Exhibit 10.186
The Immune Response Corporation
5931 Darwin Court
Carlsbad, CA 92008

October 26, 2005  

Dr. Joseph F. O’Neill
Ellicott City, MD
Dear Joe:
Pursuant to this letter agreement (the “Agreement”) and subject to completing
background investigations and you providing evidence of your United States
citizenship or eligibility to work in the United States, we are pleased to make
to you the following offer of employment with The Immune Response Corporation
(the “Company”):

1.   Responsibilities

Your title will be Chief Executive Officer (or CEO) of the Company, effective
October 31, 2005 (the “Effective Date”). As the CEO, you will serve full-time
and report to the Board of Directors of the Company (the “Board”). You also will
serve as a member of the Board at no additional compensation. It is acknowledged
that continuation of your service as a director shall be subject to your
re-election by the Company’s stockholders. The Company agrees to propose to the
stockholders at each appropriate annual meeting during the term hereof your
reelection as a member of the Board, provided you are otherwise eligible for
reelection.

2.   Term of Employment

The initial term of your employment shall commence on the Effective Date and
shall, except as provided in Section 4.1 hereof, continue for a term of three
(3) years following the Effective Date (the “Initial Term”). Thereafter, the
term of this Agreement shall be automatically extended for successive and
additional two-year periods, unless either party shall provide a written notice
of termination to the other at least ninety (90) days prior to the end of the
Initial Term or any extended term. The term of this Agreement is subject to
early termination in accordance with the provisions set forth in Section 4
hereof.

3.   Compensation and Benefits

     You shall be entitled to the following:

  3.1 (a)   Base salary at the annual rate of $412,000, or at such increased
rate as the Board, in its sole discretion, may hereafter from time to time
determine (“Base Salary”), payable bi-weekly less required tax withholding.
During the term of this Agreement, your Base Salary will be reviewed annually by
the Board to determine whether such Base Salary should be increased in light of
your duties, responsibilities and performance, and, if it is determined by the
Board that an

 

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Dr. Joseph F. O’Neill
October 26, 2005
Page 2
increase is merited, such increase shall be promptly put into effect and your
Base Salary, as so increased, shall constitute your Base Salary for purposes of
this Section 3.1(a).

  3.1 (b)   Within sixty (60) days after the Effective Date, the Board shall
meet with you to discuss the terms and conditions under which you will be paid
an annual bonus, whereby the Board and you shall mutually agree on
(a) appropriate and reasonably obtainable criteria which the Board or its
Compensation Committee are to consider with regard to an annual bonus and
(b) the target amount of such annual bonus or the formula by which such annual
bonus target amount is to be determined. The Board shall meet with you annually
for this purpose, within sixty (60) days prior to the start of each Term year
(October 31-October 30). During the term of this Agreement, the target bonus
amount may be up to 400% of Base Salary, but not less than 100% of the Base
Salary. The bonus shall be payable no later than thirty (30) days following the
conclusion of the Term year (October 31-October 30) for which the bonus was
earned.     3.2   Fringe benefits (medical, disability insurance, 401k plan,
vacation/PTO, flex spending account) shall be according to the Company policies
in place from time to time for all employees. The Company reserves the right to
change its benefit programs or policies, and/or its providers, at any time.    
3.3   Four (4) weeks annual paid vacation; provided, however, that the Company
acknowledges and agrees that you have pre-existing commitments from November
8-20, 2005, December 1-5, 2005, and December 10-15, 2005, and that you will not
be required to use vacation time for these periods. The Company agrees that you
will be on an unpaid leave of absence during these periods. In the event that
you do perform work for the Company during this leave, the Company and you will
discuss reasonable compensation for such work.     3.4   Subject to Board
approval, within ten (10) days following the Effective Date, you will receive an
inducement grant of 6,000,000 nonqualified stock options (the “CEO Grant”). The
exercise price for these stock options will be set equal to the closing price of
the Company’s common stock on the date the Board grants the options. The
            shares comprising the CEO Grant will vest according to the following
schedule: (1) 3,000,000 shall vest in 8 equal quarterly installments over the
first eight (8) complete quarters in the Initial Term; and (2) 3,000,000 shall
vest in a lump amount on the date that is 7 years following the date of the
grant, or earlier upon the attainment of key performance milestones to which you
and the Board will mutually agree within sixty (60) days after the Effective
Date. Although the CEO Grant will not be made under a pre-existing Company plan,
the Company will register the common stock underlying the CEO Grant on Form S-8
with the SEC within sixty (60) days following the date of the grant.

 

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Dr. Joseph F. O’Neill
October 26, 2005
Page 3
In the event of the occurrence of a Change of Control (as defined below), the
CEO Grant shall immediately vest in full and become fully exercisable to the
extent not previously vested or exercisable, and shall continue to be
exercisable for a period of six (6) months or until the applicable expiration
date of such options (in accordance with their terms), whichever period is
shorter. For purposes of this Agreement, “Change of Control” shall mean any of
the following events:

  (a)   a sale, lease or other disposition of all or substantially all of the
assets of the Company so long as the Company’s stockholders immediately prior to
such transaction will, immediately after such transaction, fail to possess
direct or indirect beneficial ownership of more than fifty percent (50%) of the
voting power of the acquiring entity (for purposes of this section, any person
who acquired securities of the Company prior to the occurrence of such asset
transaction in contemplation of such transaction and who after such transaction
possesses direct or indirect ownership of at least ten percent (10%) of the
securities of the acquiring entity immediately following such transaction shall
not be included in the group of stockholders of the Company immediately prior to
such transaction);     (b)   either a merger or consolidation in which the
Company is not the surviving corporation and the stockholders of the Company
immediately prior to the merger or consolidation fail to possess direct or
indirect beneficial ownership of more than fifty percent (50%) of the voting
power of the securities of the surviving corporation (or if the surviving
corporation is a controlled subsidiary of another entity, then the required
beneficial ownership shall be determined with respect to the securities of that
entity which controls the surviving corporation and is not itself a controlled
subsidiary of any other entity) immediately following such transaction, or a
reverse merger in which the Company is the surviving corporation and the
stockholders of the Company immediately prior to the reverse merger fail to
possess direct or indirect beneficial ownership of more than fifty percent (50%)
of the securities of the Company (or if the Company is a controlled subsidiary
of another entity, then the required beneficial ownership shall be determined
with respect to the securities of that entity which controls the Company and is
not itself a controlled subsidiary of any other entity) immediately following
the reverse merger (for purposes of this section, any person who acquired
securities of the Company prior to the occurrence of a merger, reverse merger,
or consolidation in contemplation of such transaction and who after such
transaction possesses direct or indirect beneficial ownership of at least ten
percent (10%) of the securities of the Company or the surviving corporation (or
if the Company or the surviving corporation is a controlled subsidiary, then of
the appropriate entity as determined above)

 

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Dr. Joseph F. O’Neill
October 26, 2005
Page 4
immediately following such transaction shall not be included in the group of
stockholders of the Company immediately prior to such transaction).

  3.5   Reimbursement from the Company for all reasonable and customary expenses
incurred by you in performing services under this Agreement, including travel
expenses, expenses related to wireless communications (cell phone and
Blackberry) and reasonable expenses related to home communications for the
company (e.g., high speed internet access, fax, computer and accessories if
needed) and other out-of-pocket expenses, in accordance with your expense
account and the Company’s reimbursement policies and provided that you shall
submit to the Company reasonable documentation with respect to such expenses.

4.   Termination of Employment

  4.1   Events of Termination

Your employment with the Company may be terminated prior to the expiration of
the Initial Term or extended term set forth in Section 2 hereof as follows:

  (a)   By the Company With Cause. Your employment with the Company may be
terminated at any time for “Cause.” As used in this Agreement, the term “Cause”
shall mean (i) your willful misconduct or willful failure to fulfill and perform
your stated duties, including the obligations stated herein, which misconduct or
failure, if curable, is not fully cured to the reasonable satisfaction of the
Board within thirty (30) days after written notice thereof, (ii) any material
breach by you of any provision of this Agreement or the policies pertaining to
Company employees which the Company adopts from time to time and provides a copy
of to you, which, if curable, is not fully cured to the reasonable satisfaction
of the Board within thirty (30) days after written notice thereof, (iii) any
violation by you of Section 6.2 hereof, or (iv) your committing a material act
of theft, fraud, dishonesty, or embezzlement with regard to the Company or your
conviction of a felony.     (b)   By the Company Without Cause; By You With Good
Reason. Your employment with the Company may be terminated, at any time by
written notice to the other, without Cause by the Company or for “Good Reason”
by you. As used herein, the term “Good Reason” shall mean the occurrence,
without your consent, of any of the following: (i) any material diminution of
your position, duties or responsibilities hereunder (except in each case in
connection with the termination of your employment for Cause or disability or as
a result of your death, or temporarily as a result of your illness or other
absence), including but not limited to failing to continue you in the position
of Chief Executive Officer; or (ii) any material breach by the Company of any
provision of this Agreement,

 

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Dr. Joseph F. O’Neill
October 26, 2005
Page 5
including but not limited to failure to provide you with the Base Salary and
bonus opportunity set forth in Section 3 hereof, which breach is not fully cured
to your reasonable satisfaction within thirty (30) days after written notice
from you thereof; or (iii) failure of any successor to the Company to assume in
a writing delivered to you upon the assignee becoming such, the obligations of
the Company hereunder.

  (c)   By You Without Good Reason. Your employment with the Company may be
terminated by you without Good Reason, at any time upon notice to the Company.  
  (d)   Death. In the event of your death, your employment shall terminate on
the date of death.     (e)   Disability. In the event of your Disability (as
defined below), the Company may terminate your employment by giving to you a
written notice of termination. For purposes of this Agreement, “Disability”
means your inability to, even with reasonable accommodation, substantially
perform your duties hereunder for ninety (90) consecutive days or one hundred
eighty (180) days out of three hundred sixty five (365) days as a result of a
physical or mental illness or condition. If any question shall arise as to
whether you are unable to substantially perform your duties hereunder, the
determination will be made through a medical examination by a physician mutually
selected by you and the Company.

  4.2   The Company’s Obligations Upon Termination

Following the termination of your employment under the circumstances described
below, the Company shall pay to you the following compensation and provide the
following benefits in full satisfaction and final settlement of any and all
claims and demands that you then have or thereafter may have against the Company
in connection with this Agreement and the termination of your employment that
are lawfully released by the release described in Section 4.3 below, subject to
your executing and delivering a release to the Company as provided in
Section 4.3 below prior to the provision of the compensation and benefits set
forth below:

  (a)   Termination Without Cause by the Company or with Good Reason by You or
Failure by the Company to Renew the Initial Term or any extended term. In the
event that your employment shall be terminated by the Company pursuant to
Section 4.1(b) hereof or upon expiration of the initial or any renewal term of
this Agreement or pursuant to written notice by you in accordance with
Section 4.1(b) hereof, you will be entitled to the continued payment of your
Base Salary (less required tax withholding) for a period of twelve (12) months
from the date of termination or expiration, as the case may be. In addition, any
options within the CEO Grant which

 

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Dr. Joseph F. O’Neill
October 26, 2005
Page 6
have vested and remain unexercised prior to the date of termination of your
employment by the Company pursuant to Section 4.1(b) hereof or upon expiration
of the initial or any renewal term of this Agreement or pursuant to written
notice by you in accordance with Section 4.1(b) hereof shall remain exercisable
and will not terminate until the date which is six (6) months after such
termination, expiration or written notice. In addition, the Company shall
reimburse you for any expenses incurred through the date of such termination in
accordance with Section 3.5 hereof, shall pay you for any vacation time that you
had earned but not used through the date of termination, at your final base rate
of pay, shall pay you for any Base Salary earned, but not paid through the date
of termination, and shall pay you for any unpaid bonus awarded (or required to
be awarded based on the full achievement of one or more pre-established and
fully objective criteria) for the year preceding the year in which termination
occurs.

  (b)   Termination by the Company for Cause or by You Without Good Reason. In
the event that your employment shall be terminated by the Company pursuant to
Section 4.1(a) hereof (or if you voluntarily resign otherwise than for Good
Reason, in accordance with Section 4.1(c) hereof prior to the expiration of the
then current term of this Agreement), you shall be entitled to no further
compensation or other benefits under this Agreement, other than any Base Salary
earned by you on or prior to the date of such termination, but not yet paid and
any unpaid bonus awarded (or required to be awarded based on the full
achievement or one or more pre-established and fully objective criteria) for the
year preceding the year in which termination occurs. In addition, the Company
shall reimburse you for any expenses incurred through the date of such
termination in accordance with Section 3.5 hereof, and shall pay you for any
vacation time that you had earned but not used through the date of termination,
at your final base rate of pay. Upon termination by the Company of your
employment for Cause or termination for reason other than Good Reason by you,
all of your rights under this Agreement (except as otherwise set forth herein)
shall immediately terminate and the Company shall have no further obligation to
you.     (c)   Termination Upon Death or Disability. In the event that your
employment shall be terminated pursuant to Section 4.1(d) or 4.1(e) hereof, the
Company shall pay you (or your estate or trust or legal representatives) all
Base Salary earned, but unpaid, through the date of termination and any unpaid
bonus awarded (or required to be awarded based on the full achievement of one or
more pre-established and fully objective criteria) for the year preceding the
year in which termination occurs and shall reimburse you (or your estate or
trust or legal representatives) for any

 

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Dr. Joseph F. O’Neill
October 26, 2005
Page 7
expenses incurred through the date of such termination in accordance with
Section 3.5 hereof. The Company shall also pay you or your estate or trust or
legal representative for any vacation time that you had earned but not used
through the date of termination, at your final base rate of pay.

  4.3   Release. Notwithstanding the foregoing, as a condition for the provision
of the compensation and benefits set forth in this Section 4, you will be
required to sign a release of all claims against the Company, its officers,
agents, employees and the members of the Board, on such terms and form provided
by the Company, which shall be binding on your estate, heirs, assignees,
attorneys, agents and personal representatives as provided therein.

5.   Relocation.

The Company will pay all your expenses related to travel and lodging with
respect to trips to the Company’s headquarters in Carlsbad, California. In
addition, you will receive relocation pay of $8,333 per month for each of the
first 24 months you are serving the Company in Carlsbad, California.

6.   Proprietary Information and Inventions.

You immediately shall enter into a Proprietary Information and Inventions
Agreement (including Non-Competition) with the Company, on the Company’s
standard form. Such Agreement shall survive your employment in accordance with
applicable law.

7.   Miscellaneous

  7.1   Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to principles
of conflict of laws.     7.2   Arbitration. Any controversy or claim based on,
arising out of or relating to the interpretation and performance of this
Agreement or any termination hereof shall be solely and finally settled by
arbitration under the employment dispute rules of the American Arbitration
Association, and judgment on the award rendered in the arbitration may be
entered in any court having jurisdiction thereof. Any such arbitration shall be
in the State of California or in the state of your principal employment for the
Company at the time your employment terminates and shall be submitted to a
single arbitrator appointed by the mutual consent of the parties or, in the
absence of such consent, by application of any party to the American Arbitration
Association. A decision of the arbitrator shall be final and binding upon the
parties, and the arbitrator shall be authorized to apportion fees and expenses
(including counsel fees and expenses), as the arbitrator shall deem appropriate.

 

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Dr. Joseph F. O’Neill
October 26, 2005
Page 8

  7.3   Entire Agreement; Amendment. This Agreement contains the complete
understanding and agreement between the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous
understandings and agreements, written or oral, between the parties relating to
the subject matter hereof. This Agreement may not be amended except in a written
document signed by you and the Company following express approval of the
amendment by the Board of Directors.     7.4   Severability. In the event that
any provision or portion of this Agreement shall be determined to be invalid or
unenforceable for any reason, in whole or in part, the remaining provisions of
this Agreement shall be unaffected thereby and shall remain in full force and
effect to the fullest extent permitted by law and any such invalidity or
unenforceability shall be deemed replaced by a term or provision determined by
the parties or the arbitrator as coming closest to expressing the intention of
the invalid or unenforceable term or provision.     7.5   Notice. Any notice to
be given hereunder shall be in writing and delivered either in person, by
nationally recognized overnight courier, or by registered or certified first
class mail, postage prepaid, addressed, if the Company, to its Chief Financial
Officer at its headquarters and, if to you, to your address as last provided to
the Company in writing Either party may, by notice hereunder, change its address
for notices.     7.6   Headings. The Section headings in this Agreement are for
convenience of reference only and shall not affect its interpretation.     7.7  
Amendment. This Agreement may be modified only by a written instrument signed by
you and by an expressly authorized representative of the Company.     7.8  
Waiver. No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of either party to require
the performance of any term or obligation of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of subsequent
breach     7.9   Assignment. Neither the Company nor you may make assignment of
this Agreement or any interest herein, by operation of law or otherwise, without
the prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without the consent of
the Executive in the event that the Company shall hereafter effect a
reorganization, be acquired by reverse triangular merger, consolidate with, or
merge into, any other entity or transfer all or substantially all of its assets
or properties to any other entity. This Agreement shall inure to the benefit of
and be binding upon the

 

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Dr. Joseph F. O’Neill
October 26, 2005
Page 9
Company and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.

  7.10   Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which when together shall
constitute one and the same agreement.     7.11   Liability Insurance. D&O
Liability insurance shall be provided to you by the Company to the same extent
that it is provided to the other executive officers in the Company.     7.12  
Indemnification. You shall be given the opportunity to enter into the Company’s
standard form of bilateral Indemnification Agreement.     7.13   Timing of
Payments. In the event that at the time that your employment with the Company
terminates the Company is publicly traded (as defined in Section 409A of the
Internal Revenue Code), any amounts payable under this Agreement that would
otherwise be considered deferred compensation subject to the additional twenty
percent (20%) tax imposed by Section 409A if paid within six (6) months
following the date of termination of Company employment shall be paid at the
time that will prevent such amounts from being considered deferred compensation.

You understand and agree that by accepting this offer, you represent to the
Company that your performance will not breach any other agreement to which you
are a party and that you have not entered into, and will not during the term of
your employment with the Company enter into, any oral or written agreement in
conflict with any of the provisions of this letter or the Company’s policies.
You are not to bring with you to the Company, or use or disclose to any person
associated with the Company, any confidential or proprietary information
belonging to any former employer or other person or entity with respect to which
you owe an obligation of confidentiality under any agreement or otherwise. The
Company does not need and will not use such information and we will assist you
in any way possible to preserve and protect the confidentiality of proprietary
information belonging to third parties. Also, we expect you to abide by any
obligations to refrain from soliciting any person employed by or otherwise
associated with any former employer and suggest that you refrain from having any
contact with such persons until such time as any non-solicitation obligation
expires.
As an employee, you will be expected to adhere to the Company’s standards of
professionalism, loyalty, integrity, honesty, reliability and respect for all.
Please note that the Company is an equal opportunity employer. The Company does
not permit, and will not tolerate, the unlawful discrimination or harassment of
any employees, consultants, or third parties on the basis of sex, race, color,
religion, age, national origin or ancestry, marital status, veteran status,
mental or physical disability or medical condition, sexual orientation,
pregnancy, childbirth or related medical condition, or any other status
protected by applicable law.

 

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Dr. Joseph F. O’Neill
October 26, 2005
Page 10
Joe, if the foregoing accurately represents your understanding, please sign
below and return it to us, at which time it will become a legally-binding
agreement. Welcome aboard. We will accomplish great things together.

         
Warmest regards,
   
 
       
THE IMMUNE RESPONSE CORPORATION
   
 
       
By:
  /s/ Robert E. Knowling, Jr.
 
   
 
  Robert E. Knowling, Jr.    
 
  Chairman    
 
       
ACCEPTED AND AGREED IN ALL RESPECTS:
   
 
       
By:
  /s/ Joseph F. O’Neill    
 
       
 
  Dr. Joseph F. O’Neill