Document:

Unassociated Document

    

      Exhibit
        10.18

    

    INCENTIVE
      STOCK OPTION AGREEMENT

    

    RESPONSE
      GENETICS, INC.

    

    

    AGREEMENT
      made as of the ___ day of _______ 200_, between Response Genetics, Inc. (the
      “Company”), a Delaware corporation and ____________, an employee of the Company
      (the “Employee”).

    

    WHEREAS,
      the Company desires to grant to the Employee an Option to purchase shares of
      its
      common stock, $.01 par value per share (the “Shares”), under and for the
      purposes set forth in the Company’s 2006 Employee, Director and Consultant Stock
      Plan (the “Plan”);

    

    WHEREAS,
      the Company and the Employee understand and agree that any terms used and not
      defined herein have the same meanings as in the Plan; and

    

    WHEREAS,
      the Company and the Employee each intend that the Option granted herein qualify
      as an ISO.

    

    NOW,
      THEREFORE, in consideration of the mutual covenants hereinafter set forth and
      for other good and valuable consideration, the parties hereto agree as
      follows:

    

    
      	
            	1.	
              GRANT
                OF OPTION.

            

    

    

    The
      Company hereby grants to the Employee the right and option to purchase all
      or
      any part of an aggregate of ________________ Shares, on the terms and conditions
      and subject to all the limitations set forth herein, under United States
      securities and tax laws, and in the Plan, which is incorporated herein by
      reference. The Employee acknowledges receipt of a copy of the Plan.

    

    
      	
            	2.	
              PURCHASE
                PRICE.

            

    

    

    The
      purchase price of the Shares covered by the Option shall be $____ per Share,
      subject to adjustment, as provided in the Plan, in the event of a stock split,
      reverse stock split or other events affecting the holders of Shares after the
      date hereof (the “Purchase Price”). Payment shall be made in accordance with
      Paragraph 9 of the Plan.

    

    
      	
            	3.	
              EXERCISABILITY
                OF OPTION.

            

    

    

    Subject
      to the terms and conditions set forth in this Agreement and the Plan, the Option
      granted hereby shall become exercisable as follows:

    

    
      	
              On
                the first anniversary of the date of this Agreement

            	 	
               

              up
                to _________ Shares

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    
      	
              On
                the second anniversary of the date of this Agreement

            	 	
               

              an
                additional _________ Shares

            
	
              On
                the third anniversary of the date of this Agreement

            	 	
               

              an
                additional _________ Shares

            
	
              On
                the fourth anniversary of the date of this Agreement

            	 	
               

              an
                additional _________ Shares

            

    

    

    The
      foregoing rights are cumulative and are subject to the other terms and
      conditions of this Agreement and the Plan.

    

    Notwithstanding
      the foregoing, in the event of a Change of Control (as defined below), all
      of
      the Shares shall fully accelerate and will be vested for purposes of Section
      24(B) of the Plan unless this Option has otherwise expired or been terminated
      pursuant to its terms or the terms of the Plan.

    

    Change
      of Control
      means
      the occurrence of any of the following events:

    

    
      	 	
              (i)

            	
              Ownership.
                Any “Person” (as such term is used in Sections 13(d) and 14(d) of the
                Securities Exchange Act of 1934, as amended) becomes the “Beneficial
                Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly,
                of securities of the Company representing 50% or more of the total
                voting
                power represented by the Company’s then outstanding voting securities
                (excluding for this purpose the Company or its Affiliates or any
                employee
                benefit plan of the Company) pursuant to a transaction or a series
                of
                related transactions which the Board of Directors does not approve;
                or

            

    

    

    
      	 	
              (ii)

            	
              Merger/Sale
                of Assets. A merger or consolidation of the Company whether or not
                approved by the Board of Directors, other than a merger or consolidation
                which would result in the voting securities of the Company outstanding
                immediately prior thereto continuing to represent (either by remaining
                outstanding or by being converted into voting securities of the surviving
                entity or the parent of such corporation) at least 50% of the total
                voting
                power represented by the voting securities of the Company or such
                surviving entity or parent of such corporation outstanding
                immediately after such merger or consolidation, or the stockholders
                of the
                Company approve an agreement for the sale or disposition by the Company
                of
                all or substantially all of the Company’s assets;
                or

            

    

    

    
      	 	
              (iii)

            	
              Change
                in Board Composition. A change in the composition of the Board of
                Directors, as a result of which fewer than a majority of the directors
                are
                Incumbent Directors. “Incumbent Directors” shall mean directors who either
                (A) are directors of the Company as of the [insert date of this
                Agreement], or (B) are elected, or nominated for election, to the
                Board of Directors with the affirmative votes of at least a majority
                of the Incumbent Directors at the time of such election or nomination
                (but
                shall not include an individual whose election or nomination is in
                connection with an actual or threatened proxy contest relating to
                the
                election of directors to the
                Company). 

            

    

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    
      	 	
              4.

            	
              TERM
                OF OPTION.

            

    

    

    This
      Option shall terminate ten years from the date of this Agreement or, if the
      Employee owns as of the date hereof more than 10% of the total combined voting
      power of all classes of capital stock of the Company or an Affiliate, five
      years
      from the date of this Agreement, but shall be subject to earlier termination
      as
      provided herein or in the Plan.

    

    If
      the
      Employee ceases to be an employee of the Company or of an Affiliate (for any
      reason other than the death or Disability of the Employee or termination of
      the
      Employee’s employment for “cause” (as defined in the Plan), the Option may be
      exercised, if it has not previously terminated, within three months after the
      date the Employee ceases to be an employee of the Company or an Affiliate,
      or
      within the originally prescribed term of the Option, whichever is earlier,
      but
      may not be exercised thereafter except as set forth below. In such event, the
      Option shall be exercisable only to the extent that the Option has become
      exercisable and is in effect at the date of such cessation of
      employment.

    

    If
      the
      Employee ceases to be an employee of the Company or of an Affiliate but
      continues after termination of employment to provide service to the Company
      or
      an Affiliate as a consultant, this Option shall continue to vest in accordance
      with Section 3 above as if this Option had not terminated until the Employee
      is
      no longer providing services to the Company. In such case, this Option shall
      automatically convert and be deemed a Non-Qualified Option as of the date that
      is three months from termination of the Employee's employment and this Option
      shall continue on the same terms and conditions set forth herein until such
      Employee is no longer providing service to the Company or an
      Affiliate.

    

    Notwithstanding
      the foregoing, in the event of the Employee’s Disability or death within three
      months after the termination of employment, the Employee or the Employee’s
      Survivors may exercise the Option within one year after the date of the
      Employee’s termination of employment, but in no event after the date of
      expiration of the term of the Option.

    

    In
      the
      event the Employee’s employment is terminated by the Employee’s employer for
“cause” (as defined in the Plan), the Employee’s right to exercise any
      unexercised portion of this Option shall cease immediately as of the time the
      Employee is notified his or her employment is terminated for “cause,” and this
      Option shall thereupon terminate. Notwithstanding anything herein to the
      contrary, if subsequent to the Employee’s termination as an employee, but prior
      to the exercise of the Option, the Board of Directors of the Company determines
      that, either prior or subsequent to the Employee’s termination, the Employee
      engaged in conduct which would constitute “cause,” then the Employee shall
      immediately cease to have any right to exercise the Option and this Option
      shall
      thereupon terminate.

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

    In
      the
      event of the Disability of the Employee, as determined in accordance with the
      Plan, the Option shall be exercisable within one year after the Employee’s
      termination of employment or, if earlier, within the term originally prescribed
      by the Option. In such event, the Option shall be exercisable:

    

    
      	 	
              (a)

            	
              to
                the extent that the Option has become exercisable but has not been
                exercised as of the date of Disability;
                and

            

    

    

    
      	 	
              (b)

            	
              in
                the event rights to exercise the Option accrue periodically, to the
                extent
                of a pro rata portion through the date of Disability of any additional
                vesting rights that would have accrued on the next vesting date had
                the
                Employee not become Disabled. The proration shall be based upon the
                number
                of days accrued in the current vesting period prior to the date of
                Disability.

            

    

    

    In
      the
      event of the death of the Employee while an employee of the Company or of an
      Affiliate, the Option shall be exercisable by the Employee’s Survivors within
      one year after the date of death of the Employee or, if earlier, within the
      originally prescribed term of the Option. In such event, the Option shall be
      exercisable:

    

    
      	 	
              (x)

            	
              to
                the extent that the Option has become exercisable but has not been
                exercised as of the date of death;
                and

            

    

    

    
      	 	
              (y)

            	
              in
                the event rights to exercise the Option accrue periodically, to the
                extent
                of a pro rata portion through the date of death of any additional
                vesting
                rights that would have accrued on the next vesting date had the Employee
                not died. The proration shall be based upon the number of days accrued
                in
                the current vesting period prior to the Employee’s date of
                death.

            

    

    

    
      	 	
              5.

            	
              METHOD
                OF EXERCISING OPTION.

            

    

    

    Subject
      to the terms and conditions of this Agreement, the Option may be exercised
      by
      written notice to the Company or its designee, in substantially the form of
      Exhibit A
      attached
      hereto. Such notice shall state the number of Shares with respect to which
      the
      Option is being exercised and shall be signed by the person exercising the
      Option. Payment of the purchase price for such Shares shall be made in
      accordance with Paragraph 9 of the Plan. The Company shall deliver such Shares
      as soon as practicable after the notice shall be received, provided, however,
      that the Company may delay issuance of such Shares until completion of any
      action or obtaining of any consent, which the Company deems necessary under
      any
      applicable law (including, without limitation, state securities or “blue sky”
laws). The Shares as to which the Option shall have been so exercised shall
      be
      registered in the Company’s share register in the name of the person so
      exercising the Option (or, if the Option shall be exercised by the Employee
      and
      if the Employee shall so request in the notice exercising the Option, shall
      be
      registered in the name of the Employee and another person jointly, with right
      of
      survivorship) and shall be delivered as provided above to or upon the written
      order of the person exercising the Option. In the event the Option shall be
      exercised, pursuant to Section 4 hereof, by any person other than the Employee,
      such notice shall be accompanied by appropriate proof of the right of such
      person to exercise the Option. All Shares that shall be purchased upon the
      exercise of the Option as provided herein shall be fully paid and
      nonassessable.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

    

    
      	 	
              6.

            	
              PARTIAL
                EXERCISE.

            

    

    

    Exercise
      of this Option to the extent above stated may be made in part at any time and
      from time to time within the above limits, except that no fractional share
      shall
      be issued pursuant to this Option.

    

    
      	 	
              7.

            	
              NON-ASSIGNABILITY.

            

    

    

    The
      Option shall not be transferable by the Employee otherwise than by will or
      by
      the laws of descent and distribution. The Option shall be exercisable, during
      the Employee’s lifetime, only by the Employee (or, in the event of legal
      incapacity or incompetency, by the Employee’s guardian or representative) and
      shall not be assigned, pledged or hypothecated in any way (whether by operation
      of law or otherwise) and shall not be subject to execution, attachment or
      similar process. Any attempted transfer, assignment, pledge, hypothecation
      or
      other disposition of the Option or of any rights granted hereunder contrary
      to
      the provisions of this Section 7, or the levy of any attachment or similar
      process upon the Option shall be null and void.

    

    
      	 	
              8.

            	
              NO
                RIGHTS AS STOCKHOLDER UNTIL EXERCISE.

            

    

    

    The
      Employee shall have no rights as a stockholder with respect to Shares subject
      to
      this Agreement until registration of the Shares in the Company’s share register
      in the name of the Employee. Except as is expressly provided in the Plan with
      respect to certain changes in the capitalization of the Company, no adjustment
      shall be made for dividends or similar rights for which the record date is
      prior
      to the date of such registration.

    

    
      	 	
              9.

            	
              ADJUSTMENTS.

            

    

    

    The
      Plan
      contains provisions covering the treatment of Options in a number of
      contingencies such as stock splits and mergers. Provisions in the Plan for
      adjustment with respect to stock subject to Options and the related provisions
      with respect to successors to the business of the Company are hereby made
      applicable hereunder and are incorporated herein by reference.  

    

    
      	 	
              10.

            	
              TAXES.

            

    

    

    The
      Employee acknowledges that any income or other taxes due from him or her with
      respect to this Option or the Shares issuable pursuant to this Option shall
      be
      the Employee’s responsibility.

    

    In
      the
      event of a Disqualifying Disposition (as defined in Section 15 below) or if
      the
      Option is converted into a Non-Qualified Option and such Non-Qualified Option
      is
      exercised, the Company may withhold from the Employee’s remuneration, if any,
      the minimum statutory amount of federal, state and local withholding taxes
      attributable to such amount that is considered compensation includable in such
      person’s gross income. At the Company’s discretion, the amount required to be
      withheld may be withheld in cash from such remuneration, or in kind from the
      Shares otherwise deliverable to the Employee on exercise of the Option. The
      Employee further agrees that, if the Company does not withhold an amount from
      the Employee’s remuneration sufficient to satisfy the Company’s income tax
      withholding obligation, the Employee will reimburse the Company on demand,
      in
      cash, for the amount under-withheld.

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

    

    
      	 	
              11.

            	
              PURCHASE
                FOR INVESTMENT.

            

    

    

    Unless
      the offering and sale of the Shares to be issued upon the particular exercise
      of
      the Option shall have been effectively registered under the Securities Act
      of
      1933, as now in force or hereafter amended (the “1933 Act”), the Company shall
      be under no obligation to issue the Shares covered by such exercise unless
      and
      until the following conditions have been fulfilled:

    

    
      	 	
              (a)

            	
              The
                person(s) who exercise the Option shall warrant to the Company, at
                the
                time of such exercise, that such person(s) are acquiring such Shares
                for
                their own respective accounts, for investment, and not with a view
                to, or
                for sale in connection with, the distribution of any such Shares,
                in which
                event the person(s) acquiring such Shares shall be bound by the provisions
                of the following legend which shall be endorsed upon the certificate(s)
                evidencing the Shares issued pursuant to such
                exercise:

            

    

    

    “The
      shares represented by this certificate have been taken for investment and they
      may not be sold or otherwise transferred by any person, including a pledgee,
      unless (1) either (a) a Registration Statement with respect to such shares
      shall
      be effective under the Securities Act of 1933, as amended, or (b) the Company
      shall have received an opinion of counsel satisfactory to it that an exemption
      from registration under such Act is then available, and (2) there shall have
      been compliance with all applicable state securities laws;” and

    

    
      	 	
              (b)

            	
              If
                the Company so requires, the Company shall have received an opinion
                of its
                counsel that the Shares may be issued upon such particular exercise
                in
                compliance with the 1933 Act without registration thereunder. Without
                limiting the generality of the foregoing, the Company may delay issuance
                of the Shares until completion of any action or obtaining of any
                consent,
                which the Company deems necessary under any applicable law (including
                without limitation state securities or “blue sky”
                laws).

            

    

    

    
      	 	
              12.

            	
              RESTRICTIONS
                ON TRANSFER OF SHARES.

            

    

    

    12.1 The
      Employee agrees that in the event the Company proposes to offer for sale to
      the
      public any of its equity securities and such Employee is requested by the
      Company and any underwriter engaged by the Company in connection with such
      offering to sign an agreement restricting the sale or other transfer of Shares,
      then it will promptly sign such agreement and will not transfer, whether in
      privately negotiated transactions or to the public in open market transactions
      or otherwise, any Shares or other securities of the Company held by him or
      her
      during such period as is determined by the Company and the underwriters, not
      to
      exceed 90 days following the closing of the offering, plus such additional
      period of time as may be required to comply with Marketplace Rule 2711 of the
      National Association of Securities Dealers, Inc. or similar rules thereto (such
      period, the “Lock-Up Period”). Such agreement shall be in writing and in form
      and substance reasonably satisfactory to the Company and such underwriter and
      pursuant to customary and prevailing terms and conditions. Notwithstanding
      whether the Employee has signed such an agreement, the Company may impose
      stop-transfer instructions with respect to the Shares or other securities of
      the
      Company subject to the foregoing restrictions until the end of the Lock-Up
      Period.

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

    

    12.2 The
      Employee acknowledges and agrees that neither the Company, its shareholders
      nor
      its directors and officers, has any duty or obligation to disclose to the
      Employee any material information regarding the business of the Company or
      affecting the value of the Shares before, at the time of, or following a
      termination of the employment of the Employee by the Company, including, without
      limitation, any information concerning plans for the Company to make a public
      offering of its securities or to be acquired by or merged with or into another
      firm or entity.

    

    
      	 	
              13.

            	
              NO
                OBLIGATION TO EMPLOY.

            

    

    

    The
      Company is not by the Plan or this Option obligated to continue the Employee
      as
      an employee of the Company or an Affiliate. The Employee acknowledges: (i)
      that
      the Plan is discretionary in nature and may be suspended or terminated by the
      Company at any time; (ii) that the grant of the Option is a one-time benefit
      which does not create any contractual or other right to receive future grants
      of
      options, or benefits in lieu of options; (iii) that all determinations with
      respect to any such future grants, including, but not limited to, the times
      when
      options shall be granted, the number of shares subject to each option, the
      option price, and the time or times when each option shall be exercisable,
      will
      be at the sole discretion of the Company; (iv) that the Employee’s participation
      in the Plan is voluntary; (v) that the value of the Option is an extraordinary
      item of compensation which is outside the scope of the Employee’s employment
      contract, if any; and (vi) that the Option is not part of normal or expected
      compensation for purposes of calculating any severance, resignation, redundancy,
      end of service payments, bonuses, long-service awards, pension or retirement
      benefits or similar payments.

    

    
      	 	
              14.

            	
              OPTION
                IS INTENDED TO BE AN ISO.
                

            

    

    

    The
      parties each intend that the Option be an ISO so that the Employee (or the
      Employee’s Survivors) may qualify for the favorable tax treatment provided to
      holders of Options that meet the standards of Section 422 of the Code. Any
      provision of this Agreement or the Plan which conflicts with the Code so that
      this Option would not be deemed an ISO is null and void and any ambiguities
      shall be resolved so that the Option qualifies as an ISO. Nonetheless, if the
      Option is determined not to be an ISO, the Employee understands that neither
      the
      Company nor any Affiliate is responsible to compensate him or her or otherwise
      make up for the treatment of the Option as a Non-Qualified Option and not as
      an
      ISO. The Employee should consult with the Employee’s own tax advisors regarding
      the tax effects of the Option and the requirements necessary to obtain favorable
      tax treatment under Section 422 of the Code, including, but not limited to,
      holding period requirements.

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    Notwithstanding
      the foregoing, to the extent that the Option is not deemed to be an ISO pursuant
      to Section 422(d) of the Code because the aggregate fair market value
      (determined as of the date hereof) of any of the Shares with respect to which
      this ISO is granted becomes exercisable for the first time during any calendar
      year in excess of $100,000, the portion of the Option representing such excess
      value shall be treated as a Non-Qualified Option and the Employee shall be
      deemed to have taxable income measured by the difference between the then fair
      market value of the Shares received upon exercise and the price paid for such
      Shares pursuant to this Agreement. 

    

    
      	 	
              15.

            	
              NOTICE
                TO COMPANY OF DISQUALIFYING DISPOSITION.

            

    

    

    The
      Employee agrees to notify the Company in writing immediately after the Employee
      makes a Disqualifying Disposition of any of the Shares acquired pursuant to
      the
      exercise of the Option. A Disqualifying Disposition is defined in Section 424(c)
      of the Code and includes any disposition (including any sale) of such Shares
      before the later of (a) two years after the date the Employee was granted the
      Option or (b) one year after the date the Employee acquired Shares by exercising
      the Option, except as otherwise provided in Section 424(c) of the Code. If
      the
      Employee has died before the Shares are sold, these holding period requirements
      do not apply and no Disqualifying Disposition can occur thereafter.

    

    
      	 	
              16.

            	
              NOTICES.

            

    

    

    Any
      notices required or permitted by the terms of this Agreement or the Plan shall
      be given by recognized courier service, facsimile, registered or certified
      mail,
      return receipt requested, addressed as follows:

    

    If
      to the
      Company:

    Response
      Genetics, Inc. 

    Attn:
      Finance

    1640
      Marengo Street, 

    Los
      Angeles, CA 90033

    

    

    If
      to the
      Employee: 

    
      	 
	 
	 

    

    

    or
      to
      such other address or addresses of which notice in the same manner has
      previously been given. Any such notice shall be deemed to have been given upon
      the earlier of receipt, one business day following delivery to a recognized
      courier service or three business days following mailing by registered or
      certified mail.

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

    

    
      	 	
              17.

            	
              GOVERNING
                LAW.

            

    

    

    This
      Agreement shall be construed and enforced in accordance with the law of the
      State of Delaware, without giving effect to the conflict of law principles
      thereof.

    

    
      	 	
              18.

            	
              BENEFIT
                OF AGREEMENT.

            

    

    

    Subject
      to the provisions of the Plan and the other provisions hereof, this Agreement
      shall be for the benefit of and shall be binding upon the heirs, executors,
      administrators, successors and assigns of the parties hereto.

    

    
      	 	
              19.

            	
              ENTIRE
                AGREEMENT.

            

    

    

    This
      Agreement, together with the Plan, embodies the entire agreement and
      understanding between the parties hereto with respect to the subject matter
      hereof and supersedes all prior oral or written agreements and understandings
      relating to the subject matter hereof. No statement, representation, warranty,
      covenant or agreement not expressly set forth in this Agreement shall affect
      or
      be used to interpret, change or restrict, the express terms and provisions
      of
      this Agreement, provided, however, in any event, this Agreement shall be subject
      to and governed by the Plan.

    

    
      	 	
              20.

            	
              MODIFICATIONS
                AND AMENDMENTS.

            

    

    

    The
      terms
      and provisions of this Agreement may be modified or amended as provided in
      the
      Plan.

    

    
      	 	
              21.

            	
              WAIVERS
                AND CONSENTS.

            

    

    

    Except
      as
      provided in the Plan, the terms and provisions of this Agreement may be waived,
      or consent for the departure therefrom granted, only by written document
      executed by the party entitled to the benefits of such terms or provisions.
      No
      such waiver or consent shall be deemed to be or shall constitute a waiver or
      consent with respect to any other terms or provisions of this Agreement, whether
      or not similar. Each such waiver or consent shall be effective only in the
      specific instance and for the purpose for which it was given, and shall not
      constitute a continuing waiver or consent.

    

    
      	
            	22.	
              DATA
                PRIVACY.

            

    

    

    By
      entering into this Agreement, the Employee: (i) authorizes the Company and
      each
      Affiliate, and any agent of the Company or any Affiliate administering the
      Plan
      or providing Plan recordkeeping services, to disclose to the Company or any
      of
      its Affiliates such information and data as the Company or any such Affiliate
      shall request in order to facilitate the grant of options and the administration
      of the Plan; (ii) waives any data privacy rights he or she may have with respect
      to such information; and (iii) authorizes the Company and each Affiliate to
      store and transmit such information in electronic form.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

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        10

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
      duly authorized officer, and the Employee has hereunto set his or her hand,
      all
      as of the day and year first above written.

     

    
      	 	
              Response
                Genetics, Inc.

              

              By:
                _________________________________

              Name

              Title

               

               

              ____________________________________
Employee

            

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    Exhibit
      A

    

    NOTICE
      OF
      EXERCISE OF INCENTIVE STOCK OPTION

    

    
      	TO:	
              Response
                Genetics, Inc.

            

    

    

    Ladies
      and Gentlemen:

    

    I
      hereby
      exercise my Incentive Stock Option to purchase _________ shares (the “Shares”)
      of the common stock, $.01 par value, of Response Genetics, Inc. (the
      “Company”), at the exercise price of $________ per share, pursuant to and
      subject to the terms of that certain Incentive Stock Option Agreement between
      the undersigned and the Company dated _______________, 200_.

    

    I
      understand the nature of the investment I am making and the financial risks
      thereof. I am aware that it is my responsibility to have consulted with
      competent tax and legal advisors about the relevant national, state and local
      income tax and securities laws affecting the exercise of the Option and the
      purchase and subsequent sale of the Shares.

    

    I
      am
      paying the option exercise price for the Shares as follows:

    

    __________________________________________

    

    Please
      issue the Shares (check one):

    

    o 
to
      me; or

    

    o 
to
      me and
      ____________________________, as joint tenants with right of
      survivorship,

    

    at
      the
      following address:

    

    
      	 
	 
	 

    

    

    My
      mailing address for shareholder communications, if different from the address
      listed above, is:

    

    
      	 
	 
	 

    

    

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

     

    
      	 	
              Very
                truly yours,

              

              
____________________________________

              Employee
                (signature)

              

              
____________________________________

              Print
                Name

              

              
____________________________________

              Date

              

              
____________________________________

              Social
                Security Number

            

    

     

    
      
        
        

      

      
        A-2SETTLEMENT
      AND RELEASE AGREEMENT

     

    SETTLEMENT
      AND RELEASE AGREEMENT, dated as of November 20, 2006 (this “Agreement”),
      by
      and between YTB International, Inc., a Delaware corporation (“YTB”)
      and
      Laurus Master Fund, Ltd., a company incorporated under the Exempt Companies
      Ordinance of the Cayman Islands (“Laurus”).

     

    WHEREAS,
      Laurus acquired (i) 2,050,000 shares (the “January
      Shares”)
      of
      common stock, par value $0.01 per share, of YTB (“Common
      Stock”)
      and a
      warrant, dated January 26, 2005 (the “January
      Warrant”)
      to
      purchase 800,000 shares of Common Stock (the “January
      Warrant Shares”),
      pursuant to a Securities Purchase Agreement, dated January 26, 2005 (the
“January
      SPA”)
      and a
      $2,000,000 Convertible Term Note (the “Note”)
      which
      has been converted into shares of Common Stock and (ii) 800,000 shares of Common
      Stock (the “October
      Shares”)
      and a
      warrant, dated October 31, 2005 (the “October
      Warrant”)
      to
      purchase 400,000 shares of Common Stock (the “October
      Warrant Shares”
and
      together with the January Shares, the October Shares and the January Warrant
      Shares, the “Original
      Securities”),
      pursuant to a Securities Purchase Agreement, dated October 31, 2005 (the
“October
      SPA”);

     

    WHEREAS,
      in connection with the January SPA, Laurus and YTB entered into a Registration
      Rights Agreement, dated January 26, 2005 (the “January
      Registration Rights Agreement”),
      and
      in connection with the October SPA, Laurus and YTB entered into a Registration
      Rights Agreement, dated October 31, 2005 (together with the January Registration
      Rights Agreement, the “Registration
      Rights Agreements”),
      pursuant to which YTB agreed to provide certain registration rights with respect
      to the Original Securities under the 1933 Act and the rules and regulations
      promulgated thereunder, and applicable state securities laws (the Registration
      Rights Agreements, the January SPA, the Note, the January Warrant, the October
      SPA and the October Warrant, and each agreement or other document entered into
      in connection with or pursuant to such agreements and documents, referred to
      herein as the “Original
      Documentation”);
      

     

    WHEREAS,
      YTB filed with the Securities and Exchange Commission (“SEC”)
      a Form
      8-K, dated January 30, 2006, reporting that the financial statements included
      in
      YTB’s Annual Report for the years ended December 31, 2004 and December 31, 2003
      and the financial statements included in YTB’s Quarterly Reports on Form 10-Q
      for the quarters ended March 31, 2004, June 30, 2004, September 30, 2004, March
      31, 2005, June 30, 2005 and September 30, 2005 should no longer be relied upon;
      and

     

    WHEREAS,
      YTB and Laurus desire to settle any disputes, suits, claims, charges, penalties,
      damages, liquidated damages, fees, liabilities and causes of action arising
      out
      of, based upon or with respect to any Effectiveness Failure (as defined below)
      or any Share Sale Loss (as defined below) and for this reason, have entered
      into
      this Agreement;

     

    NOW
      THEREFORE, in consideration of the mutual agreements contained herein, the
      parties agree as follows:

     

    1.
      Additional
      Shares.
      Subject
      to the terms and conditions of this Agreement, and in reliance on the respective
      representations, warranties and covenants contained herein, within five days
      of
      the execution and delivery of this Agreement by each of the parties, YTB shall
      deliver to Laurus a stock certificate registered in the name of Laurus for
      200,000 shares of Common Stock (the “Additional
      Shares”
and,
      together with the Original Securities, the “Shares”)
      which
      shall bear the following legend: 

     

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
      SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
      THE
      ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
      THE
      SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM
      REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
      SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2. Termination
      of Original Documentation.
      To the
      extent that the agreements or other documents constituting the Original
      Documentation are in effect, as of the date hereof all of the agreements and
      other documents constituting the Original Documentation, excluding only the
      January Warrant and the October Warrant, are hereby terminated and of no further
      force and effect, and each of Laurus and YTB shall have no further rights or
      obligations thereunder or with respect thereto.

     

    3. Registration
      of the Shares.
      Within
      45 days after YTB files (i) an Annual Report for the year ended December 31,
      2005, (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31,
      2006,
      June 30, 2006 and September 30, 2006, (iii) restated Annual Reports for the
      years ended December 31, 2004 and December 31, 2003 and (iv) restated Quarterly
      Reports on Form 10-Q for the quarters ended March 31, 2004, June 30, 2004,
      September 30, 2004, March 31, 2005, June 30, 2005 and September 30, 2005, YTB
      shall use its reasonable best efforts to file with the SEC a Registration
      Statement on Form SB-2 covering the resale of the Shares. YTB shall use its
      reasonable best efforts to cause such Registration Statement to be declared
      effective by the SEC. In connection with the foregoing, the indemnification
      provisions set forth on Annex A hereto shall apply.

     

    4. Representations
      and Warranties of Laurus.
      Laurus
      represents and warrants to YTB as of the date hereof as follows:

     

    (a) Laurus
      is
      duly organized and validly existing and in good standing under the laws of
      the
      jurisdiction of its incorporation, has the requisite corporate power and
      authority to execute, deliver this agreement and to consummate the transactions
      contemplated hereby, and has taken all necessary corporate action to authorize
      the execution, delivery and performance of this Agreement; and

     

    (b)
       Laurus
      is
      acquiring the Additional Shares, shall acquire the January Warrant Shares and
      the October Warrant Shares, and has acquired the other Original Securities
      and
      the January Warrant and October Warrant, solely for the purpose of investment
      and not with a view to, or for offer or sale in connection with, any
      distribution thereof other than in compliance with all applicable laws,
      including United States federal securities laws. Laurus agrees that the Shares,
      the January Warrant and October Warrant may not be sold, transferred, offered
      for sale, pledged, hypothecated or otherwise disposed of without registration
      under the Securities Act of 1933, as amended (the “Securities
      Act”)
      and
      any applicable state securities laws, except pursuant to an exemption from
      such
      registration under the Securities Act and such laws. Laurus is able to bear
      the
      economic risk of holding the Shares, the January Warrant and October Warrant
      for
      an indefinite period (including total loss of its investment), and (either
      alone
      or together with its advisors) has sufficient knowledge and experience in
      financial and business matters so as to be capable of evaluating the merits
      and
      risk of its investment.

     

    5. Representations
      and Warranties of YTB.
      YTB
      represents and warrants to Laurus as of the date hereof and as of the date
      of
      the issuance of the Additional Shares as follows:

     

    (a) YTB
      is
      duly organized and validly existing and in good standing under the laws of
      the
      jurisdiction of its incorporation, has the requisite corporate power and
      authority to execute and deliver this agreement and to consummate the
      transactions contemplated hereby, and has taken all necessary corporate action
      to authorize the execution, delivery and performance of this
      Agreement;

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (b) The
      execution of this Agreement by YTB does not, and the performance by YTB of
      its
      obligations hereunder will not, constitute a material violation of, materially
      conflict with or result in a material default under any contract, commitment,
      agreement, understanding, arrangement or restriction of any kind to which YTB
      is
      a party or by which YTB is bound or constitute a violation of, conflict with
      or
      result in a default under any judgment, decree or order applicable to YTB;
      

     

    (c) Neither
      the execution and delivery of this Agreement nor the performance by YTB of
      its
      obligations hereunder will violate any provision of law applicable to YTB or
      require any consent or approval of, or filing with or notice to any public
      body
      or authority under, any provision of law applicable to YTB other than notice
      or
      filings pursuant to the federal securities laws; and

     

    (d) 
      The
      Additional Shares are duly authorized and, upon issuance in accordance with
      the
      terms of this Agreement will be validly issued, fully paid, and non-assessable
      and free from all liens.

     

    6. Release
      and Waiver.
      Effective as of the Release Effective Date (as defined below), Laurus, for
      itself and its affiliates and successors and assigns (a) hereby releases and
      discharges YTB and its directors and officers, affiliates, representatives,
      attorneys, agents, successors and assigns from all suits, claims, charges,
      penalties, damages, liquidated damages, fees, liabilities and causes of action,
      whatsoever, whether known or unknown, in law or equity or otherwise, which
      Laurus or its affiliates, successors and assigns have or may have against any
      or
      all of them arising out of, based upon or with respect to (i) any failure by
      YTB
      prior to the Release Effective Date to file or obtain and maintain effectiveness
      of a Registration Statement as required under either of the Registration Rights
      Agreements (an “Effectiveness
      Failure”)
      and
      (ii) any losses suffered by Laurus or any of its affiliates on the sale of
      any
      of the Shares prior to the Release Effective Date (“Share
      Sale Loss”)
      (provided however that such release shall not apply to any obligations of YTB
      to
      indemnify Laurus or its affiliates for damages payable to third parties), and
      (b) hereby waives any liquidated damages that may have accrued through the
      date
      hereof or may accrue in the future under the Registration Rights Agreements,
      including under Section 2 of each of the Registration Rights
      Agreements.

     

    “Release
      Effective Date”
shall
      mean the first date upon which (i) YTB and Laurus shall each have duly executed
      and YTB shall have delivered to Laurus its respective counterparts to this
      Agreement and (ii) Laurus, or its designee, shall have received the Additional
      Shares, which Additional Shares shall be duly authorized, validly issued, fully
      paid and non-assessable and free from all liens.

     

    7. Expenses.
      All
      fees and expenses incurred by any of the parties hereto shall be borne by the
      party incurring such fees and expenses and all sales, transfer or other similar
      taxes payable in connection with this Agreement will be borne by the party
      incurring such taxes.

     

    8. Brokerage.
      Each of
      YTB and Laurus represents and warrants to the other that the negotiations
      relevant to this Agreement have been carried on by each of YTB, on the one
      hand,
      and Laurus, on the other hand, directly with the other, and that there are
      no
      claims for finder’s fees or brokerage commissions or other like payments in
      connection with this Agreement. 

     

    9. Further
      Assurances.
      Each
      party shall use its best efforts to take, or cause to be taken, all appropriate
      action, do or cause to be done all things necessary, proper or advisable under
      applicable law, and to execute and deliver such documents and other papers,
      as
      may be required to carry out the provisions of this Agreement and consummate
      and
      make effective the transactions contemplated hereby.

     

    10. Miscellaneous.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    (a) This
      Agreement constitutes the entire agreement and supersedes all prior agreements
      and understandings, whether oral or written, between the parties hereto with
      respect to the subject matter hereof. This Agreement may not be amended orally,
      but only by an instrument in writing signed by each of the parties to this
      Agreement.

     

    (b) This
      Agreement shall inure to the benefit of and be binding upon the parties hereto
      and their respective directors, officers, heirs, legal representatives,
      attorneys, successors and assigns.

     

    (c) This
      Agreement shall be governed by and construed and enforced in accordance with
      the
      laws of the State of New York, without reference to the conflict of laws
      principles thereof. The parties consent to the jurisdiction and venue of the
      Courts of the State of New York within the County of New York and the United
      States District Court of the Southern District of New York in connection with
      any claim or controversy arising out of or relating to this Agreement.

     

    (d) All
      notices and other communications under this Agreement shall be in writing and
      delivery thereof shall be deemed to have been made when transmitted by hand
      delivery, commercial overnight delivery service, telegram, telex, telecopier
      or
      facsimile transmission, when confirmed, to the party entitled to receive the
      same at the address indicated below or at such other address as such party
      shall
      have specified by written notice to the other parties hereto given in accordance
      herewith:

     

    
      	
            	(i)	
              if
                to YTB, addressed to:

            

    

     

    YTB
      International, Inc.

    One
      Country Club View Drive 

    Edwardsville,
      Illinois 62025 

    Attn:
      John D. Clagg,

    Chief
      Financial Officer

    Fax:
      (618) 659-9826

    

    with
      a
      copy to:

    

    Greenberg
      Traurig, LLP

    The
      MetLife Building

    200
      Park
      Avenue

    New
      York,
      New York 10166

    Attn:
      Robert H. Cohen

    Fax:
      (212) 801-6400

    

    
      	 	
              (ii)

            	
              if
                to Laurus, addressed to:

            

    

     

    c/o
      Laurus Capital Management LLC

    Attn:
      Portfolio Services

    825
      Third
      Avenue - 17th
      Floor

    New
      York,
      NY 10022

    Facsimile:
      (212) 541-4410

    Telephone:
      (212) 541-5800

    

    (e) Any
      waiver by any party of a breach of any provision of this Agreement shall not
      operate as or be construed to be a waiver of any other breach of such provision
      or of any breach of any other provision of this Agreement. The failure of a
      party to insist upon strict adherence to any term of this Agreement or one
      or
      more sections shall not be considered a waiver or deprive that party of the
      right thereafter to insist upon strict adherence to that term or any other
      terms
      of this Agreement. This Agreement may be executed in counterparts.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, and intending to be legally bound hereby, YTB and Laurus have
      executed this Agreement on the date first above written.

     

    
      	 	 	 
	 	YTB
              INTERNATIONAL,
              INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	Title:

    

     

    
      	 	 	 
	 	LAURUS
              MASTER
              FUND, LTD.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	Title:

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    Annex
      A

     

    (a) In
      the
      event of a registration of any Shares under the Securities Act, YTB will
      indemnify and hold harmless Laurus, and its officers, directors and each other
      person, if any, who controls Laurus within the meaning of the Securities Act,
      against any losses, claims, damages or liabilities, joint or several, to which
      Laurus, or such persons may become subject under the Securities Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon any untrue statement or alleged
      untrue statement of any material fact contained in any Registration Statement
      under which any of the Shares are registered under the Securities Act pursuant
      to this Agreement, any preliminary prospectus or final prospectus contained
      therein, or any amendment or supplement thereof, or arise out of or are based
      upon the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading,
      and will reimburse Laurus, and each such person for any reasonable legal or
      other expenses incurred by them in connection with investigating or defending
      any such loss, claim, damage, liability or action; provided,
      however,
      that
      YTB will not be liable in any such case if and to the extent that any such
      loss,
      claim, damage or liability arises out of or is based upon an untrue statement
      or
      alleged untrue statement or omission or alleged omission so made in conformity
      with information furnished by or on behalf of Laurus or any such person in
      writing specifically for use in any such document.

     

    (b) In
      the
      event of a registration of any Shares under the Securities Act, Laurus will
      indemnify and hold harmless YTB, and its officers, directors and each other
      person, if any, who controls YTB within the meaning of the Securities Act,
      against all losses, claims, damages or liabilities, joint or several, to which
      YTB or such persons may become subject under the Securities Act or otherwise,
      insofar as such losses, claims, damages or liabilities (or actions in respect
      thereof) arise out of or are based upon any untrue statement or alleged untrue
      statement of any material fact which was furnished in writing by Laurus to
      YTB
      expressly for use in (and such information is contained in) any Registration
      Statement under which any of the Shares are registered under the Securities
      Act
      pursuant to this Agreement, any preliminary prospectus or final prospectus
      contained therein, or any amendment or supplement thereof, or arise out of
      or
      are based upon the omission or alleged omission to state therein a material
      fact
      required to be stated therein or necessary to make the statements therein not
      misleading, and will reimburse YTB and each such person for any reasonable
      legal
      or other expenses incurred by them in connection with investigating or defending
      any such loss, claim, damage, liability or action, provided,
      however,
      that
      Laurus will be liable in any such case if and only to the extent that any such
      loss, claim, damage or liability arises out of or is based upon an untrue
      statement or alleged untrue statement or omission or alleged omission so made
      in
      conformity with information furnished in writing to YTB by or on behalf of
      Laurus specifically for use in any such document. Notwithstanding the provisions
      of this paragraph, Laurus shall not be required to indemnify any person or
      entity in excess of the amount of the aggregate net proceeds received by Laurus
      in respect of the Shares in connection with any such registration under the
      Securities Act.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (c) Promptly
      after receipt by a party entitled to claim indemnification hereunder (an
“Indemnified
      Party”)
      of
      notice of the commencement of any action, such Indemnified Party shall, if
      a
      claim for indemnification in respect thereof is to be made against a party
      hereto obligated to indemnify such Indemnified Party (an “Indemnifying
      Party”),
      notify the Indemnifying Party in writing thereof, but the omission so to notify
      the Indemnifying Party shall not relieve it from any liability which it may
      have
      to such Indemnified Party other than under this Annex A and shall only relieve
      it from any liability which it may have to such Indemnified Party under this
      Annex A if and to the extent the Indemnifying Party is prejudiced by such
      omission. In case any such action shall be brought against any Indemnified
      Party
      and it shall notify the Indemnifying Party of the commencement thereof, the
      Indemnifying Party shall be entitled to participate in and, to the extent it
      shall wish, to assume and undertake the defense thereof with counsel
      satisfactory to such Indemnified Party, and, after notice from the Indemnifying
      Party to such Indemnified Party of its election so to assume and undertake
      the
      defense thereof, the Indemnifying Party shall not be liable to such Indemnified
      Party under this Annex A for any legal expenses subsequently incurred by such
      Indemnified Party in connection with the defense thereof; if the Indemnified
      Party retains its own counsel, then the Indemnified Party shall pay all fees,
      costs and expenses of such counsel, provided,
      however,
      that,
      if the defendants in any such action include both the indemnified party and
      the
      Indemnifying Party and the Indemnified Party shall have reasonably concluded
      that there may be reasonable defenses available to it which are different from
      or additional to those available to the Indemnifying Party or if the interests
      of the Indemnified Party reasonably may be deemed to conflict with the interests
      of the Indemnifying Party, the Indemnified Party shall have the right to select
      one separate counsel and to assume such legal defenses and otherwise to
      participate in the defense of such action, with the reasonable expenses and
      fees
      of such separate counsel and other expenses related to such participation to
      be
      reimbursed by the Indemnifying Party as incurred. 

     

    (d) In
      order
      to provide for just and equitable contribution in the event of joint liability
      under the Securities Act in any case in which either (i) Laurus, or any officer,
      director or controlling person of Laurus, makes a claim for indemnification
      pursuant to this Annex A but it is judicially determined (by the entry of a
      final judgment or decree by a court of competent jurisdiction and the expiration
      of time to appeal or the denial of the last right of appeal) that such
      indemnification may not be enforced in such case notwithstanding the fact that
      this Annex A provides for indemnification in such case, or (ii) contribution
      under the Securities Act may be required on the part of Laurus or such officer,
      director or controlling person of Laurus in circumstances for which
      indemnification is provided under this Annex A; then, and in each such case,
      YTB
      and Laurus will contribute to the aggregate losses, claims, damages or
      liabilities to which they may be subject (after contribution from others) in
      such proportion so that Laurus is responsible only for the portion represented
      by the percentage that the public offering price of its securities offered
      by
      the Registration Statement bears to the public offering price of all securities
      offered by such Registration Statement, provided,
      however,
      that,
      in any such case, (A) Laurus will not be required to contribute any amount
      in
      excess of the public offering price of all such securities offered by it
      pursuant to such Registration Statement; and (B) no person or entity guilty
      of
      fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
      will be entitled to contribution from any person or entity who was not guilty
      of
      such fraudulent misrepresentation.

     

    
      
         

      

      
        7

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