WARRANT AGREEMENT (this Agreement), dated as of November 20, 2002, by and between The Immune Response Corporation, a Delaware corporation (the Company), and Cheshire Associates LLC, a Delaware limited liability company (the Warrant Holder).

W I T N E S S E T H

WHEREAS, the parties have entered into that certain Note Purchase Agreement, dated as of November 9, 2001, by and between the Company and Kevin Kimberlin Partners, L.P. (KKP), as amended by Amendment No. 1 to the Note Purchase Agreement, dated as of February 14, 2002 and Amendment No. 2 dated as of May 3, 2002, each by and between the Company, KKP and Oshkim Limited Partnership (Oshkim) and as further amended by Amendment No. 3 by and between the Company, KKP, Oshkim and The Kimberlin Family 1998 Irrevocable Trust (the Note Purchase Agreement); and

WHEREAS, pursuant to the Note Purchase Agreement, the Warrant Holder has agreed to loan to the Company $200,000 Dollars (the Loan Amount), subject to the issuance by the Company of a convertible secured promissory note (the Note), and the Company has agreed to issue to the Warrant Holder warrants (the Warrants) to purchase [_________] shares of the Companys common stock, par value $.0025 per share (the Common Stock), which equals the Loan Amount divided by eighty (80%) percent of the Exercise Price (as defined in Section 1 hereof), subject to the terms set forth herein.

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

1. Warrants. The Company hereby grants to the Warrant Holder, subject to the terms set forth herein, the right to purchase from the Company at any time and from time to time after the date hereof until 5:00 p.m., New York City local time, on November 12, 2012 (the Expiration Date), up to [_________] fully paid and non-assessable shares of Common Stock, subject to adjustment pursuant to Section 3 hereof (the Shares), which number of Shares equals the Loan Amount divided by eighty (80%) percent of the Exercise Price. Notwithstanding the foregoing, the Warrants shall only be exercisable to the extent that shares of Common Stock issuable on exercise of the Warrants, when aggregated with (i) the Companys outstanding shares of Common Stock as of the date hereof and (ii) shares of Common Stock issuable on conversion or exercise, as the case may be, of notes, warrants and stock options outstanding as of the date hereof, would not exceed the number of shares authorized under the Companys Restated Certificate of Incorporation, as amended. The Company shall promptly cause its Restated Certificate of Incorporation, as amended, to be further amended to increase the number of shares of Common Stock authorized thereunder as shall be sufficient for reserving and making available shares of Common Stock issuable upon the exercise in full of the Warrants issued to the Warrant holder hereunder. For purposes of this Agreement, the Exercise Price shall initially be $[_____], which is equal to the average of the closing bid prices of the Common Stock for the ten (10) consecutive trading days immediately preceding the date hereof, subject to any adjustments pursuant to Section 3 hereof.

2.   Exercise of Warrants.

2.1   Exercise. The Warrants may be exercised by the Warrant Holder, in whole or in part, by delivering the Notice of Exercise purchase form, attached as Exhibit A hereto, duly executed by the Warrant Holder to the Company at its principal office, or at such other office as the Company may designate, accompanied by payment, in cash or by wire transfer or check payable to the order of the Company, of the amount obtained by multiplying the number of Shares designated in the Notice of Exercise by the Exercise Price (the Purchase Price). The Purchase Price may also be paid, in whole or in part, by delivery of such purchase form and of shares of Common Stock owned by the Warrant Holder having a Fair Market Value (as defined in Section 2.3 hereof) on the last trading day ending the day immediately preceding the Exercise Date (as defined below) equal to the portion of the Purchase Price being paid in such shares. In addition, the Warrants may be exercised, pursuant to a cashless exercise, except as set forth in Section 3.3(4) below, by providing irrevocable instructions to the Company, through delivery of the aforesaid purchase form with an appropriate reference to this Section 2.1 to issue the number of shares of the Common Stock equal to the product of (a) the number of shares as to which the Warrants are being exercised multiplied by (b) a fraction, the numerator of which is the Fair Market Value of a share of the Common Stock on the last business day preceding the Exercise Date less the Exercise Price therefore and the denominator of which is such Fair Market Value. For purposes hereof, Exercise Date shall mean the date on which all deliveries required to be made to the Company upon exercise of Warrants pursuant to this Section 2.1 shall have been made.

2.2   Issuance of Certificates. As soon as practicable after the exercise of the Warrants (in whole or in part) in accordance with Section 2.1 hereof, the Company, at its expense, shall cause to be issued in the name of and delivered to the Warrant Holder (i) a certificate or certificates for the number of fully paid and non-assessable Shares to which the Warrant Holder shall be entitled upon such exercise and (if applicable) (ii) a new warrant agreement of like tenor to purchase all of the Shares that may be purchased pursuant to the portion, if any, of the Warrants not exercised by the Warrant Holder. The Warrant Holder shall for all purposes be deemed to have become the holder of record of such Shares on the date on which the Notice of Exercise and payment of the Purchase Price in accordance with Section 2.1 hereof were delivered and made, respectively, irrespective of the date of delivery of such certificate or certificates, except that if the date of such delivery, notice and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of record of such Shares at the close of business on the next succeeding date on which the stock transfer books are open.

2.3   Fair Market Value. The Fair Market Value of a share of Common Stock on any day means: (a) if the principal market for the Common Stock is The Nasdaq National Market or any other national securities exchange, the last sales price of the Common Stock on such day as reported by such exchange or market, or on a consolidated tape reflecting transactions on such exchange or market, or (b) if the principal market for the Common Stock is not a national securities exchange or The Nasdaq National Market and the Common Stock is quoted on the National Association of Securities Dealers Automated Quotations System, the mean between the closing bid and the closing asked prices for the Common Stock on such day as quoted on such System, or (c) if the Common Stock is not quoted on the National Association of Securities Dealers Automated Quotations System, the mean between the highest bid and lowest

 

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