[VaxGen Letterhead]

June 3, 2005

VIA HAND DELIVERY

James M. Cunha
VaxGen, Inc.
1000 Marina Boulevard, Suite 200
Brisbane, CA 94005-1835

Dear Jim:

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

                1.              Resignation  Date.  You hereby resign as Chief
Financial Officer of the Company and from any other office or position you may
hold with the Company or any subsidiary or affiliated entity, effective as of
June 3, 2005 (the “Resignation Date”), and the Company hereby accepts those
resignations; provided, however, that you will be retained by the Company after
the Resignation Date as a consultant as set forth in Paragraph 7 of this
Agreement.

                2.              Accrued Salary and Paid Time Off.  On the
Resignation Date, the Company will pay you all accrued salary, and all accrued
and unused vacation earned through the Resignation Date, subject to standard
payroll deductions and withholdings. You are entitled to these payments by law.
Additionally, although the Company has no obligation to do so, the Company may
provide you with a bonus payment for 2004, based on your achievement of
management objectives, as determined within the sole discretion of the
Compensation Committee of the Company’s Board of Directors.

                3.              Severance Payments.  The Company will pay you,
as severance and as consideration for your consulting Services (as defined
herein), the equivalent of twelve (12) months of your base salary in effect as
of the Resignation Date (the “Severance Payments”). The Severance Payments will
be subject to required payroll deductions and withholdings, and will be paid on
the following schedule: the first payment will be made on the first Company
payroll date following the Effective Date of this Agreement (as defined in
Paragraph 16 herein), with a final payment date of March 14, 2006. The Severance
Payments, other than the final payment on March 14, 2006, shall be in an amount
equal to your current monthly base salary; the final payment on March 14, 2006
shall be in an amount equal to the difference between (a) the total gross amount
of all previously made Severance Payments, and (b) twelve (12) months of your
base salary in effect as of the Resignation Date.

                4.              Health Insurance.  To the extent provided by the
federal 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

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following the Resignation Date. Later, you may be able to convert to an
individual policy through the provider of the Company’s health insurance, if you
wish. You will be provided with a separate notice describing your health
insurance continuation rights and obligations.

                5.              Stock Options.  

                                 (a)            Vesting.  You acknowledge that
you were granted two stock options on March 19, 2004 to purchase a total of one
hundred fifty thousand (150,000) shares of the Company’s common stock
(collectively, the “Option”) under the Company’s 1996 Stock Option Plan (the
“Plan”). You acknowledge and agree that you have no other stock options or other
equity interests in the Company in addition to the Option. The Company hereby
agrees to accelerate vesting on all of your Option shares such that, as of the
Resignation Date, all unvested shares subject to the Option shall be fully
vested (the “Option Acceleration”).

                                 (b)            Exercise.  Your rights and
obligations with respect to the Option and shares vested thereunder shall be
governed by the terms of the Plan and the governing Option agreements, provided
that (i) the exercise price per share of the Option will be increased to the
fair market value per share of the Company’s common stock on the Resignation
Date, which was $10.66 (closing price); and (ii) the Company will permit you to
exercise your vested but previously unexercised shares subject to the Option
during the ninety (90) day period immediately after the date that the Option
first becomes exercisable, pursuant to applicable state and federal securities
laws, following the Resignation Date.

                6.              No Tax or Financial Advice.  You acknowledge and
agree that the Company has made no representation or warranty concerning the tax
consequences or tax treatment of any compensation or benefits that you may
receive under this Agreement (including, but not limited to, any Severance
Payments, Option Acceleration, extended Option exercise period, or the potential
application of Section 409A of the Internal Revenue Code of 1986, as amended),
and you are not relying on the Company or its professional advisors for advice
and counsel on such matters. You further acknowledge that the Company has
advised you to rely upon your own professional judgment as an accountant and the
advice of your own professional advisors with respect to such matters.

                7.              Consulting. For the three (3) month period
immediately following the Resignation Date (the “Consulting Period”), you agree
to serve as an independent contractor consultant to the Company as set forth
below.

                                 (a)            Consulting Duties.  As a
consultant, you agree to make yourself available for up to five (5) hours per
month to provide transition information and assistance (the “Services”) at the
request of the Company’s Chief Executive Officer (the “CEO”). You shall exercise
the highest degree of professionalism and utilize your expertise and creative
talents in performing the Services. You may perform the Services offsite, and
the Company agrees to request you to perform such services at reasonable times
and in a manner that does not unreasonably interfere with your other
professional activities.

2.

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                                 (b)            Limitations on Authority. During
the Consulting Period, you will have no authority to bind the Company, and you
shall not represent or purport to represent the Company in any manner whatsoever
to any third party, or enter into any contract or commitment on behalf of the
Company, unless expressly authorized to do so by written agreement of the CEO.

                                 (c)            Independent Contractor; No
Consulting Fees. You acknowledge and agree that during the Consulting Period you
will be an independent contractor of the Company and not an employee; and that
you will not be entitled to any of the benefits that the Company may make
available to its employees, such as group insurance (except as expressly
provided under COBRA or analogous state law regarding health insurance
continuation rights), workers’ compensation insurance coverage, profit sharing,
or retirement benefits. You agree that any Severance Payments you receive during
the Consulting Period will be the sole consideration you will receive for the
Services.

                                 (d)            Protection of Company
Information.  During the Consulting Period and thereafter, other than in the
course of performing the Services, you shall not use or disclose any
confidential or proprietary information or materials of the Company which you
obtain or develop in the course of performing the Services, except with the
advance written authorization of the CEO. Any work product generated in the
course of your performance of the consulting Services shall be the sole and
exclusive property of the Company.

                8.              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
(including base salary, bonus, incentive compensation, or equity), severance, or
benefits before or after the Resignation 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).

                9.              Proprietary Information Obligations. You hereby
acknowledge your continuing obligations under your Employee’s Proprietary
Information and Inventions Agreement that you signed on March 19, 2004, a copy
of which is attached hereto as Exhibit A.

                10.           Expense Reimbursements.  You agree that, within
sixty (60) days after the Resignation Date, you will submit your final
documented expense reimbursement statement reflecting all business expenses you
incurred through the Resignation Date, if any, for which you seek reimbursement.
Within ten (10) days of the end of the Consulting Period, you will submit your
final documented expense reimbursement statement reflecting all business
expenses incurred through the end of the Consulting Period, if any, for which
you seek reimbursement; provided, however, that you shall not incur expenses
during the Consulting Period except as specifically authorized by the CEO. The
Company will reimburse you for such business expenses pursuant to its regular
policies and procedures.

                11.           Return of Company Property. On the Resignation
Date, or earlier if requested by the Company, you agree to 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, Company files, notes,
drawings, records, plans, forecasts, reports, studies, analyses, proposals,

3.

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agreements, financial information and reports, databases, accounting
information, research and development information, sales and marketing
information, operational and personnel information, specifications, code,
software, databases, computer-recorded information, tangible property and
equipment (including, but not limited to, computers, facsimile machines, mobile
telephones, and servers), 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 prompt and diligent search for all such Company
property, materials and information. In addition, if you have used any
personally owned 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. You will not be entitled to the
Severance Payments or Option Acceleration unless and until you comply fully with
the terms set forth in this paragraph.

                12.           Announcements and Nondisparagement.  You agree not
to disparage the Company and its officers, directors, employees, shareholders
and agents, in any manner likely to be harmful to them or their business,
business reputation or personal reputation; and the Company (through its
executive officers and directors) agrees not to disparage you in any manner
likely to be harmful to you or your business, business reputation or personal
reputation. In any public announcements or other statements to third parties
about your departure from the Company, both you and the Company shall state
solely that you have decided to depart for personal reasons to pursue other
professional opportunities, or words to that effect. Notwithstanding anything
else in this paragraph, both the Company and you may respond accurately and
fully to any inquiry or request for information when required by legal process.

                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 subpoena or other
compulsion of law.

                14.           Cooperation.  You agree to cooperate fully with
the Company in connection with its actual or contemplated defense, prosecution,
or investigation of any claims, demands, audits, government or regulatory
inquiries, 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, to provide information to the Company and
making yourself available for interviews, depositions, and trial testimony. The
Company will reimburse you for reasonable out-of-pocket expenses you incur in
connection with any such cooperation (excluding foregone wages, salary, or other
compensation), and will make reasonable efforts to accommodate your scheduling
needs. The Company will pay you $200 per hour for your time devoted to
cooperation expressly requested by the Company: (a) for such cooperation time
that exceeds five (5) hours per month during the Consulting Period; and (b) for
all such cooperation time provided after the Consulting Period.

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                15.           Release.  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 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 or on the date you sign this Agreement. This general release
includes, but is not limited to: (1) all claims arising out of or in any way
related to your employment with the Company or the termination of that
employment; (2) all claims related to your 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 based on or arising from
the Executive Employment Agreement between you and the Company dated May 20,
2004 (the “Executive 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). 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. Notwithstanding the foregoing, you are not hereby releasing
the Company from any promise made in this Agreement, or from any obligation to
indemnify you pursuant to the Company’s articles or by-laws, applicable law, or
the Indemnity Agreement between you and the Company dated May 20, 2004.

                16.           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 should consult with an attorney prior to signing this Agreement (although
you may choose voluntarily not to do so); (c) you have twenty-one (21) days from
the date you receive this Agreement 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 CEO; 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”).

                17.           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

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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.

                18.           No Admissions.  The promises and payments in
consideration of this Agreement shall not be construed to be an admission of any
liability or obligation by either party to the other party, and neither party
makes any such admission.

                19.           Dispute Resolution.  To ensure rapid and
economical resolution of any disputes regarding this Agreement, the parties
hereby agree that any and all claims, disputes or controversies of any nature
whatsoever arising out of, or relating to, this Agreement, or its
interpretation, enforcement, breach, performance or execution, your employment
with the Company, or the termination of such employment, shall be resolved, to
the fullest extent permitted by law, by final, binding and confidential
arbitration in San Francisco, California conducted before a single arbitrator by
JAMS, Inc. (“JAMS”) or its successor, under the then applicable JAMS arbitration
rules. The parties each acknowledge that by agreeing to this arbitration
procedure, they waive the right to resolve any such dispute, claim or demand
through a trial by jury or judge or by administrative proceeding. You will have
the right to be represented by legal counsel at any arbitration proceeding. The
arbitrator shall: (i) have the authority to compel adequate discovery for the
resolution of the dispute and to award such relief as would otherwise be
available under applicable law in a court proceeding; and (ii) issue a written
statement signed by the arbitrator regarding the disposition of each claim and
the relief, if any, awarded as to each claim, the reasons for the award, and the
arbitrator’s essential findings and conclusions on which the award is based. 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 arbitration.

                20.           Miscellaneous. This Agreement, including Exhibit
A, constitutes the complete, final and exclusive embodiment of the entire
agreement between you and the Company with regard to the subject matter hereof.
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
agreements, promises, warranties or representations, including but not limited
to the Executive Employment Agreement (with the exceptions of Paragraph 6 and
Paragraph 9 of the Executive Employment Agreement, both of which shall remain in
effect in accordance with their terms). 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
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
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, or rights

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hereunder, shall be in writing and shall not be deemed to be a waiver of any
successive breach or rights hereunder. 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.

If this Agreement is acceptable to you, please sign below on or within
twenty-one (21) days and return the original to me. If I do not receive the
fully executed Agreement from you by such date, the Company’s offer contained
herein will automatically expire.

I wish you the best in your future endeavors.

Sincerely,

VAXGEN, INC.

  By:        /s/ Lance Gordon  

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         Lance Gordon, Ph.D.          Chief Executive Officer  

Exhibit A – Employee’s Proprietary Information and Inventions Agreement

UNDERSTOOD AND AGREED :

 

     /s/ James M. Cunha            June 3, 2005

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James M. Cunha    Date

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