Exhibit 10.56

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS
(“[*]”), HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

February 13, 2004

VIA HAND DELIVERY

Carter Lee
VaxGen, Inc.
1000 Marina Blvd., Suite 200
Brisbane, CA 94014

Dear Carter:

This letter sets forth the terms of the transition and separation agreement (the
“Agreement”) that VaxGen, Inc. (the “Company” or “VaxGen”) is offering to you to
aid in your employment transition.

          1.          Period of Continued Employment.  The Company will continue
your employment in your current position, through March 31, 2004, unless you
resign voluntarily before that date or your employment is terminated due to a
material breach of existing Company policies or of a written agreement with the
Company (such termination to occur after notice and a reasonable opportunity to
cure such breach, if curable).  As you requested, you will be on vacation,
utilizing accrued Paid Time Off, during the last two weeks of your employment. 
The last date of your employment is referred to herein as the “Separation Date,”
which you agree is also the termination date of the Employment Agreement between
you and the Company signed as of April 1, 1999, attached as Exhibit A (the
“Employment Agreement”), notwithstanding any term of employment or termination
notice requirement under the Employment Agreement.  Between now and your
Separation Date, you will continue to report to me and you will be paid your
current base salary.

          2.          Departure Announcement.  You and the Company agree to make
good faith efforts to develop a mutually agreeable additional announcement, if
any, concerning your departure from the Company, consistent with the press
release previously issued by the Company on January 20, 2004.

          3.          Accrued Salary and PTO Pay.  On the Separation Date, the
Company will pay you all accrued salary, and all accrued and unused Paid Time
Off, earned through the Separation Date (if any), less standard payroll
deductions and withholdings.  You are entitled to these payments by law.

          4.          Bonus Payment.  If you enter into this Agreement, the
Company will pay you a bonus in the amount of $75,000, less required payroll
deductions and withholdings, in lieu of any other bonus or incentive
compensation from the Company, including but not limited to bonuses for 2004,
2003 or any previous years of employment with the Company.  The bonus will be
paid within thirty (30) days following the Effective Date of this Agreement (as
defined in Paragraph 18).  You understand and agree that you will not earn, and
will not receive, any bonus or other incentive compensation for 2004.

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          5.          Severance Benefits.  The termination of your employment
shall be treated as a termination without “Cause” for the purposes of the
Employment Agreement.  If you enter into this Agreement, satisfactorily perform
your job duties as required by Paragraph 1 above through March 31, 2004, and,
within forty-five (45) days after March 31, 2004, you sign, date and return to
the Company (and not revoke) the Separation Date Release attached hereto as
Exhibit B, the Company will provide you with the following severance benefits
(the “Severance Benefits”) as your sole severance benefits in lieu of the less
advantageous severance benefits under the Employment Agreement:

                        (a)          Severance Payments.  The Company will
provide you severance payments during calendar year 2004 that will total, in the
aggregate, twelve (12) months of your base salary in effect as of the Separation
Date, less required payroll deductions and withholdings (the “Severance
Payments”).  The Severance Payments will be made on the Company’s standard
payroll dates, beginning with the first payroll date following the Effective
Date of the Separation Date Release (as defined therein).  All Severance
Payments, with the exception of the Severance Payment provided as of December
31, 2004, shall be in an amount equal to your regular paycheck amount as of the
Separation Date.  The Severance Payment provided as of December 31, 2004 shall
be calculated as an amount equal to the difference between the following:  (i)
twelve (12) months of your base salary in effect as of the Separation Date; and
(ii) the total amount of Severance Payments paid prior to December 31,
2004.       

                        (b)           Health Premium Payments.  To the extent
provided by the federal and state COBRA law or, if applicable, state insurance
laws, and by the Company’s current group health insurance policies, you will be
eligible to continue your group health insurance benefits at your own expense
after the Separation Date for a period of up to thirty-six (36) months,
regardless of whether you enter into this Agreement.  Later, you may be able to
convert to an individual policy through the provider of the Company’s health
insurance, if you wish.  The Company will provide you a separate notice that
describes your rights and obligations under COBRA on or after the Separation
Date.  If you timely elect continued coverage under COBRA, enter into this
Agreement, and timely sign, date and return the Separation Date Release to the
Company, the Company, as an additional severance benefit, will pay your COBRA
premiums sufficient to continue your and your dependents’ (if any) health
insurance coverage at the level in effect as of the date of this Agreement
through the earlier of the following:  (i) the date that you and your dependents
become eligible for group health insurance benefits through a new employer; or
(ii) March 31, 2005.  You agree to promptly notify the Company in writing if you
become eligible for group health insurance coverage through a new employer prior
to March 31, 2005.

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                        (c)          Stock Option Grants.  All of your stock
option grants (the “Options”) and any other equity interests you may have with
the Company will cease vesting effective as of the Separation Date.  As an
additional severance benefit, the Company agrees to accelerate the vesting of
all Options so that the Options are fully vested and immediately exercisable
effective as of the Separation Date.  In addition, the Options are hereby
amended to provide that you will be able to exercise the vested and unexercised
shares subject to the Options within the earlier of the following:  (i) at any
time within three (3) years following the Separation Date; or (ii) the date that
the Option term expires.  The Options may cease being incentive stock options
under Section 422 of the Internal Revenue Code three (3) months after the
Separation Date, and you are hereby advised to seek independent advice
concerning the tax implications of the Options.  Your rights to exercise any
vested shares subject to the Options are set forth in the Company’s stock option
plan and your individual Options agreements, except as modified herein. 
Attached, as Exhibit C, is a spreadsheet providing detail regarding your
Options, their respective exercise prices, and expiration dates.

                        (d)          Rent-Free Office Space.  The Company agrees
to make available rent-free furnished office space for up to six (6) months
after the Separation Date, which you may be required to share with Donald
Francis, Phillip Berman and VaxGen employees or designees.  If you inform the
Company that you intend to utilize such office space, the provided office space
shall be large enough to include separate, individual offices for you, Donald
Francis, and Phillip Berman (to the extent that each has requested the office
space), such offices to be similar in size to the office that you occupied while
employed by the Company, and shall include shared use of a common area.  VaxGen
will also allow you to use its conference rooms which are in the same general
area as the provided office space on an advance reservation basis, on such dates
and at such times as these rooms are not already reserved for VaxGen use.  You
must inform the Company in writing, within thirty (30) days after the Separation
Date, if you intend to utilize such office space.  The Company shall select the
office space, which will be located in VaxGen’s corporate headquarters or within
a ten (10) mile radius of its corporate headquarters.  The Company will pay for
the lease of this office space, will pay the electrical bills, and will provide
office telephone service in this office space (up to a total maximum monthly
amount of $600 for telephone service).  Other than as stated herein, VaxGen will
provide no other equipment or materials.  If you wish to vacate this office
space before the expiration of six (6) months after you begin using the office
space, you may do so by providing thirty (30) days written notice to the
Company.

          6.          Consulting Agreement.  Following the Separation Date, the
Company agrees to engage you, and you agree to make yourself available to
perform services, as a consultant under the terms specified below.

                        (a)          Consulting Period.  The consulting
relationship (“Consultancy”) shall commence on April 2, 2004, and continue until
October 2, 2004, unless terminated earlier pursuant to section 6(h) of this
Agreement (the “Consulting Period”).  The Consulting Period can be extended by
mutual written agreement of the parties.

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                        (b)          Consulting Services.  During the Consulting
Period, you will be available to consult with the Company in any areas within
your expertise at the specific written request of the Company’s Chief Executive
Officer or his Designee (as defined herein).  As referenced in this Agreement,
the “Designee” shall mean an individual provided written authorization by the
Chief Executive Officer to act as his designee for the purposes of this
Agreement.  You agree to exercise the highest degree of professionalism and to
utilize your expertise and creative talent in performing these services.  During
the Consulting Period, you shall make yourself available to perform consulting
services for a total of up to two (2) days per month, although the Company is
not obligated to authorize any specific amount of consulting services during the
Consulting Period.  The Company expects that the consulting services will be
performed outside of the Company’s premises except when the Chief Executive
Officer or his Designee informs you such services may be provided on the
Company’s premises.  The Company shall not require such services in such a
manner as to unreasonably interfere with your other professional or non-profit
activities.  You agree that, during the Consulting Period, you will not
represent or purport to represent the Company in any manner whatsoever to any
third party, bind the Company in any agreement, or direct the activities of
Company employees, unless authorized by the Company in writing to do so.  After
the Separation Date, you will not be considered a Company employee and you will
not be entitled to any of the benefits that the Company may make available to
its employees, such as group insurance, workers’ compensation insurance
coverage, profit sharing or retirement benefits, except as specifically provided
in this Agreement.   

                        (c)          Consulting Fees.  During the Consulting
Period, the Company will provide consulting fees for authorized consulting
services at the rate of $1,000 per day, or pro-rata amount thereof (the
“Consulting Fees”) as your sole compensation for the consulting services.  You
must provide monthly invoices to the Company for your consulting services.  Due
to your status as an independent contractor, the Consulting Fees will be paid
without deductions and withholdings of any kind.  The Company will issue you an
IRS 1099 Form with respect to your Consulting Fees.  You acknowledge that you
will be entirely responsible for the payment of all taxes due and owing as a
result of your Consulting Fees.  You hereby indemnify the Company and hold it
harmless from any liability for any taxes, contributions, penalties, and
interest that may be assessed by any taxing or governmental authority against
the Company with respect to the Consulting Fees.

                        (d)          Expenses.  The Company will reimburse you
for reasonable, documented business expenses incurred by you during the
Consulting Period pursuant to its regular business practice, provided that these
expenses have been pre-approved by the Company in writing.

                        (e)          Protection of Information.  You agree that,
during the Consulting Period and thereafter, you will not use or disclose any
Confidential Proprietary Information (as defined below) or materials of the
Company that you obtain or develop in the course of performing consulting
services for the Company, except with the advance written permission of the
Company’s Chief Executive Officer or his Designee.  For purposes of this
Agreement, “Confidential Proprietary Information” shall include all information
that is not already in the public domain by virtue of such information having
been disclosed outside of the Company, in the form of authorized publication in
journals, publicly-disseminated reports, and by WebCast, or disclosed in written
form made publicly available in connection with professional conferences or
seminars that are open to the public, or in written form made publicly available
in connection with any other authorized public disclosure.  In the event of a
dispute under this Paragraph 6(e) concerning information that you used or
disclosed, you will be required to demonstrate, including by providing tangible
proof, that such information was in the public domain as of the date of your
disclosure or use.  In all situations, it shall not be considered a breach of
this Agreement or the Employee’s Proprietary Information and Inventions
Agreement (attached hereto as Exhibit D) if you provide any form of information
when required by legal process.  Any and all work product you create in
connection with the consulting services will be the sole and exclusive property
of the Company.  You hereby assign to the Company all right, title, and interest
in all inventions, techniques, processes, materials, and other intellectual
property developed in the course of performing consulting services for the
Company.

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                        (f)          Other Work Activities.  Unless you obtain
advance written authorization from the Company’s Chief Executive Officer or his
Designee, during the Consulting Period, you will not carry on any business or
activity (whether directly or indirectly, as a partner, stockholder, principal,
agent, director, affiliate, employee or consultant) that (i) relates to the
Company’s projects concerning AIDSVAX or other vaccines targeting HIV surface
protein, or relates to the Company’s projects concerning development of vaccines
against anthrax, smallpox, plague or Severe Acute Respiratory Syndrome; or
(ii) directly relates to or that materially interferes with any services you are
providing to the Company at any time during the Consulting Period. 
Notwithstanding the restriction in the preceding sentence, you shall not be
prohibited from being a passive shareholder of up to one percent (1%) of the
public stock of a competitive entity.  During the Consulting Period, you may
engage in any form of employment, consulting, or business activity not
prohibited by this paragraph, provided that it shall not materially interfere
with your ability to perform the consulting services for the Company. 

                        (g)          Access to HIV Information.  The Company
agrees to provide you with access, during the Consulting Period, to its
information and materials (including but not limited to emails, electronic
files, and documents) concerning HIV for the sole purpose of your consulting
services to the Company or for any other purpose authorized in writing by the
Company’s Chief Executive Officer or his Designee.  For the avoidance of doubt,
you understand and agree that you will not be authorized to use or disclose such
Company information and materials other than as specified herein.

                        (h)          Termination.  The Company shall have the
right to terminate the Consultancy for any reason upon fifteen (15) days advance
written notice to you.  In addition, the Company may terminate the Consultancy
immediately in the event of your material breach of this Agreement or of your
Employee’s Proprietary Information and Inventions Agreement (attached hereto as
Exhibit D).

          7.          No Other Compensation or Benefits.  You acknowledge that,
except as expressly provided in this Agreement, you have not earned and will not
receive from the Company any additional compensation relating to or arising from
employment with the Company (including base salary, bonus or incentive
compensation), severance, or benefits before or after the Separation Date, with
the exception of any vested right you may have under the express terms of a
written ERISA-qualified benefit plan (e.g., 401(k) account).      

          8.          Expense Reimbursements.  You agree that, within sixty (60)
days after the Separation Date, you will submit your final documented expense
reimbursement statement reflecting all business expenses you incurred through
the Separation Date, if any, for which you seek reimbursement.  The Company will
reimburse you for these expenses pursuant to its regular business practices.   

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          9.          Return of Company Property.  You agree that, on the
Separation Date or earlier if requested by the Company, you will return to the
Company all Company documents (and all copies thereof) and other Company
property in your possession or control, including, but not limited to, any
Company equipment, files, correspondence, memoranda, reports, lists, proposals,
agreements, drafts, notes, minutes, drawings, records, plans, forecasts,
purchase orders, research and development information, customer information and
contact lists, sales and marketing information, personnel information, vendor
information, promotional literature and instructions, financial and operational
information, technical information, specifications, computer-recorded
information, electronic information (including email and correspondence), other
tangible property, credit cards, entry cards, identification badges and keys;
and, any materials of any kind that contain or embody any proprietary or
confidential information of the Company (and all reproductions thereof in whole
or in part).  You agree to make a diligent search to locate any such documents,
property and information on or before the Separation Date.  In addition, if you
have used any personal computer, server, or e-mail system to receive, store,
review, prepare or transmit any Company confidential or proprietary data,
materials or information, you agree to provide the Company with a
computer-useable copy of such information and then permanently delete and
expunge such Company confidential or proprietary information from those systems;
and you agree to provide the Company access to your system as requested to
verify that the necessary copying and/or deletion is done.  VaxGen has
contractual obligations to third parties, including Genentech, the National
Institute of Health, and the Walter Reed Institute, that could require VaxGen to
provide certain information, documents or other materials to such third parties
in the future.  Therefore, your obligations set forth in this paragraph include
information, documents and other materials that VaxGen may be required to
provide to such third parties, including information related to technology
provided to VaxGen by Genentech pursuant to their license agreements.  Your
timely return of all Company property is a precondition of your receipt of the
Severance Benefits.   Notwithstanding the above, you will be allowed to retain
any specific Company property for which you have obtained written authorization
from the Company’s Chief Executive Officer or his Designee, and the Company’s
Chief Executive Officer and his Designee agree to use their best efforts to
respond, in writing, to your written requests to retain specific Company
property within thirty (30) days of the receipt of your written request.

          10.         Proprietary Information Obligations.  You acknowledge your
continuing obligations under the Employee’s Proprietary Information and
Inventions Agreement between you and the Company signed as of December 9, 1998
(the “Proprietary Information Agreement”).  A copy of the Proprietary
Information Agreement is attached hereto as Exhibit D.  The Company has been
informed that you desire to form a non-profit entity to develop vaccines against
HIV for distribution in third world countries which potentially could include
licenses and/or sublicenses from VaxGen in compliance with VaxGen’s license
agreements with Genentech, and contingent upon separate written agreements and
completion of any required parallel agreements with Genentech and any other
necessary third parties.   VaxGen agrees that nothing in the Proprietary
Information Agreement will prohibit you from using or disclosing information
that is in the public domain as of the date of your use or disclosure, provided
that such information is not in the public domain as a result of your breach of
any written agreement with the Company.   

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          11.         Confidentiality.  The provisions of this Agreement will be
held in strictest confidence by you and the Company and will not be publicized
or disclosed in any manner whatsoever; provided, however, that:  (a) you may
disclose this Agreement in confidence to your immediate family; (b) the parties
may disclose this Agreement in confidence to their respective attorneys,
accountants, auditors, tax preparers, and financial advisors; (c) the Company
may disclose this Agreement as necessary to fulfill standard or legally required
corporate reporting or disclosure requirements; and (d) the parties may disclose
this Agreement insofar as such disclosure may be necessary to enforce its terms
or as otherwise required by law.  In particular, and without limitation, you
agree not to disclose the terms of this Agreement to any current or former
employee of the Company.

          12.         Nondisparagement.  Both you and the Company (through its
officers and directors) agree not to disparage the other party, and the other
party’s officers, directors, employees, shareholders and agents, in any manner
likely to be materially harmful to them or their business, business reputation
or personal reputation; provided that both you and the Company may at any time
respond to any question, inquiry or request for information when required by
legal process.  In the event that you are concerned about proposed statements
you wish to make regarding scientific or other matters, you may provide the
proposed statement, in writing, to VaxGen’s Chief Executive Officer or his
Designee in order to obtain VaxGen’s written authorization for the proposed
statement, and VaxGen agrees that such authorization will not be unreasonably
withheld, and provided within ten (10) business days.  Likewise, in the event
that the Company is concerned about proposed statements it wishes to make about
you regarding scientific or other matters, the Company may provide the proposed
statement, in writing, to you in order to obtain your written authorization for
the proposed statement, and you agree that such authorization will not be
unreasonably withheld, and provided within ten (10) business days.  Both you and
VaxGen may submit to the other up to two (2) such proposed statements each
week. 

          13.         No Voluntary Adverse Action.  You agree that you will not
voluntarily assist any person in bringing or pursuing any litigation,
arbitration, administrative claim or other formal proceeding, or any proposed
litigation, arbitration, administrative claim, or other formal proceeding,
against the Company, its parents, subsidiaries, affiliates, distributors,
officers, directors, employees or agents, unless pursuant to legal process.  The
restrictions set forth in this Paragraph 13 do not apply to any actions you may
bring to enforce this Agreement or to any actions you may bring based on claims
arising after the date that you sign the Separation Date Release.

          14.         Cooperation.  Before and after the Separation Date, you
agree to cooperate fully with the Company in connection with its actual or
contemplated defense, prosecution, or investigation of any claims, demands, or
other matters arising from events, acts, or failures to act that occurred during
the time period in which you were employed by the Company.  Such cooperation
includes, without limitation, making yourself available upon reasonable notice,
without subpoena, for interviews, depositions, and trial testimony and you shall
be allowed to provide truthful and accurate information or testimony in any
proceeding subject to this Paragraph 14 of this Agreement.  The Company will
reimburse you for reasonable out-of-pocket expenses you incur in connection with
any such cooperation (excluding forgone wages, salary, or other compensation),
and will make reasonable efforts to accommodate your scheduling needs.  For the
avoidance of doubt, the Company will not pay Consulting Fees or any other
compensation for your cooperation under this Paragraph 14.  To the extent
required by law or any pre-existing agreements between the parties, you will
have the right to retain counsel of your own selection and the Company will pay
your reasonable attorneys’ fees within thirty (30) days after VaxGen’s receipt
of satisfactory documentation of your attorneys’ fees; however, such
documentation shall not require you to waive the attorney-client privilege. 

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          15.         Nonsolicitation.  For a period of one (1) year following
the Separation Date, you agree that you will not, either directly or indirectly,
(a) attempt to recruit, solicit or take away any of the employees of VaxGen who
worked for VaxGen at any time while you were employed by VaxGen, or make known
to any person, firm or corporation the names or addresses of, or any information
pertaining to, any current or former employees of VaxGen; or (b) use any
confidential or proprietary information to attempt to call on, solicit or take
away any clients of VaxGen or any other persons, entities, or corporations with
which VaxGen has had or contemplated any business transaction or relationship
during your employment with VaxGen, including, but not limited to, investments,
licenses, joint ventures, and agreements for development. 

          16.         No Admissions.  Nothing contained in this Agreement shall
be construed as an admission by you or the Company of any liability, obligation,
wrongdoing or violation of law.

          17.         Release of Claims.  Except as otherwise set forth in this
Agreement, in exchange for the consideration under this Agreement to which you
would not otherwise be entitled, you hereby generally and completely release the
Company and its parents, subsidiaries, successors, predecessors and affiliates,
and its and their directors, officers, employees, shareholders, agents,
attorneys, insurers, affiliates and assigns, from any and all claims,
liabilities and obligations, both known and unknown, that arise out of or are in
any way related to events, acts, conduct, or omissions occurring at any time
prior to and including the date you sign this Agreement.  This general release
includes, but is not limited to: (a) all claims arising out of or in any way
related to your employment with the Company or the termination of that
employment; (b) all claims related to your compensation or benefits, including
salary, bonuses, commissions, vacation pay, expense reimbursements, severance
pay, fringe benefits, stock, stock options, or any other ownership or equity
interests in the Company; (c) all claims for breach of contract, wrongful
termination, and breach of the implied covenant of good faith and fair dealing
(including but not limited to claims arising under or based on the Employment
Agreement); (d) all tort claims, including claims for fraud, defamation,
emotional distress, and discharge in violation of public policy; and (e) all
federal, state, and local statutory claims, including claims for discrimination,
harassment, retaliation, attorneys’ fees, or other claims arising under the
federal Civil Rights Act of 1964 (as amended), the federal Americans with
Disabilities Act of 1990 (as amended), the federal Age Discrimination in
Employment Act (as amended) (“ADEA”), and the California Fair Employment and
Housing Act (as amended).  Notwithstanding the above, you do not release the
Company from any obligation to indemnify you pursuant to contract, the Company’s
articles or by-laws, or applicable law.  You represent that you have no
lawsuits, claims or actions pending in your name, or on behalf of any other
person or entity, against the Company or any other person or entity subject to
the release granted in this paragraph.

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          18.         ADEA Waiver.  You acknowledge that you are knowingly and
voluntarily waiving and releasing any rights you may have under the ADEA, and
that the consideration given for the waiver and release in the preceding
paragraph hereof is in addition to anything of value to which you are already
entitled.  You further acknowledge that you have been advised, as required by
the ADEA, that:  (a) your waiver and release do not apply to any rights or
claims that may arise after the date that you sign this Agreement; (b) you have
the right to consult with an attorney prior to signing this Agreement (although
you may choose voluntarily not to do so); (c) you have forty-five (45) days to
consider this Agreement (although you may choose voluntarily to sign it
earlier); (d) you have seven (7) days following the date you sign this Agreement
to revoke the Agreement by providing written notice of your revocation to the
Company’s Chief Executive Officer; and (e) this Agreement will not be effective
until the date upon which the revocation period has expired, which will be the
eighth day after the date that this Agreement is signed by you (the “Effective
Date”).  You hereby acknowledge that with this Agreement, the Company has
provided you with an ADEA Disclosure Notice Under Title 29 U.S. Code Section
626(f)(1)(H) which is attached hereto as Exhibit E.  Additionally, since you
asked for, and received, material changes in this Agreement in your favor, you
agree to waive the additional time for considering this offer to which you would
otherwise be entitled.  Thus, you agree that the required forty-five (45) day
consideration period for this Agreement will be deemed to have started on
January 29, 2004.

          19.         Section 1542 Waiver.  In giving the releases set forth in
this Agreement, which includes claims which may be unknown to you at present,
you acknowledge that you have read and understand Section 1542 of the California
Civil Code which reads as follows:  “A general release does not extend to claims
which the creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor.”  You hereby expressly waive and relinquish all
rights and benefits under that section and any law or legal principle of similar
effect in any jurisdiction with respect to your release of claims herein,
including but not limited to the release of unknown and unsuspected claims.    

          20.         Dispute Resolution.  To ensure rapid and economical
resolution of any disputes which may arise under this Agreement, you and the
Company agree that any and all claims, disputes or controversies of any nature
whatsoever arising from or regarding the interpretation, performance,
negotiation, execution, enforcement or breach of this Agreement shall be
resolved by confidential, final and binding arbitration conducted before a
single arbitrator with Judicial Arbitration and Mediation Services, Inc.
(“JAMS”) in San Francisco, California, under the then-applicable JAMS rules. 
The parties acknowledge that by agreeing to this arbitration procedure, they
waive the right to resolve any such dispute through a trial by jury, judge or
administrative proceeding.  The Company shall bear JAMS’ arbitration fees and
administrative costs.  The arbitrator shall:  (a) have the authority to compel
adequate discovery for the resolution of the dispute and to award such relief as
would otherwise be permitted by law; and (b) issue a written arbitration
decision including the arbitrator’s essential findings and conclusions and a
statement of the award.  The arbitrator, and not a court, shall also be
authorized to determine whether the provisions of this paragraph apply to a
dispute, controversy or claim sought to be resolved in accordance with these
arbitration procedures.  Nothing in this Agreement is intended to prevent either
you or the Company from obtaining injunctive relief in court to prevent
irreparable harm pending the conclusion of any such arbitration.

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          21.         Miscellaneous.  This Agreement, including all exhibits,
constitutes the complete, final and exclusive embodiment of the entire agreement
between you and the Company with regard to its subject matter.  It is entered
into without reliance on any promise or representation, written or oral, other
than those expressly contained herein, and it supersedes any other such
promises, warranties or representations.  This Agreement may not be modified or
amended except in a writing signed by both you and a duly authorized officer of
the Company.  This Agreement will bind the heirs, personal representatives,
successors and assigns of both you and the Company, and inure to the benefit of
both you and the Company, their heirs, successors and assigns.  If any provision
of this Agreement is determined to be invalid or unenforceable, in whole or in
part, this determination will not affect any other provision of this Agreement
and the provision in question shall be modified so as to be rendered enforceable
in a manner consistent with the intent of the parties insofar as possible under
the applicable law.  This Agreement will be deemed to have been entered into and
will be construed and enforced in accordance with the laws of the State of
California as applied to contracts made and to be performed entirely within
California without regard to conflicts of law principles.  Any ambiguity in this
Agreement shall not be construed against either party as the drafter.  Any
waiver of a breach of this Agreement shall be in writing and shall not be deemed
to be a waiver of any successive breach.  This Agreement may be executed in
counterparts which shall be deemed to be part of one original, and facsimile
signatures shall be equivalent to original signatures.

          22.         Forfeiture Actions.  You understand and agree that your
entitlement to receive the Severance Benefits, and the Company’s obligation to
provide Severance Payments, payment of COBRA premiums, and rent-free office
space hereunder, will cease immediately in the event that you materially breach
your Proprietary Information Agreement, or materially breach Paragraphs 11, 12,
13, 14 or 15 of this Agreement, provided that, the Company first provides you
with written notice and an opportunity to cure such breach (which must be cured
as soon as practicable but in no event longer than thirty (30) days after the
breach), if the breach is susceptible to cure.

          23.         Continuing Indemnification Rights and Insurance Coverage. 
You and VaxGen agree that that certain Indemnity Agreement between you and the
Company, a copy of which is attached hereto as Exhibit F, will continue in
effect in accordance with its terms. 

          24.         Reimbursement of Attorney’s Fees.  Within thirty (30) days
following the Effective Date of this Agreement, the Company agrees to reimburse
you for the costs of your reasonable attorneys’ fees and costs for the review
and negotiation of this Agreement, up to a maximum reimbursement of $2,000.  You
must provide satisfactory documentation of your attorneys’ fees and costs in
order to receive reimbursement; however, such documentation shall not require
you to waive the attorney-client privilege.

If this Agreement is acceptable to you, please sign below and return the
original to me.

- 10 -

--------------------------------------------------------------------------------

I wish you the best in your future endeavors.

Sincerely,

VAXGEN, INC.  

By:  /s/ Lance Gordon

 

--------------------------------------------------------------------------------

 

 

Lance Gordon

 

Chief Executive Officer

Exhibit A – Employment Agreement
Exhibit B – Separation Date Release
Exhibit C – Stock Option Grant Spreadsheet
Exhibit D -- Proprietary Information Agreement
Exhibit E -- ADEA Disclosure Notice Under Title 29 U.S. Code Section
626(f)(1)(H)
Exhibit F – Indemnity Agreement

UNDERSTOOD AND AGREED:

/s/ Carter A. Lee

--------------------------------------------------------------------------------

 

Carter Lee

 

Date:    February 17, 2004

- 11 -

--------------------------------------------------------------------------------

EXHIBIT A

EMPLOYMENT AGREEMENT

Previously filed as Exhibit 10.10 on Form S-1 filed May 7, 1999

- 12 -

--------------------------------------------------------------------------------

EXHIBIT B

SEPARATION DATE RELEASE

(to be signed on the Separation Date)

          In consideration for the Severance Benefits, and other consideration
provided to me by VaxGen, Inc. (the “Company”), and as required by the Agreement
between the Company and me dated January 15, 2004, I hereby give the following
Separation Date Release (the “Release”).

          I hereby generally and completely release the Company and its
directors, officers, employees, shareholders, partners, agents, attorneys,
predecessors, successors, parent and subsidiary entities, insurers, affiliates,
and assigns from any and all claims, liabilities and obligations, both known and
unknown, that arise out of or are in any way related to events, acts, conduct,
or omissions occurring at any time prior to and including the date I sign this
Release.  This general release includes, but is not limited to: (1) all claims
arising out of or in any way related to my employment with the Company or the
termination of that employment; (2) all claims related to my compensation or
benefits from the Company, including salary, bonuses, commissions, vacation pay,
expense reimbursements, severance pay, fringe benefits, stock, stock options, or
any other ownership or equity interests in the Company; (3) all claims for
breach of contract, wrongful termination, and breach of the implied covenant of
good faith and fair dealing (including but not limited to claims arising under
or based on the Employment Agreement); (4) all tort claims, including claims for
fraud, defamation, emotional distress, and discharge in violation of public
policy; and (5) all federal, state, and local statutory claims, including claims
for discrimination, harassment, retaliation, attorneys’ fees, or other claims
arising under the federal Civil Rights Act of 1964 (as amended), the federal
Americans with Disabilities Act of 1990, the federal Age Discrimination in
Employment Act (as amended) (“ADEA”), and the California Fair Employment and
Housing Act (as amended).  Notwithstanding the above, I do not release the
Company from any obligation to indemnify me pursuant to contract, the Company’s
articles or by-laws, or applicable law.  I represent that I have no lawsuits,
claims or actions pending in my name, or on behalf of any other person or
entity, against the Company or any other person or entity subject to the release
granted in this paragraph. 

          I acknowledge that I am knowingly and voluntarily waiving and
releasing any rights I may have under the ADEA, and that the consideration given
for the waiver and release in the preceding paragraph is in addition to anything
of value to which I am already entitled.  I further acknowledge that I have been
advised by this writing that:  (a) my waiver and release do not apply to any
rights or claims that may arise after the date I sign this Release; (b) I should
consult with an attorney prior to signing this Release (although I may choose
voluntarily not to do so); (c) I have forty-five (45) days to consider this
Release (although I may choose voluntarily to sign it earlier); (d) I have seven
(7) days following the date I sign this Release to revoke it by providing
written notice of revocation to the Company’s Chief Executive Officer; and
(e) this Release will not be effective until the date upon which the revocation
period has expired, which will be the eighth calendar day after the date I sign
it (the “Effective Date”). 

- 13 -

--------------------------------------------------------------------------------

           I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS.  I acknowledge that I have read and understand Section 1542 of
the California Civil Code which reads as follows:  “A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor.”  I hereby expressly waive
and relinquish all rights and benefits under that section and any law or legal
principle of similar effect in any jurisdiction with respect to my release of
claims herein, including but not limited to the release of unknown and
unsuspected claims.    

 

By: 

/s/ Carter A. Lee

 

 

--------------------------------------------------------------------------------

 

 

 

Carter Lee

 

 

 

Date:

February 17, 2004

- 14 -

--------------------------------------------------------------------------------

EXHIBIT C

STOCK OPTION GRANT SPREADSHEET

Carter A. Lee
Termination Date – 3/31/2004
Exercisable Options

Number

 

Grant
Date

 

 

Plan/
Type

 

Price

 

Shares
Granted

 

Shares
Exercised

 

Shares
Exercisable

 

Vesting
Stop Date

 

Total
Price

 

Last Date
To Exercise

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

000069

 

 

 

4/22/99

 

 

 

96SO/NQ

 

 

 

$  

9.500000

 

 

 

50,000

 

 

 

0

 

 

 

50,000

 

 

 

3/31/04

 

 

 

$

475,000.00

 

 

 

3/31/07

 

 

 

000070

 

 

 

4/22/99

 

 

 

96SO/NQ

 

 

 

$

9.500000

 

 

 

2,500

 

 

 

0

 

 

 

2,500

 

 

 

3/31/04

 

 

 

$

23,750.00

 

 

 

3/31/07

 

 

 

000156

 

 

 

5/31/00

 

 

 

96SO/NQ

 

 

 

$

13.500000

 

 

 

9,000

 

 

 

0

 

 

 

9,000

 

 

 

3/31/04

 

 

 

$

121,500.00

 

 

 

3/31/07

 

 

 

000268

 

 

 

4/6/01

 

 

 

96SO/NQ

 

 

 

$

19.440000

 

 

 

5,000

 

 

 

0

 

 

 

5,000

 

 

 

3/31/04

 

 

 

$

97,200.00

 

 

 

3/31/07

 

 

 

000474

 

 

 

7/22/02

 

 

 

96SO/NQ

 

 

 

$

5.740000

 

 

 

24,000

 

 

 

0

 

 

 

24,000

 

 

 

3/31/04

 

 

 

$

137,760.00

 

 

 

3/31/07

 

 

 

000046

 

 

 

12/1/98

 

 

 

96SO/NQ

 

 

 

$

9.500000

 

 

 

75,000

 

 

 

0

 

 

 

75,000

 

 

 

3/31/04

 

 

 

$

712,500.00

 

 

 

3/31/07

 

 

 

 

 

 

 

 

 

 

 

TOTALS

 

 

 

165,500

 

 

 

0

 

 

 

165,500

 

 

 

 

 

 

 

$  

1,567,710.00

 

 

 

 

 

 

- 15 -

--------------------------------------------------------------------------------

EXHIBIT D

EMPLOYEE’S PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT

I recognize that VaxGen, Inc., a Delaware corporation, together with its
subsidiaries (hereinafter collectively called the “Company”) is engaged in a
continuous program of research, development, and production respecting its
business, present and future, including fields generally related to its
business.  I understand that:

 

A.

As part of my employment by the Company I am expected to make new contributions
and inventions of value to the Company;

 

 

 

 

B.

My employment creates a relationship of confidence and trust between me and the
Company with respect to any information:

 

 

 

 

 

i.

Applicable to the business of the Company; or

 

 

 

 

 

 

ii.

Applicable to the business of any client or customer of the Company, which may
be made known to me by the Company or by any client or customer of Company, or
learned by me during the period of my employment.

 

 

 

 

 

C.

As used in this Agreement, the period of my employment by the Company includes
any time during which I may be retained by the Company as a consultant or
independent contractor.

 

 

 

 

 

D.

The Company possesses and will continue to possess information that has been
created, discovered, developed, or otherwise become known to the Company
(including, without limitation, information created, discovered, developed, or
made known by me during the period of or arising out of my employment by the
Company) and/or in which property rights have been assigned or otherwise
conveyed to the Company, which information has commercial value in the business
in which the Company is engaged.  All of the aforementioned information is
hereinafter called “VaxGen Proprietary Information.”  By way of illustration,
but not limitation, VaxGen Proprietary Information includes trade secrets,
processes, formulas, data and know-how, improvements, inventions, techniques,
marketing plans, strategies, forecasts, and customer lists.

 

 

 

 

 

 

By virtue of a License Agreement between the Company and Genentech, Inc.
(“Genentech”), a Services Agreement between the Company and Genentech, and other
agreement(s) that may be entered into between the Company and Genentech
(collectively, the “Genentech Agreements”), the Company and its employees have
been and will continue to be afforded substantial access to proprietary
technology and information of Genentech (collectively, “Genentech Proprietary
Information”).  By way of illustration, but not limitation, Genentech
Proprietary Information includes trade secrets, processes, formulas, data and
know-how (including computer databases, improvements, inventions, techniques,
marketing plans, strategies, forecasts, and customer lists.  VaxGen Proprietary
Information and Genentech Proprietary Information are referred to collectively
herein as the “Proprietary Information”.

- 16 -

--------------------------------------------------------------------------------

In consideration of my employment or continued employment, as the case may be,
and the compensation received by me from the Company from time to time, I hereby
agree as follows:

 

1.

Subject to Paragraph 5 hereof, all VaxGen Proprietary Information shall be the
sole property of the Company and its assigns, and the Company and its assigns
shall be the sole owner of all patents and other rights in connection therewith,
subject to the terms of the Genentech Agreements.  I hereby assign to the
Company any rights I may have or acquire in such VaxGen Proprietary
Information.  At all times, both during my employment by the Company and after
termination of such employment, I will keep in confidence and trust all VaxGen
Proprietary Information, and I will not use or disclose any VaxGen Proprietary
Information or anything relating to it without the written consent of the
Company, except as may be necessary in the ordinary course of performing my
duties as an employee of the Company.

 

 

 

 

 

 

All Genentech Proprietary Information shall be the sole property of Genentech
and its assigns, and Genentech and its assigns shall be the sole owner of all
patents and other rights in connection therewith, subject to the terms of the
Genentech Agreements.  I do not have and shall not acquire any rights in such
Genentech Proprietary Information.  At all times, both during my employment by
the Company and after termination of such employment, I will keep in confidence
and trust all Genentech Proprietary Information, and I will not use or disclose
any Genentech Proprietary Information or anything relating to it without the
written consent of the Company (to the extent authorized under the Genentech
Agreements) or Genentech, except as may be necessary in the ordinary course of
performing my duties as an employee of the Company.  I understand and
acknowledge, and the Company understands and acknowledges, that Genentech is
affording the Company and its employees substantial access to Genentech
Proprietary Information in connection with the Genentech Agreements in reliance
on the provisions set forth herein, and that breach of such provisions could
result in immediate material, irreparable harm to Genentech.  Genentech is a
third party beneficiary of this Agreement.

 

 

 

 

          
2.

I agree that during the period of my employment by the Company, I will not,
without the Company’s express written consent, engage in any employment or
activity other than for the Company in any business in which the Company is now
or may hereafter become engaged.  In the event of the termination of my
employment by me or by the Company for any reason, I will deliver to the Company
all documents and data of any nature pertaining to my work with the Company and
I will not take with me any documents or data of any description, or any
reproduction thereof, containing or pertaining to any Proprietary Information.

- 17 -

--------------------------------------------------------------------------------

 

3.

I will promptly disclose to the Company, or any persons designated by it, all
improvements, inventions, formulas, processes, techniques, know-how, and data,
whether or not patentable, made or conceived or reduced to practice or learned
by me, either alone or jointly with others, during the period of my employment
which are related to or useful in the business of the Company, or result from
tasks assigned me by the Company or result from use of premises owned, leased,
or contracted for by the Company (all said improvements, inventions, formulas,
process, techniques, know-how, and data shall be collectively hereinafter called
“Inventions”).

 

 

 

 

4.

Subject to Paragraph 5 hereof, I agree that all Inventions shall be the sole
property of the Company and its assigns, and the Company and its assigns shall
be the sole owner of all patents and other rights in connection herewith,
subject to the terms of the Genentech Agreements.  I hereby assign to the
Company any rights I may have or acquire in such Inventions.  I further agree as
to all Inventions to assist the Company and Genentech in every proper way (but
at the Company’s expense) to obtain and from time to time enforce patents on
said Inventions in any and all countries, and to that end I will execute all
documents for use in applying for and for obtaining such patents thereon and
enforcing same, as the Company or Genentech may desire, together with any
assignments thereof to the Company or Genentech, as the case may be.  My
obligations to assist in obtaining and enforcing patents for such Inventions in
any and all countries shall continue beyond the termination of my employment,
but the Company shall compensate me at a reasonable rate after such termination
for time actually spent by me at the Company’s or Genentech’s request on such
assistance.

 

 

 

 

 

5.

I understand that the Company’s right with regard to certain things invented or
co-invented by me are subject to Sections 2870-2872 of the California Labor
Code, under which I have no obligation to assign rights in an invention for
which no equipment, supplies, facilities or trade secret information of the
Company was used and which was developed entirely on my own time, and (a) which
does not relate (1) to the business of the Company or (2) to the Company’s
actual or demonstrably anticipated research of development, or (b) which does
not result from any work performed by me for the Company.

 

 

 

 

 

6.

As a matter of record I attach hereto a complete list of all inventions or
improvements relevant to the subject matter of my employment by the Company
which have been made, conceived or reduced to practice by me alone or jointly
with others prior to my employment by the Company, which I desire to remove from
the operation of this Agreement; and I covenant that such list is complete.  If
no such list is attached to this Agreement, I represent that I have no such
inventions or improvements at the time of signing this Agreement.

 

 

 

 

 

7.

I represent that my performance of all the terms of this Agreement and as an
employee of the Company does not and will not breach any agreement to keep in
confidence proprietary information acquired by me in confidence or in trust
prior to my employment by the Company and I have not entered into, nor will I
enter into, any agreement (written or oral) in conflict herewith.

 

 

 

 

 

8.

I understand that, as part of the consideration of the offer of employment
extended to me by the Company and of my employment by the Company, I will not
bring with me to the Company or use in the performance of my responsibilities at
the Company materials or documents of any former employer, unless I have
obtained written authorization from the former employer for their possession and
use.  I certify that:

- 18 -

--------------------------------------------------------------------------------

 

 

1.

I have brought no proprietary or confidential materials or documents to the
Company; or

 

 

 

 

 

 

2.

I have brought proprietary or confidential materials or documents to the Company
and I have attached to this Agreement a list of such materials or documents,
together with an authorization for their possession and use as shown in the
attached letter; or

 

 

 

 

 

 

3.

I have brought proprietary or confidential materials or documents to the Company
but I have not yet attached a list or obtained a written authorization for their
possession and use.  I understand that a representative from Human Resources
will contact me within the first week of my employment and request such list and
authorization.  I further understand that in the event I am unable to obtain
such authorization, I will NOT USE any proprietary or confidential materials or
documents during the course of my employment with the Company AND I will return
any such materials or documents to the former employer.

I also understand that, in my employment with the Company, I am not to breach
any obligation of confidentiality that I have to any former employer, and I
agree that I shall fulfill all such obligations during my employment with the
Company.

 

9.

This Agreement shall be effective as of the first day of my employment by the
Company, which is

 

 

 

 

 

10.

This Agreement shall be binding upon me, my heirs, executors, assigns, and
administrators and shall inure to the benefit of the Company, its successors and
assigns.

 

DATED:  December 02, 1998

BY:

/s/ Carter A. Lee

 

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

ACCEPTED AND AGREED TO:

 

 

 

 

 

 

 

 

 

VAXGEN, INC.

 

 

 

 

 

 

BY:

/s/ Don Francis

DATED:  December 02, 1998

 

 

--------------------------------------------------------------------------------

 

 

 

Don Francis

 

 

President

- 19 -

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

Date

VaxGen, Inc.
1000 Marina Boulevard
Suite 200
Brisbane, CA 94005

I, ____________________________, propose to bring to my VaxGen employment the
following tangible materials and previously unpublished documents, which
materials and documents may be used in my VaxGen employment:

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

_________ Additional sheets attached

The signature below by a representative of my current or former employer
confirms that my continued possession and use of these materials is authorized.

AUTHORIZATION:

 

 

 

--------------------------------------------------------------------------------

 

 

SIGNATURE

 

 

 

 

 

--------------------------------------------------------------------------------

 

 

           TITLE

 

 

 

 

 

--------------------------------------------------------------------------------

 

 

           EMPLOYER

 

Very truly yours,

--------------------------------------------------------------------------------

 

 

Signature

- 20 -

--------------------------------------------------------------------------------

EXHIBIT E

ADEA DISCLOSURE NOTICE UNDER TITLE 29 US CODE SECTION 626(f)(1)(H)

Confidentiality Provision:

The information contained in this document is private and confidential.  You may
not disclose this information to anyone except your professional advisors.

1.

VaxGen, Inc. employees in the positions of Vice President and above have been
considered for the severance package program.

 

 

2.

Employees in the positions of Vice President and above whose employment will
terminate on or about January 30, 2004 and March 31, 2004 are eligible to
participate in the severance package program.

 

 

3.

You and all others receiving this disclosure will have up to forty-five (45)
days to review the terms and conditions of the severance package and to decide
whether to accept the package.

EMPLOYEES ELIGIBLE FOR THE SEVERANCE PACKAGE PROGRAM

 

JOB TITLE

 

AGE

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

President

 

61

Sr. Vice President, Research and
Development

 

55

Sr. Vice President, Finance and
Administration

 

51

Vice President, International Clinical
Research

 

53

- 21 -

--------------------------------------------------------------------------------

EMPLOYEES NOT ELIGIBLE FOR THE SEVERANCE PACKAGE PROGRAM

 

(RETAINED VICE PRESIDENTS AND ABOVE)

 

JOB TITLE

 

AGE

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

Chief Executive Officer

 

56

Sr. Vice President, Regulatory and Quality Systems

 

48

Sr. Vice President, Medical Affairs

 

64

Sr. Vice President, Manufacturing

 

50

Vice President, Corporate Communications

 

47

Vice President, Corporate Development

 

41

- 22 -

--------------------------------------------------------------------------------

EXHIBIT F

INDEMNITY AGREEMENT

THIS AGREEMENT is made and entered into this 2nd day of December, 2002 by and
between VaxGen, Inc.,  a Delaware corporation (the “Corporation”), and Carter A.
Lee (“Agent”).

Recitals

WHEREAS, Agent performs a valuable service to the Corporation in his capacity as
a director and/or executive officer of the Corporation;

WHEREAS, the stockholders of the Corporation have adopted bylaws (the “Bylaws”)
providing for the indemnification of the directors, officers, employees and
other agents of the Corporation, including persons serving at the request of the
Corporation in such capacities with other corporations or enterprises, as
authorized by the Delaware General Corporation Law, as amended (the “Code”);

WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and

WHEREAS, in order to induce Agent to continue to serve as a director and/or
executive officer of the Corporation, the Corporation has determined and agreed
to enter into this Agreement with Agent;

NOW, THEREFORE, in consideration of Agent’s continued service as a director
and/or executive officer after the date hereof, the parties hereto agree as
follows:

Agreement

          1.           Services to the Corporation.  Agent will serve, at the
will of the Corporation or under separate contract, if any such contract exists,
as a director and/or executive officer of the Corporation or as a director,
officer or other fiduciary of an affiliate of the Corporation (including any
employee benefit plan of the Corporation) faithfully and to the best of his
ability so long as he is duly elected and qualified in accordance with the
provisions of the Bylaws or other applicable charter documents of the
Corporation or such affiliate; provided, however, that Agent may at any time and
for any reason resign from such position (subject to any contractual obligation
that Agent may have assumed apart from this Agreement) and that the Corporation
or any affiliate shall have no obligation under this Agreement to continue Agent
in any such position.

          2.           Indemnity of Agent.  The Corporation hereby agrees to
hold harmless and indemnify Agent to the fullest extent authorized or permitted
by the provisions of the Bylaws and the Code, as the same may be amended from
time to time (but, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than the Bylaws or the
Code permitted prior to adoption of such amendment).

- 23 -

--------------------------------------------------------------------------------

          3.           Additional Indemnity.  In addition to and not in
limitation of the indemnification otherwise provided for herein, and subject
only to the exclusions set forth in Section 4 hereof, the Corporation hereby
further agrees to hold harmless and indemnify Agent:

 

(a)

against any and all expenses (including attorneys’ fees), witness fees, damages,
judgments, fines and amounts paid in settlement and any other amounts that Agent
becomes legally obligated to pay because of any claim or claims made against or
by him in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, arbitrational, administrative or
investigative (including an action by or in the right of the Corporation) to
which Agent is, was or at any time becomes a party, or is threatened to be made
a party, by reason of the fact that Agent is, was or at any time becomes a
director, officer, employee or other agent of Corporation, or is or was serving
or at any time serves at the request of the Corporation as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise; and

 

 

 

 

(b)

otherwise to the fullest extent as may be provided to Agent by the Corporation
under the non-exclusivity provisions of the Code and Article 9 of the Bylaws.

          4.           Limitations on Additional Indemnity.  No indemnity
pursuant to Section 3 hereof shall be paid by the Corporation:

 

(a)

on account of any claim against Agent solely for an accounting of profits made
from the purchase or sale by Agent of securities of the Corporation pursuant to
the provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;

 

 

 

 

(b)

on account of Agent’s conduct that is established by a final judgment as
knowingly fraudulent or deliberately dishonest or that constituted willful
misconduct;

 

 

 

 

(c)

on account of Agent’s conduct that is established by a final judgment as
constituting a breach of Agent’s duty of loyalty to the Corporation or resulting
in any personal profit or advantage to which Agent was not legally entitled;

 

 

 

 

(d)

for which payment is actually made to Agent under a valid and collectible
insurance policy or under a valid and enforceable indemnity clause, bylaw or
agreement, except in respect of any excess beyond payment under such insurance,
clause, bylaw or agreement;

 

 

 

 

(e)

if indemnification is not lawful (and, in this respect, both the Corporation and
Agent have been advised that the Securities and Exchange Commission believes
that indemnification for liabilities arising under the federal securities laws
is against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication); or

- 24 -

--------------------------------------------------------------------------------

 

(f)

in connection with any proceeding (or part thereof) initiated by Agent, or any
proceeding by Agent against the Corporation or its directors, officers,
employees or other agents, unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the Board of Directors
of the Corporation, (iii) such indemnification is provided by the Corporation,
in its sole discretion, pursuant to the powers vested in the Corporation under
the Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof.

          5.           Continuation of Indemnity.  All agreements and
obligations of the Corporation contained herein shall continue during the period
Agent is a director, officer, employee or other agent of the Corporation (or is
or was serving at the request of the Corporation as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and shall continue thereafter
so long as Agent shall be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.

          6.           Partial Indemnification.  Agent shall be entitled under
this Agreement to indemnification by the Corporation for a portion of the
expenses (including attorneys’ fees), witness fees, damages, judgments, fines
and amounts paid in settlement and any other amounts that Agent becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 3 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Agent for the portion
thereof to which Agent is entitled.

          7.           Notification and Defense of Claim.  Not later than thirty
(30) days after receipt by Agent of notice of the commencement of any action,
suit or proceeding, Agent will, if a claim in respect thereof is to be made
against the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Agent otherwise than under
this Agreement.  With respect to any such action, suit or proceeding as to which
Agent notifies the Corporation of the commencement thereof:

 

(a)

the Corporation will be entitled to participate therein at its own expense;

 

 

 

 

(b)

except as otherwise provided below, the Corporation may, at its option and
jointly with any other indemnifying party similarly notified and electing to
assume such defense, assume the defense thereof, with counsel reasonably
satisfactory to Agent.  After notice from the Corporation to Agent of its
election to assume the defense thereof, the Corporation will not be liable to
Agent under this Agreement for any legal or other expenses subsequently incurred
by Agent in connection with the defense thereof except for reasonable costs of
investigation or otherwise as provided below.  Agent shall have the right to
employ separate counsel in such action, suit or proceeding but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless
(i) the employment of counsel by Agent has been authorized by the Corporation,
(ii) Agent shall have reasonably concluded, and so notified the Corporation,
that there is an actual conflict of interest between the Corporation and Agent
in the conduct of the defense of such action or (iii) the Corporation shall not
in fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of Agent’s separate counsel shall be at the
expense of the Corporation.  The Corporation shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the
Corporation or as to which Agent shall have made the conclusion provided for in
clause (ii) above; and

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(c)

the Corporation shall not be liable to indemnify Agent under this Agreement for
any amounts paid in settlement of any action or claim effected without its
written consent, which shall not be unreasonably withheld.  The Corporation
shall be permitted to settle any action except that it shall not settle any
action or claim in any manner which would impose any penalty or limitation on
Agent without Agent’s written consent, which may be given or withheld in Agent’s
sole discretion.

          8.           Expenses.  The Corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.

          9.           Enforcement.  Any right to indemnification or advances
granted by this Agreement to Agent shall be enforceable by or on behalf of Agent
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor.  Agent, in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also the
expense of prosecuting his claim.  It shall be a defense to any action for which
a claim for indemnification is made under Section 3 hereof (other than an action
brought to enforce a claim for expenses pursuant to Section 8 hereof, provided
that the required undertaking has been tendered to the Corporation) that Agent
is not entitled to indemnification because of the limitations set forth in
Section 4 hereof.  Neither the failure of the Corporation (including its Board
of Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.

          10.         Subrogation.  In the event of payment under this
Agreement, the Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of Agent, who shall execute all documents required
and shall do all acts that may be necessary to secure such rights and to enable
the Corporation effectively to bring suit to enforce such rights.

          11.         Non-Exclusivity of Rights.  The rights conferred on Agent
by this Agreement shall not be exclusive of any other right which Agent may have
or hereafter acquire under any statute, provision of the Corporation’s
Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.

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          12.         Survival of Rights.

 

(a)

The rights conferred on Agent by this Agreement shall continue after Agent has
ceased to be a director and executive officer, officer, employee or other agent
of the Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent’s heirs, executors and administrators.

 

 

 

 

(b)

The Corporation shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Corporation, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Corporation
would be required to perform if no such succession had taken place.

          13.         Separability.  Each of the provisions of this Agreement is
a separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof.  Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.

          14.         Governing Law.  This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.

          15.         Amendment and Termination.  No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.

          16.         Identical Counterparts.  This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute but one and the same
Agreement.  Only one such counterpart need be produced to evidence the existence
of this Agreement.

          17.         Headings.  The headings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.

          18.         Notices.  All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date on
which such communication was mailed if mailed by certified or registered mail
with postage prepaid:

 

(a)

If to Agent, at the address indicated on the signature page hereof.

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(b)

If to the Corporation, to:

 

 

 

 

 

 

VAXGEN , INC.

 

 

 

1000 Marina Blvd., Suite 200

 

 

 

Brisbane, California 94005

 

 

 

Attn: Lance K. Gordon

or to such other address as may have been furnished to Agent by the Corporation.

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          IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.

 

VAXGEN, INC.

 

 

 

 

 

By:   /s/ Lance Gordon

 

 

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Title:

 

 

--------------------------------------------------------------------------------

 

 

 

AGENT

 

 

 

/s/ Carter A. Lee

 

--------------------------------------------------------------------------------

 

 

 

Name:   Carter A. Lee

 

 

 

Address:

 

 

 

[*]

 

 

 

 

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS (“[*]”), HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

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