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Merchant Program Processing Agreement

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Certain confidential portions of this Exhibit were omitted by means of asterisks in lieu of the text (the "Mark"). This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the Mark pursuant to the Company's request for confidential treatment pursuant to the Company's request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933, as amended.


IPAYMENT, INC.


CHASE MERCHANT SERVICES, L.L.C., AND


JPMORGAN CHASE BANK


MERCHANT PROGRAM


PROCESSING AGREEMENT
MERCHANT PROGRAM PROCESSING AGREEMENT


THIS MERCHANT PROGRAM PROCESSING AGREEMENT ("Agreement") is entered into this 31st day of January 2003, among IPAYMENT, INC., a Delaware corporation, having its principal place of business at 40 Burton Hills, Suite 415, Nashville, TN 37215 ("IPAYMENT"), CHASE MERCHANT SERVICES, L.L.C. ("CMS"), with an office at 3975 N.W. 120th Avenue, Coral Springs, Florida 33065, and JPMORGAN CHASE BANK ("CHASE"), with an office at 100 Duffy Avenue, Hicksville, New York 11801. Under this Agreement, CMS and CHASE will collectively be referred to as "SERVICERS".


RECITALS


WHEREAS, CHASE, as a principal Member of VISA, U.S.A. Incorporated ("VISA") and MasterCard International, Inc. ("MasterCard"), and a member of certain Networks, together with CMS, provides Merchants the ability to establish a merchant account through which CHASE and CMS provide electronic Card processing services, including authorization, data capture, processing, settlement and reconciliation of United States Dollar denominated credit and debit card transactions (the "Payment Processing Services").


WHEREAS, IPAYMENT and its wholly-owned subsidiaries listed on EXHIBIT B to this Agreement ("Subsidiaries") are in the business of developing and marketing Merchant credit and debit card programs, originating Merchant relationships, and providing (either directly or through a third party provider) Merchant bankcard processing services.


WHEREAS, IPAYMENT and its Subsidiaries, pursuant to existing marketing and service agreements with other Member banks, are sponsored and registered as an Independent Sales Organizations ("ISO") and Member Service Providers ("MSP") for Visa and MasterCard, respectively, and have acquired and/or established a credit card merchant portfolio (through other Member banks), for which IPAYMENT and its Subsidiaries, as of the effective date of this Agreement, either directly or through a third party provider, provide processing services for the merchants identified on EXHIBIT C hereto and made a part hereof (the "Existing Portfolio").


WHEREAS, IPAYMENT and SERVICERS desire to establish a Merchant Program whereby CHASE will sponsor as ISOs and MSPs for Visa and MasterCard, respectively, IPAYMENT and Subsidiaries, as well as Subsidiaries' respective Sub-Independent Sales Organizations (as such term is defined in Section 2.7 of this Agreement) as are approved by SERVICERS in SERVICERS' sole discretion, in accordance with this Agreement, and whereby SERVICERS will settle Card transactions and perform certain other functions in connection therewith pursuant to and as outlined in the terms of this Agreement, with respect to (i) the Existing Portfolio; (ii) Approved Merchants; and (iii) any Subsequently Acquired Portfolio approved by SERVICES under this Agreement.


WHEREAS, SERVICERS and IPAYMENT have arrived at mutually acceptable parameters for the Program and desire to enter into this Agreement reflecting such parameters and establishing the business and legal terms relating to the establishment of the Program.


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NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


SECTION 1
DEFINITIONS


As used in this Agreement, the following capitalized terms shall have the meanings set forth below:


"ACH" shall mean the electronic transfer of funds through the Automated Clearing House System.


"ACTIVE ACCOUNT" shall mean an Approved Merchant that is subject to assessment for the monthly minimum fee for processing.


"AFFILIATE" shall mean any entity that directly or indirectly controls, is controlled by or is under common control with any party to this Agreement. Chase Merchant Ventures, Inc., First Data Merchant Services Corporation and each of their Affiliates shall also be considered Affiliates of CMS for purposes of this Agreement, regardless of whether they satisfy the requirements of the preceding sentence.


"APPLICANT" shall mean a Merchant who submits a Merchant Application.


"APPLICATION" shall mean the Merchant application (approved by SERVICERS and IPAYMENT) and disseminated by IPAYMENT. The Application may be modified by mutual written agreement of SERVICERS and IPAYMENT. IPAYMENT shall cease its use of any Application which may become unacceptable to SERVICERS, in SERVICERS' sole, reasonable judgment, upon thirty (30) days' notice (unless, however, a shorter timeframe is required by an Association, the Rules or applicable law, rules or regulations, in which case, such shorter timeframe will apply).


"APPLICATION MATERIALS" shall mean the Application and all other materials developed to facilitate the execution of Merchant Processing Agreements, as approved by SERVICERS and IPAYMENT. IPAYMENT shall cease its use of any Application Materials which may become unacceptable to SERVICERS, in SERVICERS' sole, reasonable judgment, upon thirty (30) days' notice (unless, however, a shorter timeframe is required by an Association, the Rules or applicable law, rules or regulations, in which case, such shorter timeframe will apply).


"APPROVED MERCHANT" means each: (i) Merchant approved by SERVICERS for participation in the Program that enters into a Merchant Processing Agreement with SERVICERS; (ii) each Existing Merchant in the Existing Portfolio which is approved to participate in the Program by SERVICERS pursuant to the terms of this Agreement and whose contract for Transaction processing and settlement services with another Member (and/or IPAYMENT or one of its Subsidiaries or a predecessor in interest to IPAYMENT), has been assigned to SERVICERS; and (iii) each Merchant in a Subsequently Acquired Portfolio which is approved to participate in the Program by SERVICERS pursuant to the terms of this Agreement and whose contract for Transaction processing and settlement services with another Member (and/or IPAYMENT, or a predecessor in interest to IPAYMENT), has been assigned to SERVICERS.


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"ASSOCIATION" means any entity formed to administer and promote credit cards, including VISA and MasterCard.


"BASE AMOUNT" shall be mean $50,000 or a greater amount determined by SERVICERS in their sole, reasonable discretion.


"BIN" means a unique Bank Identification Number assigned by Visa to identify a Member or Processor for authorization, clearing or settlement processing. "ICA" is the corresponding number assigned by MasterCard for the same purpose.


"BUSINESS DAY" shall mean any day on which CHASE is open for business, other than Saturdays, Sundays, or State or Federal holidays.


"CARD" means a credit card or debit card issued by a member of either MasterCard or VISA and bearing its respective trade names, trademarks, and/or trade symbols, as well as on-line debit cards issued by a participating debit network.


"CARDHOLDER" means the individual whose name is embossed on the Card and any authorized user of such Card.


"CONFIDENTIAL INFORMATION" shall mean non-public information about, and proprietary materials of, either party as defined and more fully described in SECTION 9.1 of this Agreement.


"CONVERSION" OR "CONVERTED" shall mean the conversion of Existing Merchants in the Existing Portfolio to SERVICERS' system for settlement services in accordance with the terms of this Agreement in conjunction with the transfer of the BINs and ICAs to SERVICERS for such Existing Portfolio.


"CREDIT TRANSACTION" means the evidence of a refund or price adjustment by a Merchant to a Cardholder's account in connection with a prior purchase by such Cardholder using a Card, regardless of whether the form of such evidence is in paper, electronic or otherwise, all of which must conform to the Rules.


"DAY" means a calendar day unless otherwise specified.


"DDA" means a direct deposit account.


"ELIGIBLE MERCHANT" shall mean a Merchant that meets the Program approval standards, is not presently a party to a payment processing agreement with SERVICERS, is not presently receiving Payment Processing Services from SERVICERS, and is solicited by IPAYMENT, Subsidiaries, or IPAYMENT's Sub-Independent Service Organizations that are approved for the Program. Merchants whose business involves future delivery risk and whose projected Card sales exceed $20 million per year shall not be targeted under this Program.


"EVENT OF DEFAULT" shall mean any event specified in Section 11.4.


"EXISTING MERCHANTS" shall mean those Merchants in the Existing Portfolio which are approved to participate in the Program by SERVICERS pursuant to the terms of this Agreement and whose contract


Page 3 of 46 for Transaction processing and settlement services with another Member, merchant account and merchant reserves have been assigned to SERVICERS.


"EXISTING PORTFOLIO" means that collective of Merchants approved to participate in the Program by SERVICERS that were: (i) prior to Conversion, receiving Transaction processing and settlement services from another Member, and (ii) whose contract has been assigned to SERVICERS pursuant to the terms of this Agreement.


"FDMS" shall refer to First Data Merchant Services Corporation, which will be the exclusive processing entity for the Merchant Portfolio, unless SERVICERS approve otherwise in their sole discretion.


"INACTIVE ACCOUNT" shall mean an Approved Merchant that is not an Active Account.


"INTELLECTUAL PROPERTY" shall mean copyrights, Marks (as defined below), trade secrets, patents or other intellectual property of either party.


"INTEREST PAYMENT" shall have the meaning ascribed to it in Section 6.4 herein.


"LOSS OR LOSSES" shall mean any loss, liability, claim, suit, demand, damages, judgments, expenses (including, without limitation, reasonable attorneys' fees and collection costs), orders of restitution, and penalties (including, without limitation, civil monetary penalties and VISA and MasterCard fines and penalties).


"MARKS" shall mean the trademarks or service marks of either party.


"MATERIAL" when used with reference to information, a fact or circumstance, a course of action, a decision-making process or other matter, shall be limited to information, facts and circumstances, courses of action, decision-making processes or other matters as to which there is a substantial likelihood that a reasonable person would attach importance.


"MEMBER" means a licensee or member of an Association which is authorized by the Association Ito enter or receive Transactions into (or from) the Association's authorization and settlement systems, and to participate in the Association's Card program.


"MERCHANT" shall mean an individual or entity that engages in, or desires to engage in credit, debit or charge card transactions with its customers.


"MERCHANT ACCOUNT" shall mean the account relationship established between SERVICERS and an Approved Merchant pursuant to a Merchant Processing Agreement.


"MERCHANT DISCOUNT AMOUNT" shall mean the portion of the face amount of credit card drafts or transactions submitted by Approved Merchants and processed through the Program that is paid to SERVICERS. Further, this portion shall be determined by application of the Merchant Discount Rate that is reflected in each Merchant Processing Agreement.


"MERCHANT DISCOUNT RATE" shall mean a percentage rate to be applied to determine the portion of the face amount of a credit card draft or transaction that will not be paid or credited to the originating Merchant, which rate shall be reflected in each Merchant Processing Agreement and subject to change from time to time pursuant to the terms of the Merchant Processing Agreement.


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"MERCHANT PORTFOLIO" shall mean the aggregate of Approved Merchants participating in the Program pursuant to this Agreement and all additional Merchants in a Subsequently Acquired Portfolio which are approved by SERVICERS to participate in the Program pursuant to this Agreement and whose contract for Transaction processing and settlement services with another Member has been assigned to SERVICERS.


"MERCHANT PROCESSING AGREEMENT" shall mean a written agreement among SERVICERS and an Approved Merchant that governs the Approved Merchant's participation in the Program. The initial Merchant Processing Agreement agreed to by the parties is attached hereto as EXHIBIT F. The Merchant Processing Agreement may be modified by mutual written agreement of SERVICERS and IPAYMENT. IPAYMENT shall cease its use of any Merchant Processing Agreement which may become unacceptable to SERVICERS, in SERVICERS' sole, reasonable judgment, upon thirty (30) days' notice (unless, however, a shorter timeframe is required by an Association, the Rules or applicable law, rules or regulations, in which case, such shorter timeframe will apply).


"MERCHANT PROCESSING POLICY" shall mean the merchant policy, guidelines and standards established by SERVICERS under which SERVICERS will enter into a Merchant Processing Agreement with a Merchant as in effect from time to time during the term of this Agreement, a copy of which is attached hereto as EXHIBIT D, which may be modified from time to time by SERVICERS upon 30 days prior written notice to IPAYMENT.


"MERCHANT RESERVE ACCOUNT" shall mean one or more accounts maintained and controlled by SERVICERS for the deposit of funds received from Merchants pursuant to their respective Merchant Processing Agreements as security and collateral against Merchant Loss that might be incurred by IPAYMENT or SERVICERS.


"MINIMUM BALANCE" shall have the meaning provided in SECTION 6.1 (A).


"NET PROGRAM PARTICIPATION FEES" shall mean, at any point in time, all
Program Participation Fees minus the sum of:


(a) All compensation and other amounts (including unreimbursed
chargebacks and payments to the Reserve Account) due SERVICERS
plus


(b) All fees and other amounts due third party processors
under or in connection with this Agreement or any Merchant
Processing Agreements.


"NET SALES" shall mean the dollar amount of MasterCard and VISA sales draft and Transactions processed under the Program for an Approved Merchant, which drafts and Transactions are generated through the use of VISA and MasterCard cards at an Approved Merchant during a particular period, minus the dollar amount of all chargebacks, refunds, purchase returns and credits made regarding the Approved Merchant during the period in connection with Transactions that originated at the Approved Merchant.


"NET VOLUME" shall mean the gross Card volume processed monthly by the Merchant less any credits, chargebacks and adjustments settled.


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"NETWORK" means those certain debit networks, formed to allow debit cards from banks subscribing to the network to be used at other subscribing banks and at subscribing retailers, that SERVICERS participate in, as such participation may change from time to time in SERVICERS' sole discretion.


"PAYMENT DATE" shall mean the tenth (10th) Day of each calendar month during the term of this Agreement.


"PAYMENT PROCESSING SERVICES" shall have the meaning provided in the first recital of this Agreement.


"PRICING SCHEDULE" shall mean the pricing attached to this Agreement as EXHIBIT A.


"PROGRAM" shall mean IPAYMENT's and Subsidiaries' sales and marketing activities on behalf of itself and SERVICERS for the purpose of SERVICERS providing clearing and settlement services for United States Dollar denominated VISA and MasterCard credit card transactions and off-line debit card transactions for Merchants located in the United States.


"PROGRAM PARTICIPATION FEES" shall mean all fees owed by Merchants under the applicable Merchant Processing Agreements, including, but not limited to, the Merchant Discount Amounts or Transaction fees, which amounts may be recommended by IPAYMENT and finally determined by SERVICERS.


"PROGRAM RECEIPTS" shall mean all amounts collected by SERVICERS for a Merchant under a Merchant Processing Agreement.


"PROGRAM TRANSFER" shall mean SERVICERS' transfer and assignment of their rights and obligations under the Merchant Processing Agreements and Merchant Accounts for the Merchant Portfolio, in conjunction with a transfer of the BINs and ICAs for the Merchant Portfolio to a VISA and MasterCard Member designated by IPAYMENT in accordance with SECTION 10.1.


"PROMOTIONAL MATERIALS" shall mean all oral and written solicitations and advertisements and other communications (including telemarketing scripts) used to market, promote, and solicit the establishment of Merchant Processing Agreements with Merchants.


"PROSPECTIVE MERCHANT" is a Merchant solicited by IPAYMENT or Subsidiaries (or IPAYMENT's Sub-Independent Service Organizations) for participation in the Program defined in SECTION 2.4 of this Agreement.


"RESERVE ACCOUNT" shall mean the account at SERVICERS that is to be established by IPAYMENT and fully controlled by SERVICERS as described in SECTION 8.1 to insure payment of chargebacks, fees and other amounts due to SERVICERS.


"RULES" shall mean the rules, bylaws, regulations and/or requirements, releases, interpretations and other requirements that are promulgated, imposed or adopted by VISA and/or MasterCard, as they may from time to time be amended.


Page 6 of 46
"SUBSEQUENTLY ACQUIRED PORTFOLIO" shall mean any portfolio of merchant agreements that is acquired by IPAYMENT after the date of this Agreement.


"SUBSIDIARIES" shall mean the wholly-owned subsidiaries of IPAYMENT which are identified on EXHIBIT B to this Agreement.


"TERMINATION RESERVE ACCOUNT" shall mean a Reserve Account to be established upon notice of termination of this Agreement to insure the payment of chargebacks, fees and other amounts which may become due to SERVICERS following termination of the Agreement.


"TRANSACTION" means the consummation of a sale of goods and/or services by a Merchant through the use of a Card or the initiation of a credit to a Cardholder by a Merchant with respect to a Card.


"TRANSFER ACCOUNT" shall mean one or more accounts at CHASE that are established and maintained by (and in the name of) IPAYMENT to allow SERVICERS to credit and debit funds as provided in SECTION 6.


SECTION 2
PROGRAM SERVICES


2.1 SERVICERS' SERVICES.


(a) SERVICERS shall provide the services specified in this Agreement
and shall be compensated therefor as set forth in the Pricing Schedule
attached as EXHIBIT A. During the Initial Term of this Agreement,
SERVICERS shall not change the pricing set forth on EXHIBIT A, except
that such pricing may be adjusted by SERVICERS to (i) reflect actual
increases by an Association in interchange, assessments or other
Association fees, or (ii) pass through actual increases charged by
third party processors or third parties for on-line communication costs
and similar items for which SERVICERS are responsible for payment.
SERVICERS may adjust the pricing set forth in Exhibit A for any renewal
term by providing IPAYMENT with notice of such adjusted pricing at
least one-hundred and twenty (120) days' prior to the expiration of the
Initial Term or any renewal term.


(b) SERVICERS shall, after the full execution of this Agreement by the
parties, take such actions, with assistance from IPAYMENT and
Subsidiaries, to initially sponsor IPAYMENT and Subsidiaries, at
IPAYMENT's expense, as ISOs for Visa and as MSPs for MasterCard.
SERVICERS agree to maintain such sponsorships during the term of this
Agreement at IPAYMENT's expense and subject to IPAYMENT providing any
and all information, documents or materials as may be necessary for
such sponsorship maintenance.


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(c) SERVICERS agree, on a non-exclusive basis, to settle Transactions
for Approved Merchants in accordance with the settlement procedures and
terms and conditions set forth in SECTION 6 below of this Agreement.


(d) SERVICERS agrees that pursuant to and in accordance with the terms
and provisions set forth in Section 4, below, it will timely review and
process the Application of each Prospective Merchant submitted by
IPAYMENT or one of Subsidiaries.


(e) SERVICERS will obtain copies for IPAYMENT of the Rules or any
Association or Network manuals and publications that are available to
Members. IPAYMENT will reimburse SERVICERS for all costs incurred in
connection with this subsection 2.1(e).


(f) From time to time, and within a reasonable time following
SERVICERS' receipt of notice of Material changes in the Rules
applicable to the Program, SERVICERS will advise IPAYMENT, who shall,
in turn, notify each Merchant in the Merchant Portfolio with an Active
Account, of such changes imposed by the Rules.


(g) SERVICERS will materially comply with applicable Association Rules
and applicable law concerning Cardholder information and Transaction
data.


(h) SERVICERS will approve or disapprove, in their sole discretion, all
Application Materials and Promotional Materials proposed to be used by
IPAYMENT in marketing the Program as soon as practicable following the
submission by IPAYMENT for SERVICERS' review thereof pursuant to
Section 3.


(i) From time to time in their sole discretion and at their sole cost
and expense, SERVICERS may also perform certain risk management
services, such as periodic credit reviews, fraud reviews and monitoring
and collections, with respect to Program Merchants. SERVICERS'
participation in any such activity shall not in any way relieve
IPAYMENT from its responsibility for credit and fraud losses which may
result from or be related to Program Merchants' transactions.


2.2 IPAYMENT'S OBLIGATIONS. IPAYMENT shall perform all sales and marketing
activities in furtherance of the Program, subject to the terms of this
Agreement. It is understood that (at all times) SERVICERS have the
ultimate approval right for IPAYMENT's solicitation procedures,
Application Materials, application processing procedures, Merchant
qualification criteria, transaction processing procedures, customer
service levels, Program terms, Program fees, and other Program
policies, all of which must be approved in advance by SERVICERS in
writing. IPAYMENT shall also perform all initial Merchant credit review
and underwriting on Prospective Merchants in a manner consistent with
Section 4 of this Agreement. IPAYMENT shall submit a minimum of
[****] of Visa and MasterCard transactions processed
by FDMS


[****] Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933, as amended.


Page 8 of 46


to SERVICERS for clearing and settlement services; provided, however,
that Merchants that do not meet the Merchant Processing Policy, or are
otherwise declined by SERVCERS, shall not be included in calculating
this [****] performance minimum.


2.3 EXISTING MERCHANTS.


(a) IPAYMENT represents and warrants: (i) that a true and correct list
of Merchants in the Existing Portfolio as of January 16, 2003 is
attached hereto and made a part hereof as EXHIBIT C; (ii) that none of
the Merchants in the Existing Portfolio operate in the unacceptable
industries outlined in the Merchant Processing Policy (attached as
EXHIBIT D); and (iii) that it has the authority and right to assign and
transfer the Card processing agreements, merchant accounts and merchant
reserves for the Existing Merchants in the Existing Portfolio to
SERVICERS. IPAYMENT shall obtain a signed Merchant Processing Agreement
from each of its Existing Merchants and shall provide a signed copy
thereof to SERVICERS; provided, however, that IPAYMENT is not required
to obtain a substitute agreement from any Existing Merchant that
currently has in effect a valid and binding Card processing agreement
in a form acceptable to SERVICERS in their sole discretion. SERVICERS
acknowledge that they have received forms of Card processing agreements
from IPAYMENT for the Existing Portfolio as outlined on EXHIBIT E
(attached hereto), which are acceptable provided they comply with the
Rules and applicable law, rules and regulations.


(b) SERVICERS agree that each Merchant in the Existing Portfolio is
approved by SERVICERS to participate in the Program pursuant to the
terms of this Agreement, subject to SERVICERS' continued credit review.
Should SERVICERS' determine that an Existing Merchant within the
Existing Portfolio does not meet the Merchant Processing Policy,
following the Conversion, SERVICERS may decline such Merchant and cease
providing settlement services under this Agreement, in SERVICERS' sole
discretion.


(c) IPAYMENT represents and warrants that its merchant processing
business has in all material respects been operated in compliance with
all applicable laws, rules, orders, regulations, policies and
guidelines of all governmental and regulatory entities and all
Associations, including all underwriti
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