Document:

TOWNE SERVICES, INC.
                         DIRECTOR STOCK OPTION AGREEMENT

         THIS DIRECTOR STOCK OPTION AGREEMENT (this "Agreement"), is entered
into as of the ____ day of _____________, _____, by and between Towne Services,
Inc., a Georgia corporation (the "Company"), and __________________ (the
"Optionee").

         WHEREAS, effective as of April 26, 2000, the Board of Directors of the
Company adopted a stock option plan known as the Amended and Restated Director
Stock Option Plan of Towne Services, Inc. (the "Plan"), and the Company's
shareholders approved the Plan on May 23, 2000, at the 2000 Annual Meeting of
Shareholders; and

         WHEREAS, the Optionee is a valued director of the Company or a
subsidiary of the Company; and

         WHEREAS, the Company considers it desirable and in its best interest
that the Optionee be provided an inducement to acquire an ownership interest in
the Company and an additional incentive to advance the interest of the Company
through the grant of an option to purchase shares of common stock of the Company
pursuant to the Plan; and

         WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to the option in accordance with the Plan.

         NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows.

         1. Incorporation of the Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated into this Agreement by reference and made a part of this Agreement.
A copy of the Plan has been delivered to, and receipt is acknowledged by, the
Optionee.

         2. Grant of Option. Subject to the terms, restrictions, limitations,
and conditions stated in this Agreement, the Company grants to the Optionee the
right and option (the "Option") to purchase all or any part of the number of
shares of the Company's Common Stock, no par value (the "Stock"), set forth on
Schedule A attached to this Agreement. The Option shall be exercisable in the
amounts and at the time specified on Schedule A. The Option expires and shall
not be exercisable on and after the date specified on Schedule A, or on any
earlier date as determined by this Agreement. This Option is not intended to be
an Incentive Stock Option, as defined in the Internal Revenue Code.

         3. Purchase Price. The price per share to be paid by the Optionee for
the shares subject to this Option (the "Exercise Price") is specified on
Schedule A.

         4. Exercise Terms. The Optionee must exercise the Option for at least
the lesser of 100 shares or the number of shares of stock which may be purchased
by the Optionee under the terms of this Agreement as to which the Option remains
unexercised. If this Option is not exercised with respect to all or any part of
the shares subject to this Option prior to its expiration, the shares with
respect to which this Option was not exercised shall no longer be subject to
this Option.

         5. Restrictions on Transferability. No Option shall be transferable by
an Optionee other than by will or the laws of descent and distribution or
pursuant to a Qualified Domestic Relations Order

<PAGE>

(as defined in the Internal Revenue Code of 1986, as amended (the "Code") or in
the Employee Retirement Income Security Act of 1974, as amended (the "Act"), or
the rules and regulations promulgated under the Code or the Act). During the
lifetime of an Optionee, Options shall be exercisable only by such Optionee (or
by such Optionee's guardian or legal representative, should one be appointed).

         6. Notice of Exercise of Option. This Option may be exercised by the
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by the
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 11 of this Agreement to the attention of
the President or any other officer the Company may designate. These notices
shall (a) specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may be, then elects to purchase hereunder, (b) contain such information as may
be reasonably required by the Company, and (c) be accompanied by (i) a certified
or cashier's check, money order or personal check (if approved by the Board)
payable to the Company in payment of the total Exercise Price applicable to the
shares as provided herein, (ii) shares of Stock owned by the Optionee and duly
endorsed or accompanied by stock transfer powers having a Fair Market Value (as
determined by the Board of Directors) equal to the total Exercise Price
applicable to the shares purchased hereunder, (iii) a written election by
Optionee to receive the full number of Shares purchasable under the Option then
being exercised less that number of shares that have a value being equal to the
Exercise Price, or (iv) any combination of (i), (ii) or (iii) above. Upon
receipt of the exercise notice and accompanying payment, and subject to the
terms hereof, the Company agrees to issue to the Optionee or the Optionee's
administrators, executors or personal representatives, as the case may be, stock
certificates for the number of shares specified in the notice registered in the
name of the person exercising this Option.

         7. Adjustment in Option. The number of Shares subject to this Option,
the Exercise Price and other matters are subject to adjustment during the term
of this Option in accordance with Section 11 of the Plan.

         8. Termination of Directorship. The unexercised portion of an Option
shall automatically and without notice terminate and be forfeited upon the
earliest to occur of the following:

                  (a) if the Optionee's position as a director of the Company
terminates, other than by reason of such Optionee's death or disability, 180
days after the date that the Optionee's position as a director of the Company
terminates;

                  (b) one year after the death of the Optionee;

                  (c) one year after the date on which the Optionee's position
as director of the Company is terminated by reason of a mental or physical
disability determined by a medical doctor satisfactory to the Company; or

                  (d) five years after the date of grant of such Option.

         9. Date of Grant. This Option was granted by the Board of Directors of
the Company on the date set forth in Schedule A (the "Date of Grant").

         10. Compliance with Regulatory Matters. The Optionee acknowledges that
the issuance of capital stock of the Company is subject to limitations imposed
by federal and state law and the Optionee hereby agrees that the Company shall
not be obligated to issue any shares of Stock upon exercise of this

                                       2
<PAGE>

Option that would cause the Company to violate any law or any rule, regulation,
order or consent decree of any regulatory authority (including without
limitation the Securities and Exchange Commission) having jurisdiction over the
affairs of the Company. The Optionee agrees that he or she will provide the
Company with any information as is reasonably requested by the Company or its
counsel to determine whether the issuance of Stock complies with the provisions
described by this Section.

         11. Miscellaneous.

                  (a)  This Agreement  shall be binding upon the parties hereto
and their representatives, successors and assigns.

                  (b)  This  Agreement  is executed and  delivered  in, and
shall be governed by the laws of, the State of Georgia.

                  (c) Any requests or notices to be given hereunder shall be
deemed given, and any elections or exercises to be made or accomplished shall be
deemed made or accomplished, upon actual delivery thereof to the designated
recipient, or three days after deposit thereof in the United States mail,
registered, return receipt requested and postage prepaid, addressed, if to the
Optionee, at the address set forth below and, if to the Company, to the
executive offices of the Company.

                  (d) This Agreement may not be modified except in writing
executed by each of the parties hereto.

                                       3
<PAGE>

         IN WITNESS WHEREOF, the Board of Directors of the Company has caused
this Director Stock Option Agreement to be executed on behalf of the Company and
the Company's seal to be affixed to this Agreement and attested by the Secretary
or an Assistant Secretary of the Company, and the Optionee has executed this
Director Stock Option Agreement under seal, all as of the day and year first
above written.

                                   COMPANY:

                                   TOWNE SERVICES, INC.
Attest:

                                   By:
-----------------------------            ---------------------------------------
         Secretary
                                   Name:
         [SEAL]                           --------------------------------------

                                   Title:
                                          --------------------------------------

                                   OPTIONEE:

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

                                   Name:      ----------------------------------

                                   Address:   ----------------------------------

<PAGE>

                                   SCHEDULE A
                                       TO
                         DIRECTOR STOCK OPTION AGREEMENT
                                     BETWEEN
                              TOWNE SERVICES, INC.
                                       AND
                            ____________________________
                            Dated ___________________

1.       Number of Shares Subject to Option: ___________ shares of the Company's
         Common Stock

2.       This Option (Check one) [ ] is [x] is not an Incentive Stock Option.

3.       Option Exercise Price:  $_______ per share.

4.       Date of Grant:

5.       Option Vesting Schedule:

                  Options are vested with respect to all shares on the date
                  hereof, but the option may not be exercised prior to the six
                  month anniversary of the date hereof.

6.       Option Exercise Period:

         Options expire and are void unless exercised on or
         before _________________.

                                      A-1
<PAGE>

                                   SCHEDULE B
                                       TO
                         DIRECTOR STOCK OPTION AGREEMENT
                                     BETWEEN
                              TOWNE SERVICES, INC.
                                       AND
                              ___________________
                           Dated ____________________

                               NOTICE OF EXERCISE

                  The undersigned hereby notifies Towne Services, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase shares of the Company's Common Stock, no par value (the "Common
Stock"), pursuant to the Director Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated ________________. Accompanying
this Notice is (1) a certified or cashier's check, money order or personal check
(if approved by the Board) in the amount of $____________ payable to the
Company, (2) ______________ shares of the Company's Common Stock presently owned
by the undersigned and duly endorsed or accompanied by stock transfer powers,
having an aggregate Fair Market Value as of the date hereof of $____________,
and/or (3) a written election by the undersigned to receive the full number of
shares purchasable under the Agreement less that number of shares that have a
value being equal to the Exercise Price, these amounts being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 7 of the
Agreement).

         IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
_____ day of ___________, ____.

                                   OPTIONEE [OR OPTIONEE'S
                                   ADMINISTRATOR,
                                   EXECUTOR OR PERSONAL
                                   REPRESENTATIVE]

                                   ---------------------------------------------
                                   Name:
                                   Position (if other than Optionee):EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT (this "Agreement") is made by and between
TOWNE SERVICES, INC., a Georgia corporation (the "Company"), and HENRY M.
BAROCO, an individual resident of Georgia (the "Executive"), as of the 9th day
of February, 2001 (the "Effective Date").

         The Company desires to employ the Executive as its President and Chief
Operating Officer. The Board of Directors of the Company (the "Board")
recognizes that the Executive's contribution to the growth and success of the
Company is substantial. The Board desires to provide for the employment of the
Executive which the Board has determined will reinforce and encourage the
dedication of the Executive to the Company and will promote the best interests
of the Company and its stockholders. The Executive is willing to serve the
Company on the terms and conditions herein provided.

         In consideration of the foregoing, the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree that oil the Effective Date:

         1. Employment. The Company shall employ the Executive, mid the
Executive shall serve the Company, as President and Chief Operating Officer upon
the terms and conditions set forth herein. The Executive shall have such
authority and responsibilities consistent with his position and which may be set
forth in the Company's bylaws or assigned by the Board from time to time. The
Executive shall devote his full business time, attention, skill and efforts to
the performance of his duties hereunder, except during periods of illness or
periods of vacation and leaves of absence consistent with Company policy. Thc
Executive may devote reasonable periods of time to serve as a director or
advisor to other organizations, to perform charitable and other community
activities, and to manage his personal investments; provided, however, that such
activities do not materially interfere with the performance of his duties
hereunder and are not in conflict or competitive with, or adverse to, the
interests of the Company.

         2. Term. Unless earlier terminated as provided herein, the Executive's
employment under this Agreement shall be for a continuing term. (the "Term") of
two years, which shall be extended automatically (without further action of the
Company or the Executive) each day for an additional day so that the remaining
term shall continue to be two years; provided, however, that either party may at
any time. by written notice to the other, fix the Term to a finite term of two
years, without further automatic extension, commencing with the date of such
notice.

         3. Compensation and Benefits.

         a. The Company shall pay the Executive a salary at a rate of not less
than $300,000 per annum in accordance with the salary payment practices of the
Company. The Board (or an appropriate committee of the Board) shall review the
Executive's salary at

<PAGE>

least annually and may increase the Executive's base salary if it determines in
its sole discretion that an increase is appropriate. The Company shall also pay
to the Executive the same amount of directors' fees, if any, that are paid to
any of the directors.

         b. The Executive shall participate in a management incentive program
and shall be eligible to receive quarterly bonus payments based upon achievement
of targeted levels of performance and such other criteria as the Board (or an
appropriate committee of the Board) shall establish from time to time pursuant
to that program. In addition, the Board shall annually consider the Executive's
performance and determine if any additional bonus is appropriate.

         c. The Executive shall participate in the Company's stock option plan
and be eligible for the grant of stock options, restricted stock and other
awards thereunder.

         d. The Executive shall participate in all retirement, welfare, deferred
compensation, life and health insurance, and other benefit plans or programs of
the Company now or hereafter applicable to the Executive or applicable generally
to employees of the Company or to a class of employees that includes senior
executives of the Company; provided, however, that during any period during the
Term that the Executive is subject to a Disability, and during the 365-day
period of physical or mental infirmity leading up to the Executive's Disability,
the amount of the Executive's compensation provided under this Section 3 shall
be reduced by the sum of the amounts, if any, paid to the Executive for the same
period under any disability benefit or pension plan of the Company or any of
subsidiaries.

         e. The Company shall provide to the Executive an automobile owned or
leased by the Company of a make and model appropriate to the Executive's status
or all automobile allowance of tip to $750.00 per month, at the Company's
election. The Company shall also reimburse all reasonable expenses incurred by
the Executive in connection with the operation and maintenance of the
automobile, including for gasoline, insurance, tires and similar items.

         f. The Company shall reimburse the Executive's reasonable expenses for
dues and capital assessments for country and dining club memberships currently
field by the Executive; provided, however, that if the Executive during the term
of his employment with the Company ceases his membership in any such clubs and
any bonds or other capital payments made by the Company are repaid to the
Executive, the Executive shall pay over such payments to the Company.

         g. The Company shall reimburse the Executive for travel, seminar, and
other expenses related to the Executive's duties which are incurred and
accounted for in accordance with the historic practices of the Company.

         4. Termination.

         a. The Executive's employment under this Agreement may be terminated
prior to the end of the Term only as follows:

                                       2

<PAGE>

                  (i) upon the death of the Executive;

                  (ii) by the Company due to the Disability of the Executive
              upon delivery of a Notice of Termination to the Executive;

                  (iii) by the Company for Cause upon delivery of a Notice of
              Termination to the Executive;

                  (iv) by the Company without Cause upon delivery of a Notice of
              Termination to the Executive; and

                  (v) by the Executive for any reason upon delivery of a Notice
              of Termination to the Company.

                  b. If the Executive's employment with the Company shall be
terminated during the Term (i) by reason of the Executive's death, or (ii) by
the Company for Disability or Cause, the Company shall pay to the Executive (or
in the case of his death, the Executive's estate) within fifteen days after the
Termination Date a lump sum cash payment equal to the Accrued Compensation and,
if such termination is other than by the Company for Cause, the Pro Rata Bonus.

                  c. If the Executive's employment with the Company shall be
terminated by the Company without Cause, or by the Executive for any reason
within 3 months after a Change in Control, in addition to other rights and
remedies available law or equity, the Executive shall be entitled to the
following:

                  (i) the Company shall pay the Executive in cash within fifteen
              days of the Termination Date an amount equal to all Accrued
              Compensation and the Pro Rata Bonus;

                  (ii) the Company shall pay to the Executive in cash at the end
              of each of the 24 consecutive 30-day periods following the
              Termination Date (the "Severance Period") an amount equal to
              one-twelfth of the sum of the Base Amount and the Bonus Amount;
              and

                  (iii) the Company shall continue to provide Executive company
              employee benefits during the Severance Period. Except as set forth
              herein, those company employee benefits will be the same as those
              being offered to Executive and his dependants as set forth in 3d,
              3e and 3f. With respect to health insurance coverage for Executive
              and his dependents, the Company will pay Executive's insurance
              premiums and his annual deductible. However, the Company will not
              be obligated to reimburse Executive for any medical expenses that
              are not paid by the Company's insurance policy. The Company's
              obligation hereunder with respect to the foregoing benefits shall
              be limited to the extent that the Executive obtains any such
              benefits pursuant to a subsequent employer's benefit plans, in
              which case the Company may reduce the benefits offered

                                       3
<PAGE>

              hereunder as long as the aggregate coverages and benefits of the
              combined benefit plans is no less favorable to the Executive than
              the coverages and benefits required to be provided hereunder.

                  (iv) If the Executive's employment is terminated by the
              Company without Cause, or by the Executive for any reason within 3
              months after a Change in Control, and at the end of the Severance
              Period Executive is employed by a company that provides
              substantially equivalent health insurance coverage to the health
              insurance provided hereunder, the Company's obligation to provide
              health insurance benefits to Executive shall end. However, if
              Executive is not employed at the end of the Severance Period or
              his new employer either does not provide health insurance benefits
              to its employees or the benefits provided arc no( substantially
              equivalent to the benefits provided by the Company hereunder, the
              Company shall continue to provide health insurance benefits to
              Executive until Executive accepts employment with an employer that
              provides substantially equivalent benefits or Executive reaches
              the age of sixty-five (65), whichever occurs sooner. If Executive
              obtains any health insurance benefits pursuant to a subsequent
              employer's benefit plans, the Company may reduce the benefits
              offered by the Company so long as the coverages and benefits of
              the combined benefit plans are no less favorable to Executive than
              the coverages and benefits provided hereunder.

                  d. Except as provided in subparts c(iii) and (c)(iv) above,
the Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise and no
such payment shall be offset or reduced by the amount of any compensation or
benefits provided to the Executive in any subsequent employment.

                  e. In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")) to the Executive or for his benefit paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise ill
connection with, or arising out of, his employment with the Company or a change
in ownership or effective control of the Company or of a substantial portion of
its assets (a "Payment" or "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Executive's failure to file timely a tax
return or pay taxes shown due on his return, imposed with respect to such taxes
and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.

                  f. The severance pay and benefits provided for in this Section
4 shall be in lieu of any other severance or termination pay to which the
Executive may be entitled under

                                       4

<PAGE>

any Company severance or termination plan, program, practice or arrangement. The
Executive's entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit plans and other
applicable programs, policies and practices then in effect.

         5. Forgiveness of Loan. The Company and the Executive acknowledge that
the Executive is indebted to the Company in the principal and interest amount of
$472,976, as evidenced by the Note attached hereto as Exhibit A. As further
consideration for this Agreement, the Company agrees to forgive this loan in
sixty (60) monthly installments of $7,882.93, provided that Executive remains
employed with the Company. Should the Company terminate Executive's employment
hereunder other than for cause, or should Executive resign for any reason
following a change in control, the Company will forgive any outstanding portion
of the loan in twenty-four (24) monthly installments. If the Company terminates
Executive's employment for cause, or if Executive resigns at any time other than
following a change in control, the balance of the loan remaining on the
Executive's last day of employment will be due and payable upon demand, and the
Company's forgiveness of the loan shall cease.

         6. Trade Secrets. The Executive shall not, at any time, either during
the Term of his employment or after the Termination Date, use or disclose any
Trade Secrets of the Company, except in fulfillment of his duties as the
Executive during his employment for so long as the pertinent information or data
remain Trade Secrets, whether or not the Trade Secrets are in written or
tangible form.

         7.       Successors, Binding Agreement.

         a. This Agreement shall be binding upon and shall inure to the benefit
of the Company, its Successors and Assigns and the Company shall require any
Successors and Assigns to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place.

         b. Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent mid distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.

         8. Fees and Expenses. The Company shall pay all legal fees and related
expenses (including but not limited to the costs of experts, accountants and
counsel) incurred by the Executive is they become due as a result of (a) the.
Executive's termination of employment (including all such fees and expenses, if
any, incurred in contesting or disputing any such termination of employment) and
(b) the Executive seeking to obtain or enforce any right or benefit provided by
this Agreement; provided, however, that the total cost of Executive's
representation shall not exceed $30,000.

                                       5
<PAGE>

         9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other; provided, however, that all notices to the Company shall be
directed to the attention of the Board with a copy to the Secretary of the
Company. All notices and communications shall be deemed to have been received on
the date of delivery thereof.

         10. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement arid otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others. The Company may, however,
withhold from any benefits payable under this Agreement all federal, state,
city, or other taxes as shall be required pursuant to any law or governmental
regulation or ruling.

         11. Modification and Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and the Company. No waiver by
any party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.

         12. Governing, Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia without giving
effect to the conflict of laws principles thereof.

         13. Arbitration. Any controversy or claim against either party arising
from, out of or relating to this Agreement, the breach thereof (other than
controversies or claims arising from, out of or relating to this Agreement, the
breach thereof (other than controversies or claims arising from, out of or
relating to the provisions in Section 6 above, which may be litigated in a court
of competent jurisdiction), or the employment or termination thereof of
Executive by the Company which would give rise to a claim under federal, state
or local law (including but not limited to claims based in tort or contract,
claims for discrimination under state or federal law, and/or claims for
violation of any federal, state or local law, statute or regulation) ("Claims")
shall be submitted to in impartial mediator ("Mediator"') selected jointly by
the parties. Both parties shall attend a mediation conference and attempt to
resolve any and all Claims. If they are not able to able to resolve all Claims,
any unresolved Claims, including any dispute as to whether a matter constitutes
a Claim which must be submitted to arbitration, shall be determined by final
arid binding arbitration in Georgia in accordance with the Model Employment
Dispute Resolution Rules ("Rules") of the American Arbitration Association, by
an experienced employment arbitrator licensed to practice law in the State of
Georgia in accordance with the Rules, except as herein specified. The arbitrator
shall be selected by alternate striking from a list of six arbitrators, half of
which shall be supplied by the Company and half by Executive. The party not
initialing the arbitration shall strike first.

                                       6

<PAGE>

The process shall be repeated twice until an arbitrator is selected. If an
arbitrator is still not selected, the Mediator shall provide a list of three
names which will be alternately struck, with the party initiating the
arbitration striking first, until a selection is made.

         A demand for arbitration shall be made within a reasonable time after
the Claim has arisen. In no event shall the demand for arbitration be made after
the date when institution of legal and/or equitable proceedings based on such
Claim would be barred by the applicable statute of limitations. Each party to
the arbitration will be entitled to be represented by counsel and will have the
opportunity to take one deposition of an opposing party or witness before the
arbitration hearing. By mutual agreement parties, additional depositions may be
taken. The arbitrator shall have the authority to hear and grant a motion to
dismiss and/or for summary judgment, applying the standards governing such
motions under the Federal Rules of Civil Procedure. Each party shall have the
right to subpoena witnesses and documents for the arbitration hearing. A court
reporter shall record all arbitration proceedings.

          With respect to any Claim brought to arbitration hereunder, either
party may be entitled to recover whatever damages would otherwise be available
to that party in any legal proceeding based upon the federal and/or state law
applicable to the matter and as specified by Section 12. The decision of the
arbitrator may be entered and enforced in any court of competent jurisdiction by
either the Company or Executive. Each party shall pay the fees of their
respective attorneys (except as otherwise awarded by the arbitrator), the
expenses of their witnesses and any other expenses connected with presenting
their Claim or defense. Except as otherwise awarded by the arbitrator, other
costs of the arbitration, including the fees of the Mediator, the arbitrator,
the cost of any record or transcript of the arbitration, administrative fees,
and other fees and costs, shall be borne equally by the parties, one-half by
Executive, on the one hand, and one-half by the Company, on the other hand.
Should Executive or the Company pursue any dispute or matter covered by this
Section by this Section by any method other than said arbitration, the
responding party shall be entitled to recover from the other party all damages,
costs, expenses, and attorneys' fees incurred as a result of such action. The
provisions contained in this Section 13 shall survive the termination and/or
expiration of this Agreement.

         The parties indicate their acceptance of the foregoing arbitration
requirement by initialing below:

         ---------------                                    ------------
         For the Company                                      Executive

         14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions, hereof.

         15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.

                                       7
<PAGE>

         16. Headings. The headings of Sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

         17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

         18. Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:

                  a. "Accrued Compensation" shall mean an amount which shall
include all amounts earned or accrued through the Termination Date but not paid
as of the Termination Date including (i) base salary, (ii) reimbursement for
reasonable and necessary expenses incurred by the Executive on behalf of the
Company during the period ending on the Termination Date, and (iii) bonuses and
incentive compensation (other than the Pro Rata Bonus).

                  b. "Act" shall mean the Securities Act of 1933, as amended.

                  c. "Base Amount" shall mean the greater of the Executive's
annual base salary (j) at the rate in effect on the Termination Date or (ii) at
the highest rate in effect at any time during the 90-day period prior to the
Change in Control, and shall include all amounts of his base salary that ire
deferred under the qualified and non-qualified employee benefit plans of the
Company or any other agreement or arrangement.

                  d. "Board" shall have the meaning set forth in the recitals.

                  e. "Bonus Amount" shall mean the greater of (i) the most
recent annual bonus paid or payable to the Executive, or, if greater, the annual
bonus paid or payable for the full fiscal year ended prior to the fiscal year
during which a Change in Control occurred or (ii) the average of the annual
bonuses paid or payable during the three full fiscal years ended prior to the
Termination Date or, if greater, the three full fiscal years ended prior to the
Change in Control (or, in each case, such lesser period for which annual bonuses
were paid or payable to the Executive).

                  f. The termination of the Executive's employment shall be for
"Cause" if it is a result of:

                  (i) any act that (A) constitutes, on the part of the
              Executive, fraud, dishonesty, gross malfeasance of duty, or
              conduct grossly inappropriate to the Executive's office, and (B)
              is demonstrably likely to lead to material injury to the Company
              or resulted or was intended to result in direct or indirect gain
              to or personal enrichment of the Executive; or

                                       8
<PAGE>

                  (ii) the conviction (from which no appeal may be or is timely
              taken) of the Executive of a felony;

provided, however, that in the case of clause (i) above, such conduct shall not
constitute Cause:

                           (x) unless (A) there shall have been delivered to the
         Executive a written notice setting forth with specificity The reasons
         that the Board believes the Executive's conduct constitutes, the
         criteria set forth in clause (i), (B) the Executive shall have been
         provided the opportunity to be heard in person by the Board (with the
         assistance of the Executive's counsel if the Executive so desires), and
         (C) after such hearing, the termination is evidenced by a resolution
         adopted in good faith by two-thirds of the members of the Board (other
         than the Executive); or

                           (y) if such conduct (A) was believed by the Executive
         in good faith to have been in or not opposed to the interests of the
         Company, and (B) was not intended to and did not result in the direct
         or indirect gain to or personal enrichment of the Executive.

                  g. A "Change in Control" shall mean the occurrence during the
Term of any of the following events:

                  (i) An acquisition (other than directly from the Company) of
              any voting securities of the Company (the "Voting Securities") by
              any "Person" (as the term person is used for purposes of Section
              13(d) or 14(d) of the Securities Exchange Act of 1934 (the "1934
              Act")) immediately after which such Person has "Beneficial
              Ownership" (within the meaning of Rule 13d-3 promulgated under the
              1934 Act) of 25% or more of the combined voting power of the
              Company's then outstanding Voting Securities; provided, however,
              that in determining whether a Change in Control has occurred,
              Voting Securities which are acquired in a "Non-Control
              Acquisition" (as hereinafter defined) shall not constitute an
              acquisition which would cause a Change in Control. A "Non-Control
              Acquisition" shall mean an acquisition by (1) all employee benefit
              plan (or a trust forming a part thereof) maintained by (x) the
              Company or (y) any corporation or other Person of which a majority
              of its voting power or its equity securities or equity interest is
              owned directly or indirectly by the Company (a "Subsidiary"), (2)
              the Company or any Subsidiary, or (3) any Person in connection
              with a "Non-Control Transaction" (as hereinafter defined).

                  (ii) The individuals who, as of the date of this Agreement,
              are members of the Board (the "Incumbent Board") cease for any
              reason to constitute at least two-thirds of the Board; provided,
              however, that if the election, or nomination for election by the
              Company's stockholders, of any new director was approved by a vote
              of at least two-thirds of the Incumbent Board, such new director
              shall, for purposes of this Agreement, be considered as a member
              of the Incumbent Board; provided further, however, that no
              individual

                                       9

<PAGE>

              shall be considered a member of the Incumbent Board if such
              individual initially assumed office as a result of either an
              actual or threatened "Election Contest" (as described in Rule
              l4a-11 promulgated under the 1934 Act) or other actual or
              threatened solicitation of proxies or consents by or on behalf of
              a Person other than the Board (a "Proxy Contest") including by
              reason of any agreement intended to avoid or settle any Election
              Contest or Proxy Contest; or

                  (iii) Approval by stockholders of the Company of:

                                    (A) (1) A merger, consolidation or
                                            reorganization involving the
                                            Company, unless

                                    (x) the stockholders of the Company,
                                        immediately before such merger,
                                        consolidation or reorganization, own,
                                        directly or indirectly, immediately
                                        following such merger, consolidation or
                                        reorganization, at least two-thirds of
                                        the combined voting power of the
                                        outstanding voting securities of the
                                        corporation resulting from such merger
                                        or consolidation or reorganization (the
                                        "Surviving Corporation") in
                                        substantially the same proportion as
                                        their ownership of the Voting Securities
                                        immediately before, such merger,
                                        consolidation or reorganization, and

                                    (y) the individuals who were members of the
                                        Incumbent Board immediately prior to the
                                        execution of the agreement providing for
                                        such merger, consolidation or
                                        reorganization constitute at least
                                        two-thirds of the members of the board
                                        of directors of the Surviving
                                        Corporation;

               (A transaction described in clauses (x) and (y) shall herein be
               referred to as a "Non-Control Transaction"),

                  (iv) Notwithstanding anything contained in this Agreement to
              the contrary, if the Executive's employment is terminated prior to
              a Change in Control and the Executive reasonably demonstrates that
              such termination (A) was at the request of a third party who has
              indicated an intention or taken steps reasonably calculated to
              effect a Change in Control and who effectuates a Change in Control
              (a "Third Party") or (B) otherwise occurred in connection with, or
              in anticipation of, a Change in Control which actually occurs,
              then for all purposes of this Agreement, the date of a Change in
              Control with respect to the Executive shall mean the date
              immediately prior to the date of such termination of the
              Executive's employment.

                                       10
<PAGE>

                                   (v)  the sale by Company of a substantial
                                        portion of its assets.

         h. "Disability" shall mean a physical or menial infirmity which impairs
the Executive's ability to substantially perform his duties with the Company for
a period of 180 consecutive days, as determined by an independent physician
selected with the approval of both the Company and the Executive.

         i. "Notice of Termination" shall mean a written notice of termination
from the Company or the Executive which specifies an effective date of
termination, indicates the specific termination provision in this Agreement
relied upon, and sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.

         j. "Pro Rata Bonus" shall mean an amount equal to the Bonus Amount
multiplied by a fraction the numerator of which is the number of days in the
fiscal year through the Termination Date and the denominator of which is 365.

         k. "Successors and Assigns" shall mean a corporation other entity
acquiring all or substantially all the assets and business of the Company
(including this Agreement), whether by operation of law or otherwise.

         l. "Termination Date" shall mean, in the case of the Executive's death.
his date of death, and in all other cases, the date specified in the Notice of
Termination.

         m. "Trade Secrets" shall mean any information, including but not
limited to technical or non-technical data, a formula, a pattern, a compilation,
a program, a device, a method, a technique, a drawing, a process, financial
data, financial plans, product plans, information oil customers, or a list of
actual or potential customers or suppliers, which: (i) derives economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use, and (ii) Is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.

                                       11
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and the Executive has signed and sealed this Agreement, effective as
of the date first above written.

                                         TOWNE SERVICES, INC.

ATTEST:

By:      /s/ Chez Echeverri              By: /s/ G. Lynn Boggs
   ---------------------------------        -----------------------
         Name: Chez Echeverri              Name: G. Lynn Boggs
         Title: Assistant Secretary        Title: Chairman/CEO

(CORPORATE SEAL)                         EXECUTIVE

                                         /s/ Henry M. Baroco
                                         -------------------------------
                                         HENRY M.  BAROCO

                                       12

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