Document:

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                                                                    EXHIBIT 10.7
                                    FORM OF
                             iPAYMENT HOLDINGS, INC.
                        INCENTIVE STOCK OPTION AGREEMENT

         THIS AGREEMENT is made and entered into as of ____________, 200__, by
and between iPayment Holdings, Inc. (the "Company") and _______________ (the
"Participant") in connection with the grant of an option under the iPayment
Holdings, Inc. Stock Incentive Plan (the "Plan").

         The Company has established the Plan by action of its board of
directors and such action was thereafter approved by the shareholders of the
Company. The Participant is an employee of the Company or an Affiliate, and the
Company desires to encourage the Participant to own Stock for the purposes
stated in Article 2 of the Plan. In consideration of the foregoing, the parties
have entered into this Agreement to govern the terms of the Option granted by
the Company pursuant to the authority specified under the Plan:

                  1. Grant of Option. Subject to the terms and conditions set
forth in the Plan and herein, the Company grants to the Participant an Option to
purchase from the Company ________ shares of Stock at a price of $______ per
share, subject to adjustment as provided in Article 8 of the Plan. This Option
will expire on ___________, 20__, unless it expires sooner pursuant to Paragraph
6. This option is exercisable with respect to the number of shares of Stock
determined as follows:

<Table>

<S>                                                          <C>
           On and After                                      Number of Shares Exercisable
           ___________, 20__                                 ________ Shares
           ___________, 20__                                 Additional ________ Shares
           ___________, 20__                                 Additional ________ Shares
</Table>

         2. Notice of Exercise. This Option may be exercised, in whole or in
part, with respect to the number of whole shares of Stock that can be purchased
at the times described in Paragraph 1, by written notice to the Company at the
address provided in Paragraph 12 on a form (which may be supplied by the
Company) which

              (a) specifies the number of whole shares of Stock to be purchased
and the exercise price;

              (b) contains evidence satisfactory to the Committee that the
person exercising this Option is the Participant or has the right to exercise;
and

              (c) is accompanied by payment of the exercise price in accordance
with the Plan.

         3. Transfer and Exercise of Option. Except for transfers pursuant to a
will or the laws of descent and distribution, this Option is not transferable
and the Participant may not make any disposition of this Option or any interest
herein during his or her lifetime. As used herein, "disposition" means any sale,
transfer, encumbrance, gift, donation, assignment, pledge, hypothecation, or
other disposition, whether similar or dissimilar to those previously enumerated,
whether voluntary or involuntary, and whether during the Participant's lifetime
or upon or after

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the Participant's death, including, but not limited to, any disposition by
operation of law, by court order, by judicial process, or by foreclosure, levy,
or attachment, except a transfer by will or by the laws of descent or
distribution. Any attempted disposition in violation of this Paragraph is void.

         4. Status of Participant. The Participant shall not be deemed a
shareholder of the Company with respect to any of the shares of Stock subject to
this Option, except to the extent that such shares shall have been purchased and
transferred to him or her. The Company is not required to issue shares of Stock
purchased upon exercise of this Option until all applicable requirements of law
have been complied with and such shares shall have been duly listed on any
securities exchange on which the Stock may then be listed.

         5. No Effect on Capital Structure. This Option shall not affect the
right of the Company or any Affiliate to reclassify, recapitalize or otherwise
change its capital or debt structure or to merge, consolidate, convey any or all
of its assets, dissolve, liquidate, windup, or otherwise reorganize.

         6. Expiration of Option. In general, the right to purchase Stock under
this Option shall expire on the date specified in Paragraph 1. However, this
Option shall expire sooner in the circumstances described in this Paragraph.

              (a) Termination of Employment. If the Participant ceases to be
employed by the Company or one of its Affiliates for any reason other than death
or disability (as described in this Paragraph 6), and the Participant does not
thereupon become an employee of the Company or another of its Affiliates, the
Participant shall have the right for three months after such termination of
employment to exercise this Option with respect to the shares that have become
exercisable pursuant to Paragraph 1 on the date of such termination. Thereafter,
this Option shall terminate and cease to be exercisable.

              (b) Disability. If the Participant ceases to be employed by the
Company or one of its Affiliates by reason of disability (as defined in section
22(e)(3) of the Code), the Participant shall have the right for 12 months after
the date of such termination of employment to exercise this Option with respect
to all shares available for purchase hereunder, including the portion of this
Option that has not yet become exercisable pursuant to Paragraph 1 on the date
of such termination. Thereafter, this Option shall terminate and cease to be
exercisable.

              (c) Death. If the Participant dies, this Option shall be
exercisable by the Participant's legal representatives, heirs, legatees, or
distributees for 12 months after the date of the Participant's death with
respect to all shares available for purchase hereunder, including that portion
of this Option that has not yet become exercisable pursuant to Paragraph 1 on
the date of the Participant's death. Thereafter, this Option shall terminate and
cease to be exercisable.

         7. Committee Authority. Any question concerning the interpretation of
this Agreement, any adjustments required to be made under the Plan, and any
controversy which may arise under the Plan or this Agreement shall be determined
by the Committee in its sole discretion. Such decision by the Committee shall be
final and binding.

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         8. Restrictions on Shares. Shares acquired pursuant to the exercise of
this Option shall be subject to certain restrictions, including but not limited
to repurchase rights in favor of the Company upon the Participant's termination
of employment as described in Section 4.4 of the Plan and the Company's right of
first refusal as described in Section 4.5 of the Plan.

         9. Incentive Stock Option Qualification. This Option is intended to
qualify as an "incentive stock option" within the meaning of section 422 of the
Code, and shall be so construed; provided, however, that nothing in this
Agreement shall be interpreted as a representation, guarantee or other
undertaking on the part of the Company that this Option is or will be determined
to be an Incentive Option. However, if any portion of this Option is deemed not
to be an Incentive Option because the $100,000 annual limit under section 422(d)
of the Code on Incentive Options is exceeded, or otherwise, the portion of this
Option which cannot be treated as an Incentive Option shall be deemed to be a
Nonqualified Option. In such an event, the Participant shall be subject to the
tax withholding provision of Section 7.3 of the Plan for the portion of this
Option which is not an Incentive Option, and all other Plan provisions that
apply to Nonqualified Options.

         10. Notice of Disqualifying Disposition. Except to the extent that a
portion of this Option is treated as a Nonqualified Option pursuant to Paragraph
9, the Participant shall notify the Company of his or her intent to dispose of
any of the shares of Stock purchased pursuant to this Option within two years
from the date of the grant of the Option and one year from the date of exercise
of the Option, and promptly after such disposition the Participant shall notify
the Company of the number of shares of Stock disposed of, the dates of
acquisition and disposition of such shares, and the consideration if any,
received on such disposition. If in connection with any such disposition, the
Company becomes liable for withholding taxes and has no amounts owing the
Participant with which to discharge its withholding obligation, the Participant
shall indemnify the Company against any penalties it may incur through its
inability to apply amounts owing the Participant in discharge of its withholding
obligation. Nothing in this Paragraph shall give the Participant any right to
dispose of shares of Stock in a manner that is inconsistent with any provision
of this Agreement, the Plan, or any stock transfer restriction agreement entered
into by the Participant.

         11. Plan Controls. The terms of this Agreement are governed by the
terms of the Plan, as it exists on the date of this Agreement and as the Plan is
amended from time to time. A copy of the Plan, and all amendments thereto, is
attached hereto as Exhibit A and made a part hereof as if fully set forth
herein. In the event of any conflict between the provisions of this Agreement
and the provisions of the Plan, the terms of the amended Plan shall control,
except as expressly stated otherwise. Capitalized terms used herein, if not
defined, shall have the meaning as set forth in the Plan, except where the
context otherwise requires. The terms "Article" or "Section" generally refer to
provisions within the Plan; provided, however, the term "Paragraph" shall refer
to a provision of this Agreement.

         12. Notice. Whenever any notice is required or permitted hereunder,
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date which it is personally delivered, or, whether actually
received or not, on the third business day after it is deposited in the United

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States mail, certified or registered, postage prepaid, addressed to the person
who is to receive it at the address which such person has theretofore specified
by written notice delivered in accordance herewith. The Company or Participant
may change, by written notice to the other, the address previously specified for
receiving notices. Notices delivered to the Company shall be addressed as
follows:

                                    iPayment Holdings, Inc.
                                    Attn:   Afshin Yazdian
                                    30 Burton Hills, Suite 520
                                    Nashville, TN  37215
                                    Phone:  (615) 665-1858
                                    Fax:  (615) 665-8434

         Notices to the Participant shall be hand delivered to the Participant
on the premises of the Company or its Affiliates, or mailed to the last address
shown on the records of the Company.

         13. Information Confidential. As partial consideration for granting of
this Option, the Participant agrees that he or she will keep confidential all
information and knowledge that the Participant has relating to the manner and
amount of his or her participation in the Plan; provided, however, that such
information may be disclosed as required by law and may be given in confidence
to the Participant's spouse, tax and financial advisors, or to a financial
institution to the extent that such information is necessary to secure a loan.

         14. Governing Law. Except as is otherwise provided in the Plan, where
applicable, the provisions of this Agreement shall be governed by the internal
laws of the State of Tennessee, without regard to the principles of conflicts of
laws thereof.

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         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and the Participant has set his hand hereto on the day and year first
above written.

                                          iPAYMENT HOLDINGS, INC.

                                          By:
                                             ----------------------------------

                                          Its:
                                              ---------------------------------

                                          PARTICIPANT

                                          -------------------------------------<PAGE>
                                                                   EXHIBIT 10.9

                             iPAYMENT HOLDINGS, INC.
                    NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

                                    PREAMBLE

         WHEREAS, iPayment Holdings, Inc. (the "Company") desires to establish
this Plan in order to provide for the award of Options to purchase the common
stock of the Company to its directors who are not employed by the Company or its
Affiliates; and

         WHEREAS, the Company intends that this Plan and Options granted
hereunder will conform to the requirements for exemption set forth under
Securities and Exchange Commission Rule 16b-3;

         NOW, THEREFORE, the Company hereby establishes this Plan, effective
August 23, 2002.

                             ARTICLE I. DEFINITIONS

         1.1 Affiliate. A corporate parent, corporate subsidiary, limited
liability company, partnership or other business entity that is wholly-owned,
controlled by, or controls the Company.

         1.2 Agreement. A written agreement (including any amendment or
supplement thereto) between the Company or Affiliate and a Participant
specifying the terms and conditions of an Option granted to such Participant.

         1.3 Board. The board of directors of the Company.

         1.4 Code. The Internal Revenue Code of 1986, as amended.

         1.5 Committee. A committee that is designated by the Board to serve as
the administrator of the Plan. The Committee shall be composed of at least two
individuals (or such number that satisfies Rule 16b-3 of the Exchange Act) who
are members of the Board and are not employees of the Company or an Affiliate,
and who are designated by the Board as the "compensation committee" or are
otherwise designated to administer the Plan. In the absence of a designation of
a Committee by the Board, the Board shall be the Committee.

         1.6 Company. iPayment Holdings, Inc. and its successors.

         1.7 Date of Exercise. The date that the Company accepts tender of the
exercise price of an Option.

         1.8 Exchange Act. The Securities Exchange Act of 1934, as amended.

         1.9 Fair Market Value. On any given date, Fair Market Value shall be
determined by the applicable method described below:

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                  (a) If the Stock is traded on a trading exchange (e.g., the
         New York Stock Exchange) or is reported on the Nasdaq National Market
         System or another Nasdaq automated quotation system or the OTC Bulletin
         Board System, Fair Market Value shall be determined by reference to the
         price of the Stock on such exchange or system with respect to the date
         for which Fair Market Value is being determined (unless, where
         appropriate, the Committee determines in good faith the Fair Market
         Value of the Stock to be otherwise).

                  (b) If the Stock is not traded on a recognized exchange or
         automated trading system, Fair Market Value shall be the value
         determined in good faith by the Committee.

         1.10 Grant Date. The date on which an Option is awarded pursuant to
Section 4.1.

         1.11 Option. The right that is granted hereunder to a Participant to
purchase from the Company a stated number of shares of Stock at the price set
forth in an Agreement.

         1.12 Participant. A member of the Board who is not employed by the
Company or an Affiliate on a Grant Date.

         1.13 Plan. The iPayment Holdings, Inc. Non-Employee Directors Stock
Option Plan.

         1.14 Stock. The common stock of the Company or any successor security.

                           ARTICLE II. PURPOSE OF PLAN

         The purpose of the Plan is to provide an incentive to enable the
Company to attract and retain the services of experienced and highly-qualified
individuals as directors of the Company, and to encourage stock ownership by
such directors so that their interests are aligned with the interests of the
Company, its Affiliates and its shareholders. It is intended that Participants
may acquire or increase their proprietary interests in the Company and be
encouraged to remain in the directorship of the Company. The proceeds received
by the Company from the sale of Stock pursuant to this Plan may be used for
general corporate purposes.

                           ARTICLE III. ADMINISTRATION

         3.1 Administration of Plan. The Plan shall be administered by the
Committee. The express grant in the Plan of any specific power to the Committee
shall not be construed as limiting any power or authority of the Committee. Any
decision made or action taken by the Committee to administer the Plan shall be
final and conclusive. No member of the Committee shall be liable for any act
done in good faith with respect to this Plan or any Agreement or Option. The
Company shall bear all expenses of Plan administration. In addition to all other
authority vested with the Committee under the Plan, the Committee shall have
complete authority to:

                  (a) Interpret all provisions of this Plan;

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                  (b) Prescribe the form of any Agreement and notice and manner
         for executing or giving the same;

                  (c) Make amendments to all Agreements;

                  (d) Adopt, amend and rescind rules for Plan administration;
         and

                  (e) Make all determinations it deems advisable for the
         administration of this Plan.

         3.2 Section 16(b). Notwithstanding anything in the Plan to the
contrary, the Committee, in its absolute discretion, may restrict, limit or
condition the use of any provision of the Plan in order to ensure compliance
with section 16(b) of the Exchange Act.

                ARTICLE IV. ELIGIBILITY AND LIMITATIONS ON GRANTS

         4.1 Participation. Options shall be granted automatically as follows:

                  (a) Number. Each Participant shall be granted an Option to
         purchase 30,000 shares of Stock on the date of the Company's first
         annual shareholders meeting following the initial public offering of
         the Stock if he or she is elected or reelected to the Board on such
         date. Thereafter, each Participant shall be granted an Option to
         purchase 30,000 shares of Stock on (i) the date that the Participant is
         first elected by the shareholders of the Company to serve as a new
         member of the Board, and (ii) the date of the third annual meeting of
         shareholders following the date that the Participant received his or
         her previous Option grant hereunder, provided that the Participant is
         reelected to the Board at such meeting. If, on any Grant Date during
         the term of the Plan, there are not sufficient shares of Stock that
         remain available pursuant to Section 5.2 to provide this automatic
         grant on such date, then the number of shares that can be purchased
         under the Option that is granted on that date shall be determined by
         dividing the number of shares of Stock which remain available pursuant
         to Section 5.2 by the number of Participants who are eligible to
         receive an Option on such Grant Date, with fractional shares rounded
         down to the nearest number of whole shares. All references to numbers
         of shares in this Section are subject to adjustment in accordance with
         Article VIII.

                  (b) Price. The price at which each share of Stock covered by
         an Option may be acquired shall be the Fair Market Value of Stock on
         the Grant Date of such Option.

                  (c) Option Period. Each Option will become exercisable
         incrementally over a period of three years so that 10,000 shares of
         Stock may be acquired on the day prior to the shareholders meeting that
         follows the Grant Date of the Option, an additional 10,000 shares may
         be acquired on the day prior to the second annual shareholders meeting
         following the Grant Date, and the Option will be fully exercisable on
         the day prior to the third annual shareholders meeting following the
         Grant Date, provided that the Participant remains a director on such
         dates. The right to exercise an Option shall terminate ten years after
         the date it was granted, unless terminated sooner pursuant to any of
         the following:

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                           (i) If the directorship of the Participant is
                  terminated on account of fraud, dishonesty or other acts
                  detrimental to the interests of the Company or any direct or
                  indirect majority-owned subsidiary of the Company, the Option
                  shall terminate as of the date of such termination.

                           (ii) Upon the death or disability (as defined in
                  Section 22(e)(3) of the Code) of a Participant prior to the
                  expiration of the Option, the Option may be fully exercised,
                  whether or not the Participant was entitled to exercise it on
                  the date thereof, at any time within twelve months after such
                  death or disability. Thereafter, the Option shall terminate
                  and no longer be exercisable.

                           (iii) If the directorship of a Participant is
                  terminated for any reason other than the circumstances
                  described in subparagraph (i) or (ii) above, the Option may be
                  exercised, to the extent the Participant was able to do so at
                  the date of termination of the directorship, within twelve
                  months after such termination. Notwithstanding the foregoing,
                  if the Participant becomes an employee of the Company or an
                  Affiliate upon the termination of his directorship, the Option
                  shall expire after the termination of employment in a manner
                  that is consistent with this subparagraph (iii).

         4.2 Grant of Options. An Option shall be deemed to be granted to a
Participant on each Grant Date. Accordingly, an Option may be deemed to be
granted prior to the time that an Agreement is executed by the Participant and
the Company.

                        ARTICLE V. STOCK SUBJECT TO PLAN

         5.1 Source of Shares. Upon the exercise of an Option, the Company shall
transfer to the Participant authorized but previously unissued Stock or, if
determined by the Board, shares of Stock that are held in treasury.

         5.2 Maximum Number of Shares. The maximum aggregate number of shares of
Stock that may be issued pursuant to this Plan is 750,000 shares, subject to
increases and adjustments as provided in Article VIII.

         5.3 Forfeitures. If any Option granted hereunder is forfeited, expires
or terminates for any reason, in part or whole, the shares of Stock subject
thereto which are not issued pursuant to that Option shall again be available
for issuance of an Option under this Plan.

                         ARTICLE VI. EXERCISE OF OPTIONS

         6.1 Transferability. Any Option granted under this Plan shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the Participant only by the
Participant; provided, however, that an Option may be transferable to the extent
provided in an Agreement. No right or interest of a Participant in any Option
shall be liable for, or subject to, any lien, obligation or liability of such
Participant.

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         6.2 Shareholder Rights. No Participant shall have any rights as a
shareholder with respect to shares subject to Options prior to the Date of
Exercise of such Option.

         6.3 Interruption of Service. The Committee shall determine the extent
to which a leave of absence for military or government service, illness,
temporary disability, or other reasons shall be treated as a termination or
interruption of service as a member of the Board for purposes of determining
questions of forfeiture and exercise of an Option after termination.

                         ARTICLE VII. METHOD OF EXERCISE

         7.1 Exercise. An Option granted hereunder shall be deemed to have been
exercised on the Date of Exercise. Subject to the provisions of Articles VI and
IX, an Option may be exercised in whole or in compliance with such requirements
as the Committee shall determine, but in no event sooner than six months from
the date of grant.

         7.2 Payment. Except as otherwise provided by the Agreement, payment of
the Option price shall be made in cash (including an exercise involving the
pledge of shares and a loan through a broker described in Securities and
Exchange Commission Regulation T), actual or constructive delivery of Stock that
was acquired at least six months prior to the exercise of the Option, other
consideration acceptable to the Committee, or a combination thereof; provided,
however, that a form of payment other than cash is only acceptable to the extent
that the same is approved by the Committee. Payment of the exercise price must
include payment of tax withholdings, as described in Section 7.3, in cash unless
the Company consents to alternative arrangements for withholdings.

         7.3 Withholding Tax Requirements. Upon exercise of an Option, the
Participant shall, upon notification of the amount due and prior to or
concurrently with the delivery of the certificates representing the shares, pay
to the Company amounts necessary to satisfy applicable federal, state and local
withholding tax requirements or shall otherwise make arrangements satisfactory
to the Company for such requirements, but only to the extent that the Company is
required by law to withhold such amounts or that the Participant voluntarily
elects for such withholding.

         7.4 Issuance and Delivery of Shares. Shares of Stock issued pursuant to
the exercise of Options hereunder shall be delivered to Participants by the
Company (or its transfer agent) as soon as administratively feasible after a
Participant exercises an Option hereunder and executes any applicable
shareholder agreement or agreement described in Section 9.2 that the Company
requires at the time of exercise.

                 ARTICLE VIII. ADJUSTMENT UPON CORPORATE CHANGES

         8.1 Adjustments to Shares. The maximum number of shares of Stock with
respect to which Options hereunder may be granted and which are the subject of
outstanding Options, and the exercise price thereof, shall be adjusted as the
Committee determines (in its sole discretion) to be appropriate, in the event
that:

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<PAGE>

                  (a) the Company or an Affiliate effects one or more Stock
         dividends, Stock splits, reverse Stock splits, subdivisions,
         consolidations or other similar events;

                  (b) the Company or an Affiliate engages in a transaction which
         is described in section 424(a) of the Code; or

                  (c) there occurs any other event which in the judgment of the
         Committee necessitates such action;

         provided, however, that if an event described in paragraph (a) or (b)
         occurs, the Committee shall make adjustments to the limit on Options
         specified in Section 5.2 that are proportionate to the modifications of
         the Stock that are on account of such corporate changes.
         Notwithstanding the foregoing, the Committee may not modify the Plan or
         the terms of any Options then outstanding or to be granted hereunder to
         provide for the issuance under the Plan of a different class of stock
         or kind of securities.

         8.2 Substitution of Options on Merger or Acquisition. The Committee may
grant Options in substitution for stock awards, stock options, stock
appreciation rights or similar awards held by an individual who becomes a
director of the Company in connection with a transaction to which section 424(a)
of the Code applies. The terms of such substituted Options shall be determined
by the Committee in its sole discretion, subject only to the limitations of
Article V.

         8.3 Effect of Certain Transactions. The provisions of this Section 8.3
shall apply to the extent that an Agreement does not otherwise expressly address
the matters contained herein. If the Company experiences an event which results
in a "Change in Control," as defined in Section 8.3(a), then, whether or not the
vesting requirements set forth in any Agreement have been satisfied, all Options
that are outstanding at the time of the Change in Control shall become fully
vested and exercisable immediately prior to the Change in Control event.

                  (a) A Change in Control event is (i) any merger, acquisition,
         reorganization, sale of assets, liquidation or similar transaction in
         which the Company is not the survivor of the transaction, survives only
         as a subsidiary or is otherwise under the control of an acquiring
         entity, or (ii) the acquisition of a substantial portion of the
         outstanding equity of the Company or a public offer to the Company's
         shareholders to acquire such a substantial position in a transaction
         not approved by the Company's Board. The determination of whether or
         not a transaction or event constitutes a "Change in Control" shall be
         made by the Committee in good faith and in its sole discretion.

                  (b) If, as a result of the Change in Control, the Company is
         not the surviving entity after the transaction, or survives only as a
         subsidiary or is otherwise controlled by another entity, all Options
         that are held by the Participant immediately after the Change in
         Control shall be assumed by the entity which is the survivor of the
         transaction, or converted into options to purchase the common stock of
         the surviving entity, in a transaction to which section 424(a) of the
         Code applies; provided, however, that if a Change in Control occurs,
         the Committee may provide, in connection with such Change in Control,
         for the cancellation of any outstanding Option in exchange for payment
         in

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<PAGE>
         cash or property of the Fair Market Value of the shares of Stock
         covered by such Option, reduced by the exercise price thereof.

                  (c) Notwithstanding the foregoing, a portion of the
         acceleration of vesting described in this Section shall not occur with
         respect to an Option to the extent such acceleration of vesting would
         cause the Participant or holder of such Option to realize less income,
         net of taxes, after deducting the amount of excise taxes that would be
         imposed pursuant to section 4999 of the Code, than if accelerated
         vesting of that portion of the Option did not occur. This limitation
         shall not apply (i) to the extent that the Company, an Affiliate or the
         acquirer are obligated to indemnify the Participant or holder for such
         excise tax liability under an enforceable "golden parachute"
         indemnification agreement, or (ii) the shareholder approval described
         in Q&A 7 of Prop. Treas. Reg. Section 1.280G-1 issued under section
         280G of the Code is obtained to permit the acceleration of vesting
         described in this Section (applied as if the shareholder approval date
         was the date of the Change in Control).

                  (d) Notwithstanding anything to the contrary contained herein,
         a change in ownership that occurs as a result of a public offering of
         the Company's equity securities that is approved by the Board shall not
         alone constitute a Change in Control.

         8.4 No Adjustment upon Certain Transactions. The issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services rendered,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, outstanding Options.

         8.5 Fractional Shares. Only whole shares of Stock may be acquired
through the exercise of an Option. Any amounts tendered in the exercise of an
Option remaining after the maximum number of whole shares have been purchased
will be returned to the Participant in the form of cash.

             ARTICLE IX. COMPLIANCE WITH LAW AND REGULATORY APPROVAL

         9.1 General. No Option shall be exercisable, no Stock shall be issued,
no certificates for shares of Stock shall be delivered, and no payment shall be
made under this Plan except in compliance with all federal or state laws and
regulations (including, without limitation, withholding tax requirements),
federal and state securities laws and regulations and the rules of all
securities exchanges or self-regulatory organizations on which the Company's
shares may be listed. The Company shall have the right to rely on an opinion of
its counsel as to such compliance. Any certificate issued to evidence shares of
Stock for which an Option is exercised may bear such legends and statements as
the Committee upon advice of counsel may deem advisable to assure compliance
with federal or state laws and regulations.

         9.2 Representations by Participants. As a condition to the exercise of
an Option, the Company may require a Participant to represent and warrant at the
time of any such exercise that

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<PAGE>

the shares are being purchased only for investment and without any present
intention to sell or distribute such shares, if, in the opinion of counsel for
the Company, such representation is required by any relevant provision of the
laws referred to in Section 9.1. At the option of the Company, a stop transfer
order against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel was provided
(concurred in by counsel for the Company) and stating that such transfer is not
in violation of any applicable law or regulation may be stamped on the stock
certificate in order to assure exemption from registration. The Committee may
also require such other action or agreement by the Participants as may from time
to time be necessary to comply with federal or state securities laws. This
provision shall not obligate the Company or any Affiliate to undertake
registration of options or stock hereunder.

                          ARTICLE X. GENERAL PROVISIONS

         10.1 Unfunded Plan. The Plan, insofar as it provides for grants, shall
be unfunded, and the Company shall not be required to segregate any assets that
may at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon contractual obligations that may be created hereunder. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.

         10.2 Rules of Construction. Headings are given to the articles and
sections of this Plan solely as a convenience to facilitate reference. The
masculine gender when used herein refers to both masculine and feminine. The
reference to any statute, regulation or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.

         10.3 Governing Law. The internal laws of the State of Tennessee
(without regard to the choice of law provisions of Tennessee) shall apply to all
matters arising under this Plan, to the extent that federal law does not apply.

         10.4 Compliance with Section 16 of the Exchange Act. Transactions under
this Plan are intended to comply with all applicable conditions of Rule 16b-3
(or successor provisions) under the Exchange Act. To the extent any provision of
this Plan or action by Committee fails to so comply, it shall be deemed null and
void to the extent permitted by law and deemed advisable by the Committee.

         10.5 Amendment. The Board may amend or terminate this Plan at any time;
provided, however, an amendment that would have a material adverse effect on the
rights of a Participant under an outstanding Option is not valid with respect to
such Option without the Participant's consent; and provided, further, that the
shareholders of the Company must approve, in general meeting, any amendment that
changes the number of shares in the aggregate which may be issued pursuant to
Options granted under the Plan. Such amendment must be approved coincident with
or prior to the date Options are granted with respect to such shares.

         10.6 Effective Date of Plan. This Plan shall be effective August 23,
2002.

                                       8
<PAGE>
         IN WITNESS WHEREOF, the undersigned officer has executed this Plan on
this the 23rd day of August 2002, but to be effective as of the date specified
in Section 10.6.

                                 iPAYMENT HOLDINGS, INC.

                                 By: /s/ Gregory S. Daily
                                    -----------------------------------
                                    Gregory S. Daily
                                    Chairman of the Board, Chief Executive
                                    Officer and Secretary

                                       9

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