Document:

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,

 

 

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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

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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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.

 

 

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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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’Neillexv10w187

 

Exhibit 10.187

THE IMMUNE RESPONSE CORPORATION

INDUCEMENT STOCK OPTION GRANT NOTICE

     THE IMMUNE RESPONSE CORPORATION, a Delaware corporation (the “Company”), hereby grants to the
Optionee an option to purchase the number of shares of the Company’s Common Stock set forth below.
This option is not intended to qualify as an “incentive stock option” within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the “Code”), but is intended to qualify as an
“employee benefit plan” within the meaning of Rule 405 under the Securities Act of 1933. This
option is an “inducement grant” under Nasdaq Marketplace Rule 4350(i)(1)(A)(iv) and is granted
outside of, and is not subject to, the Company’s 1989 Stock Plan or the Company’s 2003 Stock Plan.

     This option is subject to all of the terms and conditions set forth herein and in the
Inducement Stock Option Agreement, which is attached hereto as Attachment I and incorporated herein
in its entirety.

	 	 	 	 	 
	Optionee:

	 	Joseph F. O’Neill

	 
	 	 	 	 
	Date of Grant:

	 	October 31, 2005

	 
	 	 	 	 
	Vesting Commencement Date:

	 	October 31, 2005

	 
	 	 	 	 
	Number of Shares Subject to Option:

	 	 	6,000,000	 
	 
	 	 	 	 
	Exercise Price (Per Share):

	 	$	0.32	 
	 
	 	 	 	 
	Total Exercise Price:

	 	$	1,920,000	 
	 
	 	 	 	 
	Expiration Date:

	 	October 31, 2015

     VESTING SCHEDULE: The Option shall vest with respect to 3,000,000 of the underlying shares in
8 equal quarterly installments from the Vesting Commencement Date and shall vest with respect to
the other 3,000,000 shares in a lump sum on October 31, 2012, all subject to the Optionee’s
“Continuous Service as CEO” (as defined in the attached Stock Option Agreement). It is understood
that Optionee and the Company may, in the future, mutually agree upon key performance milestones
relative to the “other” (7-year) 3,000,000 underlying shares, and if they do so agree then this
Grant Notice may be amended by the parties in writing to provide for possible earlier vesting of
some or all of such underlying shares upon attainment of some or all of the milestones (but always
also subject to the backstop 7-year vesting).

     PAYMENT: Payment of the exercise price may be made in cash, check or any other method provided
in the Stock Option Agreement.

     ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionee acknowledges receipt of, and
understands and agrees to, this Grant Notice and the Stock Option

 

 

Agreement. This Option is granted pursuant to the Offer Letter (defined below) and Optionee
acknowledges that as of the Date of Grant, this Grant Notice and the Stock Option Agreement set
forth the entire understanding between Optionee and the Company regarding the acquisition of stock
in the Company and supersede all prior oral and written agreements on that subject.

     OTHER AGREEMENTS: Offer Letter, dated October 26, 2005 (the “Offer Letter”).

	 	 	 	 	 	 	 
	 	 	THE IMMUNE RESPONSE CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Michael K. Green
 

	 	 
	 

	 	Title
	 	Chief Operating Officer &
Chief Financial Officer
 

	 	 

OPTIONEE

	 	 	 
	/s/ Joseph F. O’Neill
 

	 	 
	Joseph F. O’Neill
	 	 

[SIGNATURE PAGE TO INDUCEMENT STOCK OPTION GRANT NOTICE]

2

 

Attachment I

THE IMMUNE RESPONSE CORPORATION

INDUCEMENT STOCK OPTION AGREEMENT

     Pursuant to your Inducement Stock Option Grant Notice (“Grant Notice”), which incorporates
this Inducement Stock Option Agreement, THE IMMUNE RESPONSE CORPORATION, a Delaware corporation
(the “Company”), has granted you an option to purchase the number of shares of the Company’s common
stock (“Common Stock”) indicated in your Grant Notice at the exercise price indicated in your Grant
Notice. This option is not intended to qualify as an “incentive stock option” within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), but is intended to
qualify as an “employee benefit plan” within the meaning of Rule 405 under the Securities Act of
1933 (the “Securities Act”). This option is an “inducement grant” under Nasdaq Marketplace Rule
4350(i)(1)(A)(iv) and is granted outside of, and is not subject to, the Company’s 1989 Stock Plan
or the Company’s 2003 Stock Plan.

     The details of your option are as follows:

     1. VESTING. Subject to the limitations contained herein, your option will vest and become
exercisable as provided in your Grant Notice, provided that vesting will cease upon the termination
of your Continuous Service as CEO (as defined in Section 6 below).

     2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your
option and your exercise price per share are set forth in your Grant Notice and may be adjusted
from time to time for Capitalization Adjustments, as provided in Section 9 below.

     3. FORM OF PAYMENT. When you submit your notice of exercise, you must include payment of the
option price for the shares you are purchasing. Payment may be made in one (or a combination of two
or more) of the following forms, to the extent permitted now or hereafter by applicable law:

          (a) by personal check, a cashier’s check or money order; or

          (b) by cashless same-day-sale exercise, whereby you provide irrevocable direction to a
securities broker approved by the Company to sell shares of common stock underlying the Option and
to deliver part or all of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes, provided that no such arrangement may result in the
Company extending or arranging for the extension of credit.

     4. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock.

     5. SECURITIES LAW COMPLIANCE; INVESTMENT INTENT.

          (a) Notwithstanding anything to the contrary contained herein, you may not exercise your
option unless the shares of Common Stock issuable upon such exercise are then

 

 

registered under the Securities Act, or, if such shares of Common Stock are not then so
registered, the Company has determined that such exercise and issuance would be exempt from the
registration requirements of the Securities Act. The exercise of your option must also comply with
other applicable laws and regulations governing your option, and you may not exercise your option
if the Company determines that such exercise would not be in compliance with such laws and
regulations.

          (b) You represent that you are acquiring this option and, when and if you exercise this
option, the shares of Common Stock issuable upon exercise of this option for your own account and
not with a view to, or for sale in connection with, any distribution of such securities.

     6. TERM. The term of your option commences on the Date of Grant (as specified in your Grant
Notice) and expires on the earlier of the following:

          (a) For all vested but unexercised shares, three months after the termination of your
Continuous Service as CEO; provided that if during any part of such three month period your option
is not exercisable solely because of the condition set forth in the preceding paragraph relating to
“Securities Law Compliance,” your option shall not expire until the earlier of the Expiration Date
indicated in your Grant Notice or until it shall have been exercisable for an aggregate period of
three months after the termination of your Continuous Service as CEO;

          (b) the Expiration Date indicated in your Grant Notice.

          For purposes of this option, “Continuous Service as CEO” means that your service as Chief
Executive Officer of the Company is not interrupted or terminated. Provided, that for the purpose
of the preceding sentence, service as President shall be deemed to constitute service as Chief
Executive Officer, even if you no longer formally hold the title of Chief Executive Officer. The
Board of Directors of the Company, in its sole discretion, shall determine whether Continuous
Service as CEO has been interrupted or terminated. Any such interruption or termination, for any
reason whatsoever, can break Continuous Service as CEO. For the avoidance of doubt, there is no
agreement entitling you to continue to serve as Chief Executive Officer and/or President. The
Board of Directors has discretion whether or not to re-elect or remove you as Chief Executive
Officer and/or President.

     7. EXERCISE.

          (a) You may exercise the vested portion of your option during its term by delivering a Notice
of Exercise (in a form designated by the Company) together with the exercise price to the Secretary
of the Company, or to such other person as the Company may designate, during regular business
hours, together with such additional documents as the Company may then require.

          (b) By exercising your option you agree that, as a condition to any exercise of your option,
the Company may require you to enter into an arrangement providing for the payment by you to the
Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to

 

 

which the shares of Common Stock are subject at the time of exercise, or (3) the disposition
of shares of Common Stock acquired upon such exercise.

     8. TRANSFERABILITY. Your option is not transferable, except by will or by the laws of descent
and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing,
by delivering written notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be entitled to exercise
your option, subject to the terms and conditions otherwise applicable to the exercise of this
option, the issuance of Common Stock pursuant to such exercise and the subsequent transfer of such
Common Stock.

     9. CAPITALIZATION ADJUSTMENTS. If any change is made in the Common Stock subject to this
option without the receipt of consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than
cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in
corporate structure or other transaction not involving the receipt of consideration by the
Company), this Stock Option Agreement will be appropriately adjusted in the class(es) and number of
shares and price per share of stock subject to the option. Such adjustments shall be made by the
Board, the determination of which shall be final, binding and conclusive. (The conversion of any
convertible securities or net-exercise of any exercisable securities of the Company shall not be
treated as a transaction “without receipt of consideration” by the Company.)

     10. CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the vesting of the Option
shall be accelerated in full and all options so vested or previously vested shall continue to be
exercisable for a period of six months or until the applicable expiration date of the options (in
accordance with the terms of the Grant Notice and this agreement), whichever period is shorter.
For purposes of this option, a “Change of Control” shall have the meaning set forth in the
Company’s offer letter to you, dated October 26, 2005 (the “Offer Letter”). Notwithstanding
anything herein to the contrary, in the event of a Change of Control pursuant to which 100% of the
outstanding stock of the Company is acquired, you shall be entitled to receive, upon exercise
during such period, instead of the indicated number of shares of common stock of the Company,
whatever consideration was given in the Change of Control in exchange for such number of shares of
common stock of the Company.

     11. OPTION NOT A SERVICE CONTRACT. Nothing in your option shall obligate the Company, its
stockholders or the Board to continue your service as Chief Executive Officer, President or a
director or to continue any other relationship that you might have with the Company.

     12. ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the power to accelerate
the time at which the option may first be exercised or the time during which the option or any part
thereof will vest, notwithstanding the provisions in the Grant Notice or this Stock Option
Agreement stating the time at which it may first be exercised or the time during which it will
vest.

 

 

     13. STOCKHOLDER RIGHTS. You shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of Common Stock subject to the option unless and
until you have satisfied all requirements for exercise of the option pursuant to its terms.

     14. WITHHOLDING OBLIGATIONS.

          (a) At the time you exercise your option, in whole or in part, or at any time thereafter as
requested by the Company, you hereby authorize withholding from any amounts payable to you, and
otherwise agree to make adequate provision for (including by means of a same-day-sale “cashless
exercise” pursuant to a program developed under Regulation T as promulgated by the Federal Reserve
Board to the extent permitted by the Company), any sums required to satisfy the federal, state,
local and foreign tax withholding obligations of the Company or an affiliate of the Company, if
any, which arise in connection with your option.

          (b) Upon your request and subject to approval by the Company, in its sole discretion, and
compliance with any applicable conditions or restrictions of law, the Company may withhold from
fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a
number of whole shares of Common Stock having a fair market value, determined by the Company as of
the date of exercise, not in excess of the minimum amount of tax required to be withheld by law. If
the date of determination of any tax withholding obligation is deferred to a date later than the
date of exercise of your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of the Code, covering
the aggregate number of shares of Common Stock acquired upon such exercise with respect to which
such determination is otherwise deferred, to accelerate the determination of such tax withholding
obligation to the date of exercise of your option. Notwithstanding the filing of such election,
shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined
as of the date of exercise of your option that are otherwise issuable to you upon such exercise.
Any adverse consequences to you arising in connection with such share withholding procedure shall
be your sole responsibility. Notwithstanding the foregoing, the Company shall not be authorized to
withhold shares of Common Stock in excess of the minimum statutory withholding requirements for
federal and state tax purposes, including payroll taxes.

          (c) You may not exercise your option unless the tax withholding obligations of the Company
and/or any affiliate are satisfied. Accordingly, you may not be able to exercise your option when
desired even though your option is vested, and the Company shall have no obligation to issue a
certificate for such shares of Common Stock.

     15. NOTICES. Any notices provided for in your option shall be given in writing and shall be
deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company
to you, five days after deposit in the United States mail, postage prepaid, addressed to you at the
last address you provided to the Company.

     16. CHOICE OF LAW. This option shall be governed by, and construed in accordance with the laws
of the State of California, as such laws are applied to contracts entered into and performed in
such State between California residents.

 

 

     17. GOVERNING AUTHORITY. This option is subject to all interpretations, amendments, rules and
regulations that may from time to time be promulgated and adopted by the Company. This authority
shall be exercised by the Board, or by a committee of one or more members of the Board in the event
that the Board delegates its authority to a committee. The Board, in the exercise of this
authority, may correct any defect, omission or inconsistency in this option in a manner and to the
extent the Board shall deem necessary or desirable. References to the Board also include any
committee appointed by the Board to administer and interpret this option. Any interpretations,
amendments, rules and regulations promulgated by the Board shall be final and binding upon the
Company and its successors in interest as well as you and your heirs, assigns, and other successors
in interest.

     18. AMENDMENT OF OPTION. The Board at any time, and from time to time, may amend the terms of
this option; provided, however, that the rights under this option shall not be impaired by any such
amendment unless you consent in writing.

*   *   *

 

 

NOTICE OF EXERCISE

The Immune Response Corporation

5931 Darwin Court

Carlsbad, CA 92008

Date of Exercise:                          

Ladies and Gentlemen:

This constitutes notice under my non-statutory stock option that I elect to purchase the number of
shares for the price set forth below.

Stock option dated:  October 31, 2005

Number of shares as to which option is exercised: _______________

Certificates to be issued in name of: _______________

Total exercise price: $______________

Cash payment delivered herewith: $______________

By this exercise, I agree (i) to provide such additional documents as you may require and (ii) to
provide for the payment by me to you (in the manner designated by you) of your withholding
obligation, if any, relating to the exercise of this option.

	 	 	 	 	 
	 

	 	Very truly yours,	 	 
	 
	 	 	 	 
	 

	 	 

Joseph F. O’Neill

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