exv10w186



 






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





 









 










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.




 









 











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)




 









 











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,




 









 











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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October 26, 2005

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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





 









 










Dr. Joseph F. O’Neill

October 26, 2005

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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.




 









 











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





 









 










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.




 









 








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