither J.D. Edwards nor Madden may assign this Employment Agreement or any of their respective obligations hereunder.

 

  

	 	11.2.
	 
	Notices.  Any notice or other communication provided for or required by this Employment Agreement shall be given within (i) three (3) business
days after mailing by registered or certified mail, postage prepaid, return receipt requested, (ii) one (1) business day after deposit with a recognized overnight courier (such as Federal Express) or (iii) upon delivery if sent by facsimile
transmission or in person in each case to the following address: 
 

  
 To J.D. Edwards:

  
 J.D. Edwards & Company 
 One Technology Way 
 Denver, Colorado 80237 
 Attn:  Vice President, General Counsel 
  
 To Madden: 
  
 Michael. Madden 
 326 Thorn Apple Way

 Castle Rock, CO 80104 
  
 or at such other address or addresses as the J.D. Edwards or Madden may designate. 
  

	 	11.3.
	 
	Governing Law.  This Employment Agreement and each term thereof shall be subject to and governed by the laws of the State of Colorado.

 

  

	 	11.4.
	 
	Severability.  If any portion of this Employment Agreement shall be, for any reason, invalid or unenforceable, the remaining portion or
portions shall nevertheless be valid, enforceable and effective unless to do would clearly violate the present legal and valid intention of the parties hereto. 
 

  

	 	11.5.
	 
	Entire Agreement.  This Employment Agreement constitutes the entire agreement between the parties and contains all of the agreements between
the parties with respect to the subject matter hereof, this Employment 
 

 
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 Agreement supersedes any and all other agreements, either oral or written,
between the parties hereto with respect to the subject matter hereof. 
  

	 	11.6.
	 
	Amendment.  No change or modification of this Employment Agreement shall be valid unless the same shall be in writing and signed by Madden and
a duly authorized officer of J.D. Edwards. No waiver of any provision of this Employment Agreement shall be valid unless in writing and signed by the party or party to be charged. 
 

  

	 	11.7 
	 
	Benefit.  This Employment Agreement shall be binding upon and inure to the benefit of J.D. Edwards and Madden and their respective successors,
heirs, legal representatives and permitted assigns. This Employment Agreement is hereby executed as of the date set forth above. 
 

  
 
	 J.D. EDWARDS & COMPANY
 	 	  	 	 MADDEN
 
	 
	 By:
 	 	 /s/    C. Edward McVaney        
 
	 	  	 	 By:
 	 	 /s/    Michael Madden        
 

	  	 	 (Authorized Signature)
 	 	  	 	  	 	 Michael Madden
 
	 
	  	 	 C. Edward McVaney  
 
	 	  	 	  	 	  
	  	 	 Chairman and CEO
 
	 	  	 	  	 	  

 

 
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 SCHEDULE OF ATTACHMENTS 
  
 ATTACHMENT A - JOB DESCRIPTION 

 
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	 Group Executive, Technology/R&D (0080)
 	 	 DIVISION: Executive
 
	  	 	  
	 REPORTS TO (TITLE): CEO (0005) OR COO (0010) UPDATED:12/16/95
 	 	 DEPARTMENT: N/A
 This job
is    EXEMPT    NON-EXEMPT

 

 
  
 BASIC PURPOSE:  Serves as company’s chief technologist with overall
responsibility for the long-range direction of product research and development. Directs company’s research, product development, documentation and packaging functions. Formulates research and development programs, policies and procedures that
assure the maintenance of the company’s competitive position, and meet long-range strategic technology and development objectives. Ensures company remains up-to-date in terms of technological change. Serves as member of senior management
committee. 
  
 
	 ESSENTIAL DUTIES AND RESPONSIBILITIES:
 	    	 Percent (%) of Monthly Working
Time
 

	  	 	  	    	  
	     1.
 	 	 Serves as company’s chief technologist with overall responsibility for the long-range direction of product technology, as well as research and
development.
 	    	 60%
 
	     •
 	 	 Directs and leads company’s development methodologies. Responsible for setting standards used by J. D. Edwards product development organization as
applied to the process of developing software. These methodologies and standards should be current with today’s industry trends and support the company’s overall objectives as set forth in the long-range plan.
 	    	  
	     •
 	 	 Directs and leads the company’s technology direction and product architecture. Responsible for introducing new technologies into the product set to
maximize market position. Also responsible for retirement of obsolescent technology.
 	    	  
	     •
 	 	 Directs the research and development effort leading to new or improved products. Determines criteria for screening new product ideas for potential and
practicality.
 	    	  
	     •
 	 	 Directs overall product development plan, so that new products or improved products are delivered to market on a timely basis.
 	    	  
	  	 	  	    	  
	     2.
 	 	 Serves as a member of senior management team in setting strategic direction of company. Participation with other “C” level executives in setting
product and business direction of the company.
 	    	 20%
 
	     3.
 	 	 Establishes and manages effective technical training to assure a technology staff which can effectively attain desired product development
results.
 	    	 20%
 
	  	 	  	    	  
	 ADDITIONAL DUTIES AND RESPONSIBILITIES:
 	    	  
	  	 	  	    	  
	 (The above statements describe the general nature and level of work being performed in this job. They are not intended to be an exhaustive list of
all duties, and indeed additional responsibilities may be assigned as required by management.)
 	    	 100%
 

 

 

  
 ESSENTIAL KNOWLEDGE & SKILLS: 
  

Education & Training: 
 Bachelor’s degree in business, software
engineering or computer science; advanced degree desirable. Minimum 15+ years technical 
 experience in software research/development
environment, with 10+ years research or product development management. 
  
 Specialized Knowledge & Skills: 

Proven experiment in managing software research and development projects. In-depth knowledge of company’s software development design procedures and objectives. Excellent
organizational, leadership/decision making, human relations and 
 communications skills. 
  
 Type Equipment Used: 
 PC and various software languages. 
  
 Work Environment/Physical Demands: 
 General office environment. Considerable stress may occur at times. No special physical demands required.

  
 SCHEDULE OF ATTACHMENTS 
  
 ATTACHMENT A - JOB DESCRIPTION<PAGE>

                                                                     EXHIBIT 4.2

                            iPAYMENT HOLDINGS, INC.

                          INVESTORS' RIGHTS AGREEMENT

         This INVESTORS' RIGHTS AGREEMENT (the "Agreement") is entered into as
of the 12th day of April 2001, by and among iPAYMENT HOLDINGS, INC., a Tennessee
corporation (the "Company") and those persons identified on Exhibit A attached
hereto (collectively, the "Investors" and each individually an "Investor").

                                    RECITALS

         WHEREAS, First Avenue Partners, L.P. (the "Preferred Shareholder"), the
Company, certain subsidiaries of the Company, and certain officers of the
Company are parties to that certain Preferred Stock Purchase Agreement, dated as
of April 12, 2001 (the "Stock Purchase Agreement"), pursuant to which such
Preferred Shareholder will purchase shares of Preferred Stock, which Preferred
Stock may be converted into Common Stock (as defined below); and

         WHEREAS, Harbinger Mezzanine Partners, L.P. and Petra Mezzanine Fund,
L.P. (collectively, the "Warrant Shareholders"), and the Company and each of the
subsidiaries of the Company are parties to that certain Loan and Security
Agreement, dated as of April 12, 2001 (the "Loan and Security Agreement"),
pursuant to which such Warrant Shareholders shall be issued warrants to purchase
Common Stock (the "Warrants"); and

         WHEREAS, it is a condition to the closings pursuant to the Stock
Purchase Agreement and the Loan and Security Agreement that each of the parties
hereto enter into this Agreement; and

         WHEREAS, each of the parties hereto shall receive a substantial benefit
from the closings of the transactions pursuant to the Stock Purchase Agreement
and the Loan and Security Agreement.

         NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties mutually agree as follows:

1.       General.

         1.1.     Definitions. As used in this Agreement the following terms
shall have the following respective meanings:

                  "Common Stock" means the common stock, no par value, of the
Company.
<PAGE>

                  "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar, successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.

                  "Initial Offering" means the closing of a firm commitment
underwritten public offering of the Common Stock pursuant to an effective
registration statement under the Securities Act (as defined below) at a price
per share of not less than $8.00 (as adjusted for any stock dividends,
combinations or splits with respect to such shares effected after the date of
this Agreement) and proceeds to the Company of not less than $20,000,000 (after
deduction of Selling Expenses (as hereinafter defined)).

                  "Preferred Stock" means the preferred stock, no par value, of
the Company.

                  "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.

                  "Registrable Securities" means (i) Common Stock of the Company
held by the Investors; and (ii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, such above-described securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the transferor's
rights under Section 2 of this Agreement are not assigned.

                  "Registrable Securities then outstanding" shall be the number
of shares determined by calculating the total number of shares of the Common
Stock that are Registrable Securities and either (l) are then issued and
outstanding or (2) are issuable pursuant to then exercisable warrants or
convertible securities.

                  "Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 2.2 and 2.3 hereof, including, without
limitation, all registration and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, reasonable fees and
disbursements of a single special counsel for the Investors, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company).

                                       2
<PAGE>

                  "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar, successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.

                  "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale.

                  "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.

                  "SEC" or "Commission" means the Securities and Exchange
Commission.

2.       Registration; Restrictions on Transfer.

         2.1.     Restrictions on Transfer.

                  (a) Each Investor agrees not to make any disposition of all
or any portion of the Registrable Securities held by him unless and until:

                           (i)      There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or

                           (ii)     Such Investor shall have notified the
Company of the proposed disposition, and, if reasonably requested by the
Company, such Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of such shares under the Securities Act. It is agreed that
the Company will not require opinions of counsel for transactions made pursuant
to Rule 144 except in unusual circumstances.

                  (b) Notwithstanding the provisions of paragraphs a(i) and
a(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer that would not commence a new holding period under Rule
144(d) where such transfer is made by an Investor which is (i) a partnership (A)
to its partners or former partners in accordance with partnership interests or
(B) to its affiliate (as defined in Rule 405 promulgated under the Securities
Act), (ii) a corporation either (A) to its shareholders in accordance with their
interest in the corporation or (B) to its affiliate (as defined in Rule 405
promulgated under the Securities Act), (iii) a limited liability company (A) to
its members or former members in accordance with their interest in the limited
liability company or (B) to its affiliate (as defined in Rule 405 promulgated
under the Securities Act), or (iv) to the Investor's family member or trust for
the benefit of an individual Investor, provided the transferee

                                       3
<PAGE>

will be subject to the terms of this Section 2.1 to the same extent as if he
were an original Investor hereunder.

                  (c) Each certificate representing the Registrable Securities
shall (unless otherwise permitted by the provisions of this Agreement) be
stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required by the Company's Bylaws under
applicable state securities laws or as provided elsewhere in this Agreement):

                  THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
                  UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
                  OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
                  HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
                  UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
                  SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
                  REGISTRATION IS NOT REQUIRED.

                  (d) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder shall
have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.

                  (e) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.

         2.2.     Piggyback Registrations. The Company shall notify all
Investors in writing at least thirty (30) days prior to the filing of any
registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to primary and secondary offerings of
securities of the Company, but excluding registration statements relating to the
Company's employee benefit plans or with respect to corporate reorganizations or
other transactions under Rule 145 of the Securities Act), and will afford each
such Investors an opportunity to include in such registration statement all or
part of such Registrable Securities held by such Investor. Each Investor
desiring to include in any such registration statement all or any part of the
Registrable Securities held by it shall, within fifteen (15) days after the
above-described notice from the Company, so notify the Company in writing. If an
Investor decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Investor shall
nevertheless continue to have the right to include any Registrable Securities in
any

                                       4
<PAGE>

subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.

                  (a) Underwriting. If the registration statement under which
the Company gives notice under this Section 2.2 is for an underwritten offering,
the Company shall so advise the Investors. In such event, the right of any such
Investor to be included in a registration pursuant to this Section 2.2 shall be
conditioned upon such Investor's participation in such underwriting and the
inclusion of such Investor's Registrable Securities in the underwriting to the
extent provided herein. All Investors proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be reduced (pro rata among
the Investors requesting inclusion in the underwritten offering based upon the
number of shares so requested to be registered); provided, however, that such
number of shares shall not be reduced until all shares to be included in such
underwriting for the account of any person other than the Company or the
Investors have been removed from such underwriting.

                  (b) Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 2.2 prior to the effectiveness of such registration whether or not any
Investor has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.4 hereof.

         2.3.     Form S-3 Registration. In case the Company shall receive from
any Investor or Investors a written request or requests that the Company effect
a registration on Form S-3 (or any successor to Form S-3) or any similar
short-form registration statement and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such
Investor or Investors, the Company will:

                  (a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Investors; and

                  (b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
Investor's or Investors' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Investor or Investors joining in such request as are specified in a
written request given within fifteen (15)

                                       5
<PAGE>

days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.3:

                           (i)      if the Company has filed a Form S-3 (or any
successor to Form S-3) or any similar short-form registration statement within
six (6) months of the receipt of a request pursuant to this Section 2.3,

                           (ii)     if Form S-3 (or any successor or similar
form) is not available for such offering by the Investors, or

                           (iii)    if the Investors, together with the holders
of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than $1,000,000, or

                           (iv)     if the Company shall furnish to the
Investors a certificate signed by the Chairman of the Board of Directors of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right once within each consecutive twelve-month period to
defer the filing of the Form S-3 registration statement for a period of not more
than ninety (90) days after receipt of the request of the Investor or Investors
under this Section 2.3, or

                           (v)      in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.

                  (c) Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Investors.

         2.4.     Expenses of Registration. Except as specifically provided
herein, all Registration Expenses incurred in connection with any registration
under Sections 2.2 or 2.3 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 2.3,
the request of which has been subsequently withdrawn by the initiating Investors
unless the withdrawal is based upon material adverse information concerning the
Company of which the initiating Investors were not aware at the time of such
request. If the Investors are required to pay the Registration Expenses, such
expenses shall be borne by the holders of securities (including Registrable
Securities) requesting such registration in

                                       6
<PAGE>

proportion to the number of shares for which registration was requested. If the
Company is required to pay the Registration Expenses of a withdrawn offering
pursuant this Section 2.4, then the Investors shall not forfeit their rights
pursuant to Section 2.3 to a Form S-3 registration.

         2.5.     Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:

                  (a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, upon the request of
the Investors of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for up to ninety (90) days or, if
earlier, until the Investor or Investors have completed the distribution related
thereto; provided, however, that (i) such ninety (90) day period shall be
extended for a period of time equal to the period the Investor refrains from
selling any Securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company, and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such ninety (90) day
period shall be extended, if necessary, to keep it effective until all such
Registrable Securities are sold, however in no event longer than one (1) year
from the effective date of the registration and provided that Rule 145, or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed basis; and, provided further, that the Company shall be entitled to
elect that an effective registration statement not be useable and require the
Investors to suspend sales pursuant to the prospectus contained therein, for a
reasonable period of time, but not in excess of ninety (90) days (a "Blackout
Period"), if the Company determines in good faith that the registration and
distribution of the Registrable Securities (or the use of the registration
statement or related prospectus) would interfere with any pending material
acquisition, material corporate reorganization, primary underwritten offering of
Company securities or any other premature disclosure thereof. The Company shall
promptly give the Investors written notice of such Blackout Period, containing a
general statement of the reasons for such restriction of use of the registration
statement and related prospectus and an approximation of the anticipated delay.

                  (b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.

                  (c) Furnish to the Investors such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the

                                       7
<PAGE>

Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.

                  (d) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Investors, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.

                  (e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Investor
holding Registrable Securities participating in such underwriting shall also
enter into and perform its obligations under such an agreement.

                  (f) Notify each Investor covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing and, at the
request of any Investor, prepare and furnish to such Investor a reasonable
number of copies of a supplement to, or an amendment of, such prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.

                  (g) Furnish, at the request of a majority of the Investors
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Investors
requesting registration, addressed to the underwriters, if any, and to the
Investors requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Investors requesting
registration, addressed to the underwriters, if any, and

                                       8
<PAGE>

if permitted by applicable accounting standards, to the Investors requesting
registration of Registrable Securities.

         2.6.     Termination of Registration Rights. All registration rights
granted to an Investor under this Section 2 shall terminate and be of no further
force and effect upon such date as all shares of Registrable Securities held or
entitled to be held upon conversion by such Holder may immediately be sold under
Rule 144(k) during any ninety (90) day period.

         2.7.     Delay of Registration; Furnishing Information.

                  (a) No Investor shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.

                  (b) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to Section 2.2 or 2.3 that the selling
Investors shall furnish to the Company such information regarding themselves,
the Registrable Securities held by them and the intended method of disposition
of such securities as shall be required to effect the registration of their
Registrable Securities.

                  (c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2.3 if, due to the operation of
subsection (b) of such Section, the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 2.3.

         2.8.     Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2 or 2.3:

                  (a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor, the partners, officers, directors and legal
counsel of each Investor, any underwriter (as defined in the Securities Act) for
such Investor and each person, if any, who controls such Investor or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or

                                       9
<PAGE>

supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law in connection with the offering covered by such
registration statement; and the Company will reimburse each such Investor,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
that the indemnity agreement contained in this Section 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Investor, partner, officer, director, underwriter
or controlling person of such Investor.

                  (b) To the extent permitted by law, each Investor will, if
Registrable Securities held by such Investor are included in the securities as
to which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Investor selling
securities under such registration statement or any of such other Investor's
partners, directors or officers or any person who controls such Investor,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter or
other such Investor, or partner, director, officer or controlling person of such
other Investor may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Investor under an instrument duly executed by such Investor
and stated to be specifically for use in connection with such registration; and
each such Investor will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Investor, or partner, officer, director or controlling
person of such other Investor in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially determined
that there was such a Violation; provided, however, that the indemnity agreement
contained in this Section 2.8(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such

                                       10
<PAGE>

settlement is effected without the consent of the Investor, which consent shall
not be unreasonable withheld.

                  (c) Promptly after receipt by an indemnified party under this
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.8.

                  (d) If the indemnification provided for in this Section 2.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by an
Investor hereunder exceed the proceeds from the offering received by such
Investor.

                  (e) The obligations of the Company and Investor under this
Section 2.8 shall survive completion of any offering of Registrable Securities
in a

                                       11
<PAGE>

registration statement. No indemnifying party, in the defense of any such claim
or litigation, shall, except with the consent of each indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.

         2.9.     Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by an Investor to a transferee or assignee of Registrable Securities
(i) which is a subsidiary, affiliate, parent, general partner, limited partner
or retired partner of an Investor or (ii) which receives at least 25% of the
Registrable Securities held by such Investor as of the date hereof; provided,
however, that the rights to cause the Company to register Registrable Securities
pursuant to this Section 2 may be assigned by a transferee pursuant to (ii)
above (the "Original Transferee") only if the Original Transferee transfers at
least 200,000 shares of Registrable Securities to such transferee; and provided,
further, that (A) the transferor shall, within ten (10) days after such
transfer, furnish to the Company written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned and (B) such transferee shall agree to be
subject to all restrictions set forth in this Agreement.

         2.10.    "Market Stand-Off" Agreement. If requested by the Company or
the representative of the underwriters of Common Stock (or other securities) of
the Company, each Investor shall not sell or otherwise transfer or dispose of
any Common Stock (or other securities) of the Company held by such Investor
(other than those included in the registration) for a period specified by the
representative of the underwriters, provided that all Investors, Caymas, LLC,
Gregory S. Daily, Carl Grimstad and Stream Family Limited Partnership enter into
similar agreements. The obligations described in this Section 2.10 shall not
apply to a registration relating solely to employee benefit plans on Form S-1 or
Form S-8 or similar forms that may be promulgated in the future, or a
registration relating solely to a Commission Rule 145 transaction on Form S-4 or
similar forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said
restricted period.

         2.11.    Rule 144 Reporting. With a view to making available to the
Investors the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities and Founders' Stock to the public
without registration, the Company agrees to use its best efforts to:

                  (a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the

                                       12
<PAGE>

first registration filed by the Company for an offering of its securities to the
general public;

                  (b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Exchange Act;

                  (c) So long as an Investor owns any Registrable Securities,
furnish to such Investor forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as an
Investor may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.

3.       Covenants of the Company.

         3.1.     Basic Financial Information and Reporting.

                  (a) As soon as practicable after the end of each fiscal year
of the Company, and in any event within one hundred twenty (120) days
thereafter, the Company will furnish each Investor an audited consolidated and
consolidating balance sheet of the Company as of the close of such fiscal year
and an audited consolidated and consolidating statement of operations of the
Company and statement of cash flows of the Company for such fiscal year, all
prepared in accordance with generally accepted accounting principles
consistently applied and accompanied by an unqualified audit report prepared by
an independent certified public accountant mutually acceptable to the Company
and the Investors.

                  (b) As soon as practicable after the end of each quarterly
fiscal period (except the last) of each fiscal year, and in any event within
thirty (30) days thereafter, the Company will furnish each Investor a
consolidated balance sheet of the Company as of the end of each such quarter and
a consolidated statement of income and statement of cash flows of the Company
for such period, prepared in accordance with generally accepted accounting
principles consistently applied, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.

                  (c) As soon as practicable after the end of each month, and in
any event within thirty (30) days thereafter, the Company will furnish each
Investor a consolidated balance sheet of the Company as of the end of each such
month and a consolidated statement of income and statement of cash flows of the
Company for such period, prepared in accordance with generally accepted
accounting principles consistently applied, with the exception that no notes
need be attached to such statements and year-end audit adjustments may not have
been made.

                                       13
<PAGE>

                  (d) At least thirty (30) days prior to the beginning of each
fiscal year, the Company will furnish each Investor an annual operating plan for
such fiscal year (and as soon as available, any subsequent revisions thereto).

         3.2.     Books and Records and Inspection Rights. The Company will
keep, and will cause each of its subsidiaries to keep, proper books of record
and account in which full and correct entries will be made of all dealings or
transactions of or in relation to the business and affairs of the Company or
such subsidiary in accordance with generally accepted accounting principles
consistently maintained. Each Investor shall have the right to visit and inspect
any of the properties of the Company or any of its subsidiaries, and to discuss
the affairs, finances and accounts of the Company or any of its subsidiaries
with its officers, and to review such information as is reasonably requested all
at such reasonable times and as often as may be reasonably requested; provided,
however, that the Company shall not be obligated under this Section 3.2 with
respect to information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.

         3.3.     Limitations on Actions of the Company.

                  (a) The Company shall not, without the approval of the
Board of Directors of the Company, take any of the following actions:

                           (i)      Hire any executive officers of the Company;

                           (ii)     Enter into any material real estate
purchase or lease agreements; or

                           (iii)    Enter into any obligations or commitments,
including any capital equipment leases or purchases, with a total value greater
than $150,000 that are outside the most recent business plan or budget approved
by the Board of Directors pursuant to Section 3.3(c) below.

                  (b) The Company shall not, without the approval of a majority
of the disinterested members of the Board of Directors or the compensation
committee of Board of Directors, if in existence, take any of the following
actions:

                           (i)      Enter into any employment agreements;

                           (ii)     Establish any compensation programs
including base salaries and bonus programs for the officers and directors of the
Company; or

                           (iii)    Adopt any stock option plan or establish any
stock option program or issue any stock or stock options not issued under a plan
or program approved pursuant to this Section 3.3(b).

                                       14
<PAGE>

                  (c) The Board of Directors shall approve the annual
budgets and any business or financial plans of the Company.

         3.4.     Board of Directors.

                  (a) The Board of Directors of the Company shall initially
have seven (7) members;

                  (b) Meetings of the Board of Directors of the Company
will be held at least four (4) times per year;

                  (c) The Company shall reimburse each member of the Board of
Directors elected pursuant to a Voting Agreement of even date herewith for his
actual and reasonable expenses incurred in attending the meetings of the Board
of Directors; and

                  (d) The Company shall acquire and maintain in effect directors
and officers liability insurance in such amounts and with such coverage terms as
reasonably acceptable to the Investors.

         3.5.     Key-Man Insurance. The Company shall procure and maintain in
effect with financially sound and reputable insurers a key-man life insurance
policy on Gregory S. Daily in the amount of not less than $5,000,000, naming the
Company as beneficiary, while Mr. Daily is employed or otherwise actively and
materially involved in the management of the Company.

         3.6.     Termination of Covenants. All covenants of the Company
contained in Section 3 of this Agreement shall expire and terminate upon the
closing of the Initial Offering.

4.       Rights of First Refusal.

         4.1.     Right of First Refusal.

                  4.1.1 Subsequent Offerings. Each Investor shall have a right
of first refusal to purchase its pro rata share of all Equity Securities, as
defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 4.4 hereof. Each Investor's pro rata share is equal to the
ratio of (A) the number of shares of the Company's Common Stock of which such
Investor is deemed to be a holder immediately prior to the issuance of such
Equity Securities, assuming full conversion of the Preferred Stock and exercise
of the Warrants held by such Investor to (B) the total number of shares of the
Company's outstanding Common Stock immediately prior to the issuance of the
Equity Securities. The term "Equity Securities" shall mean (i) any Common Stock,
Preferred Stock or other security of the Company, (ii) any security convertible,
with or without consideration, into any

                                       15
<PAGE>

Common Stock, Preferred Stock or other security (including any option to
purchase such a convertible security), (iii) any security carrying any warrant
or right to subscribe to or purchase any Common Stock, Preferred Stock or other
security or (iv) any such warrant or right.

                  4.1.2 Exercise of Rights. If the Company proposes to issue any
Equity Securities, it shall give each Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Investor shall have twenty
(20) days from the giving of such notice to agree to purchase its pro rata share
of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. If any Investor fails
to exercise its right hereunder to purchase its pro rata share of the Equity
Securities, the other Investors may purchase the non-purchasing Investor's
portion on a pro rata basis within ten (10) days from the date such
non-purchasing Investor fails to exercise its rights hereunder. Notwithstanding
the foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Investor who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.

                  4.1.3 Issuance of Equity Securities to Other Persons. If the
Investors fail to exercise in full the rights of first refusal, the Company
shall have sixty (60) days thereafter to sell the Equity Securities in respect
of which the Investors' rights were not exercised, at a price and upon general
terms and conditions no more favorable to the purchasers thereof than specified
in the Company's notice to the Investors pursuant to Section 4.1 hereof. If the
Company has not sold such Equity Securities within sixty (60) days of the notice
provided pursuant to Section 4.1, the Company shall not thereafter issue or sell
any Equity Securities, without first offering such securities to the Investors
in the manner provided above.

         4.2.     Termination of Rights of First Refusal. The rights of first
refusal established by this Section 4 shall not apply to, and shall terminate
upon the closing of, an Initial Offering.

         4.3.     Transfer of Rights of First Refusal. The rights of first
refusal of each Investor under this Section 4 may be transferred to the same
parties, subject to the same restrictions as any transfer of registration rights
pursuant to Section 2.9.

         4.4.     Excluded Securities. The rights of first refusal established
by this Section 4 shall have no application to the issuance of any of the
following Equity Securities:

                  (a) 1,559,582 shares of Common Stock (and/or options, warrants
or other Common Stock purchase rights issued pursuant to such options, warrants
or other rights) issued or to be issued to employees, officers or directors of,
or consultants or advisors to the Company or any subsidiary, pursuant to stock

                                       16
<PAGE>

purchase or stock option plans or other arrangements that are approved by the
Board of Directors;

                  (b) shares of Common Stock issued pursuant to any rights or
agreements outstanding as of the date of this Agreement, and shares of Common
Stock issued pursuant to any such rights or agreements granted after the date of
this Agreement, provided that the rights of first refusal established by this
Section 4 applied with respect to the initial sale or grant by the Company of
such rights or agreements;

                  (c) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination approved by the Board of Directors and the Investors to the extent
such approval of the Investors is required under the Loan and Security
Agreement, the Warrants of even date herewith and the Articles of Amendment to
the Charter of the Company as filed on the date hereof;

                  (d) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;

                  (e) shares of preferred stock of the Company or warrants to
purchase Common Stock of the Company, and the Common Stock issued upon
conversion or exercise of such preferred stock or warrants, issued pursuant to
the Stock Purchase Agreement or the Loan and Security Agreement;

                  (f) shares of Common Stock issued upon an Initial Offering;

                  (g) shares of Common Stock issued in connection with any
anti-dilution rights granted to any of the Investors;

                  (h) shares of Common Stock issued pursuant to the offering of
shares of Common Stock to the shareholders of iPayment Technologies, Inc.
("iPayment") in exchange for shares of Common Stock of iPayment, on the same
terms as described in the Common Stock Exchange Agreement of even date herewith;
or

                  (i) shares of Common Stock issued to 1st National Processing,
Inc. in connection with its or its subsidiary's acquisition by the Company.

         4.5.     Excluded Transaction. The rights of first refusal established
by this Section 4 shall have no application to Investors who do not qualify as
"accredited investors" as such term is defined in Regulation D under the
Securities Act if the Board of Directors has determined that the offering which
would give rise to such right of first refusal shall be made only to accredited
investors for purposes of meeting the requirement of an exemption to
registration under the Securities Act.

                                       17
<PAGE>

         5.       Indemnification Adjustment.

                  (a) The parties hereto agree that, if the Company is required
to pay to IT Solution Ventures, LLC ("IT Solution"), the Internal Revenue
Service and/or the applicable state taxing authority, in connection with both
(i) the Promissory Note, dated July 20, 2000, between the Company and IT
Solution and (ii) the deductions taken by iPayment Technologies, Inc. for the
years ended December 31, 1996, 1997, 1998 and 1999 for management fees and other
intercompany transactions with, and amounts paid to, R. J. Gordon Company and
its subsidiaries, related companies or related parties which may be deemed
non-deductible by the Internal Revenue Service or the applicable state taxing
authority (the "Total Liability"), an aggregate amount greater than $2,900,000
(the "Accrued Liability"), the Company shall issue to First Avenue Partners,
L.P. ("First Avenue") additional shares of Preferred Stock (or Common Stock, if
the Preferred Stock held by First Avenue has been converted into shares of
Common Stock at the time of such issuance of additional shares) to First Avenue
and shall adjust the number of warrant shares covered by the Warrants held by
Harbinger Mezzanine Partners, L.P. ("Harbinger") and Petra Mezzanine Fund, L.P.
("Petra") (or issue shares of Common Stock to Harbinger and Petra if the
Warrants have been converted into shares of Common Stock at the time of such
adjustment) as described below (the "Indemnification Adjustment"). Each of the
Investors shall receive the number of shares of Preferred Stock, the number of
shares of Common Stock or the right to convert their Warrants into an additional
number of shares of Common Stock, as applicable, equal to (i) (A) the Total
Liability less the Accrued Liability multiplied by (B) such Investor's
Adjustment Multiple (as defined below), divided by (ii) $2.01. Each Investor's
"Adjustment Multiple" as used in this Section 5(a) shall mean (i) 0.1726 for
First Avenue, (ii) 0.0543 for Harbinger and (iii) 0.0407 for Petra, subject to
any adjustments provided in the Articles of Amendment or Warrants.

                  (b) The Indemnification Adjustment shall be made, if
necessary, once at the earlier to occur of (i) the closing of an Initial
Offering, and (ii) three years from the date on which the 1999 federal tax
return was filed (the "Adjustment Date"). As soon as practicable after the
Adjustment Date, the Company will issue the appropriate stock certificates or
amendments to the Warrants evidencing the Indemnification Adjustment. The remedy
provided in this Section 5 relating to the matters discussed herein shall be the
sole and exclusive remedy of the Investors with respect to such matters under
this Agreement, the Stock Purchase Agreement, the Loan and Security Agreement
and the Warrants.

         6.       Miscellaneous.

         6.1.     Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Tennessee.

         6.2.     Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Investor and
the closing

                                       18
<PAGE>

of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.

         6.3.    Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.

         6.4.     Severability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

         6.5.     Amendment and Waiver. Except as otherwise expressly provided,
this Agreement may be amended or modified, and the obligations of the Company
and the rights of the Investors under this Agreement may be waived, only upon
the written consent of the Company and the Investors holding at least
seventy-five percent (75%) of the Registrable Securities then outstanding;
provided, however, that no amendment shall be made to any provision of this
Agreement that has an adverse effect on any party's rights under this Agreement
without the written consent of such adversely-effected party.

         6.6.     Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Investor, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Investor's part of any breach, default or noncompliance under this Agreement
or any waiver on such Investor's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Investors, shall be cumulative and
not alternative.

         6.7.     Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal

                                       19
<PAGE>

business hours of the recipient; if not, then on the next business day, (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (iv) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature pages hereof or
Exhibit A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.

         6.8.     Attorneys' Fees. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.

         6.9.     Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.

         6.10.    Pronouns. All pronouns contained herein and any variations
thereof shall be deemed to refer to the masculine, feminine or neuter, singular
or plural, as the identity of the parties hereto may require.

         6.11.    Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

         6.12.    Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the matters set forth herein,
and it supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein.

                      (SIGNATURES BEGIN ON FOLLOWING PAGE)

                                       20
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.

                              COMPANY:

                              iPAYMENT HOLDINGS, INC.

                              By:     /s/ Carl Grimstad
                                      ----------------------------------------
                              Title:  President
                                      ----------------------------------------

                              INVESTORS:

                              FIRST AVENUE PARTNERS, L.P.

                                      Front Street, LLC, G.P.

                              By:     /s/ Corley W. Graham, Jr.
                                      ----------------------------------------
                              Title:  Member
                                      ----------------------------------------

                              HARBINGER MEZZANINE PARTNERS, L.P.

                              By:     Harbinger Mezzanine GP, LLC,
                                      its General Partner

                                      By:   Harbinger Mezzanine Manager, Inc.,
                                            its Manager

                              By:     /s/ John S. Scott
                                      -------------------------------
                              Title:  Vice President
                                      -------------------------------

                              PETRA MEZZANINE FUND, L.P.

                                      Petra Partners, LLC

                              By:     /s/ Michael W. Blackburn
                                      --------------------------------
                              Title:  Managing Member
                                      --------------------------------

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