SUBCONTRACT AGREEMENT

                                     Between

                     BBI BIOTECH RESEARCH LABORATORIES, INC.
                    (hereinafter referred to as BBI Biotech)

                                       and

                                  VaxGen, INC.
              (hereinafter referred to as SUBCONTRACTOR or VaxGen)


Whereas,  BBI Biotech has been awarded Contract  N01-AI-85341  titled Laboratory
Support for AIDS Vaccine and other Prevention Clinical Trials, ("hereafter,  the
"Prime  Contract") and whereas the contracting  agency,  the U.S.  Department of
Health and Human Services,  National Institutes of Health, National Institute of
Allergy and Infectious  Diseases  (NIAID),  has approved the  establishment of a
subcontract  between  BBI  Biotech  and  VaxGen to  facilitate  a  collaborative
research  effort in regards to VaxGen's  VAX 004 Phase III Clinical  Trial;  now
therefore, effective as of May 1, 1999, the parties mutually agree as follows:

PART I

SECTION B - SUPPLIES OR SERVICES AND PRICES

ARTICLE B.1. BRIEF DESCRIPTION OF SUPPLIES OR SERVICES

The Subcontractor  shall provide the necessary support, as outlined in the scope
of  work  and  within  the  constraints  of the  funding  available  under  this
agreement,  to facilitate  the collection of specimens at its Phase III Clinical
Trial  Study  Sites.  This  shall  be  referred  to in this  subcontract  as the
"Collaborative  Project." The studies to be done with specimens  collected under
this  subcontract are being  performed to facilitate a  collaborative  ancillary
research effort in regards to VaxGen's VAX 004 Phase III Clinical  Trial,  which
clinical trial is outside the scope of this Agreement.

ARTICLE B.2. ESTIMATED COST AND PERIOD OF PERFORMANCE

a.   In consideration of the  Subcontractor's  performance on the  Collaborative
     Project,  BBI Biotech  shall  compensate  the  Subcontractor  on a time and
     materials  plus other direct cost ("ODC")  basis in an amount not to exceed
     $1,728,250.

b.   It is  agreed  between  the  parties  that the above  referenced  sum shall
     represent the total amount of this  Agreement,  except that such amount may
     be amended  in writing by mutual  written  agreement  of the  parties.  The
     amount set forth is  intended to cover all costs of the work as detailed in
     the  Budget  that  is  attached  as part of this  document  as  Section  J,
     Attachment A. Individual budget items have been provided for guidance only,
     the Subcontractor  shall be reimbursed based on submitted invoices covering
     hours, ODCs and materials.  Hourly rates are also provided in Attachment A.
     All costs for ODCs must be reasonable,  allocable and allowable pursuant to
     the Federal Acquisition Regulation ("FAR") Part 31.


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c.   This  subcontract's  period  of  performance  is from May 1,  1999  through
     December 31, 2003. The Subcontractor  shall be paid for invoices  submitted
     covering  its  performance  after May 1, 1999 but prior to the date of this
     Agreement. Funding for this Agreement shall be available only to the extent
     made  available  by NIAID in the  Prime  Contract.  Total  funds  currently
     available for payment and allotted to this subcontract are $976,250.

ARTICLE B.3. PROVISIONS APPLICABLE TO COSTS

a.   Items Unallowable Unless Otherwise Provided

     Unless authorized by BBI Biotech in a specific  writing,  the costs for the
     following items are not reimbursable under this subcontract:

     (1)  Acquisition, by purchase or lease, of any interest in real property;

     (2)  Special rearrangement or alteration of facilities;

     (3)  Purchase or lease of any item of general  purpose office  furniture or
          office equipment regardless of dollar value;

     (4)  Overtime premium;

     (5)  Consultant fees;

     (6)  Subcontracts,  except that fees for  services  provided by study sites
          shall not be considered to be  subcontracts  as prohibited  herein and
          such fees shall be allowable under this subcontract

     (7)  Accountable  Government  property  (defined as both real and  personal
          property  with an  acquisition  cost  of  $1,000  or  more  and a life
          expectancy of more than two years);  and "sensitive items (defined and
          listed in the Contractor's  Guide for Control of Government  Property,
          1990,) regardless of acquisition value;

     (8)  Patient care costs;

     (9)  Travel to general scientific meetings; and

     (10) Legal Review costs.

b.   Travel Costs

     Travel required in the performance of this subcontract  shall be considered
     an ODC as defined above. The Subcontractor  shall invoice and be reimbursed
     for all travel costs in accordance with FAR 31.205-46.


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c.   The Subcontractor agrees to abide by the terms of FAR 52.247-63, Preference
     for  U.S.-Flag  Air  Carriers.  This  provision  states  in part  that,  in
     performing work under this contract, the contractor shall utilize U.S. flag
     air carriers  unless service by those  carriers is not  available.  If U.S.
     flag air  carriers are not  available  the  Contractor  shall so certify in
     writing and  include  that  certification/justification  in the request for
     advance  approval of foreign travel.  (Cost/lower  fares are not acceptable
     reasons for proposing to utilize foreign air carriers.)

d.   Foreign  Travel.  Requests  for  foreign  travel must be  submitted  to BBI
     Biotech at least six weeks in advance and shall contain the following:  (a)
     meeting(s)  and place(s) to be visited,  with costs and dates;  (b) name(s)
     and title(s) of  Subcontractor  personnel to travel and their  functions in
     the contract project;  (c) subcontract purposes to be served by the travel;
     (d) how travel of  subcontractor  personnel  will benefit and contribute to
     accomplishing  the  subcontract  project,  or will  otherwise  justify  the
     expenditure of funds for this subcontract;  (e) how such advantages justify
     the costs for travel and  absence  from the project of more than one person
     if such are suggested;  and (f) what additional  functions may be performed
     by the  travelers  to  accomplish  other  purposes of the contract and thus
     further benefit the project.

e.   Government Discount Air Travel Rates. (a) To the maximum extent practicable
     consistent with travel  requirements,  the subcontractor  agrees to use the
     reduced air  transportation  rates and services  provided through available
     Government   discount   air  fares.   GSA  guidance  is  provided  at  URL:
     http://www.fss.gsa.gov/citypairs/contractor10-98.cfm.   These   fares   are
     available   only  for  bona-fide   employees'   travel  that  is  otherwise
     reimbursable as a direct cost pursuant to this  subcontract.  The objective
     is to  achieve  the lowest  overall  cost to the  subcontractor,  the prime
     contractor,  and thus, to the Government.  The  subcontractor  shall submit
     written  requests to BBI Biotech for  authorization to use these rates. The
     request shall provide the full name of the  traveler(s),  the number of the
     subcontract  for  which  the  travel is being  performed,  the  subcontract
     objective  that is to be fulfilled and the dates during which the travel is
     to occur. BBI Biotech  approval,  if given, will be on official BBI Biotech
     letterhead  so  that  the  letter  can  be  presented  to  the  airline  as
     confirmation  of the  authorization.  (b)  Nothing  in  this  clause  shall
     authorize  transportation or services which are not otherwise  reimbursable
     under this  subcontract..  Nothing in this clause  requires air carriers to
     make available to the subcontractor any government discount airfares.

ARTICLE B.4.  ADVANCE UNDERSTANDINGS

a.   Indirect Costs

     Not applicable.

b.   Subcontract

     Not applicable.

c.   Government Property or Property furnished by BBI Biotech

     All equipment purchased by BBI Biotech and placed at the VaxGen Study Sites
     will be  maintained,  kept in a  written  inventory,  and  returned  to BBI
     Biotech (or to a location directed in writing by BBI Biotech) in reasonable
     condition,  normal wear and tear excepted,  at the end of the Collaborative
     Project. If such property was  government-furnished  to BBI Biotech and BBI
     Biotech has so


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     notified the  Subcontractor  in writing,  VaxGen  agrees to comply with the
     requirements of the government-furnished property clauses contained in this
     subcontract.

d.   Invoices - Cost and Personnel Reporting,  and Variances from the Negotiated
     budget

     (1)  The  Subcontractor  shall submit monthly invoices to BBI Biotech.  The
          Subcontractor  agrees to provide a line item invoice,  which  includes
          direct  labor costs by salaries and wages paid (or accrued) for direct
          performance of the subcontract,  materials and supplies purchased, and
          other direct costs incurred..  The Subcontractor agrees to immediately
          notify BBI  Biotech in writing if there is an  anticipated  overrun of
          any amount over the ceiling  identified in ARTICLE b. 2,  paragraph a.
          Monthly invoices must include the current totals and cumulative totals
          to date. Invoices are to be submitted to:

              BBI Biotech Research Laboratories, Inc. (ATTN Accounts Receivable)
              217 Perry Parkway
              Gaithersburg, MD 20877-2138

     (2)  Upon approval by the Project Officer the invoice will be forwarded for
          payment.  The final invoice,  clearly marked "Final" shall be filed no
          later than sixty days after the last day of the period of performance.
          Upon  request,  the  Subcontractor  hall  furnish to BBI  Biotech  any
          necessary documentation supporting invoiced amounts.

e.   Intellectual Property, Ownership, and Confidentiality:

     1.   Definitions:

          o    "Specimens"  means the biological  blood samples BBI Biotech will
               receive  from  study  sites  participating  in the  Collaborative
               Project and process according to the terms and conditions of this
               Agreement and any derivative material thereof.

          o    "Vaccine" means the investigational vaccine against the HIV virus
               or its matching placebo  developed by VaxGen for clinical testing
               pursuant to the Vaccine Trial.

          o    "Specimen  Process" means the process,  methods and procedures by
               which the Specimens are collected by study sites, and transferred
               to and processed at BBI Biotech.

     2.   Notice of New Inventions, Ownership and Confidentiality:

          o    Patent  Rights:  Patent rights shall be subject to the FAR Clause
               52.227-11, Patent Rights-Retention by the Contractor (Short Form)
               (June  1997,   which  is  incorporated  in  this  subcontract  by
               reference.. Paragraph (f) is modified to include the requirements
               in FAR  27.303(a)(2)(i)  through (iv). The frequency of reporting
               in (i) is annual.

          o    Ownership.  Subcontractor acknowledges that NIAID is the owner of
               the  specimens.  The parties agree that BBI Biotech shall have no
               rights in the specimens,  the Vaccine,  the Specimen Process, use
               of the Vaccine,  Confidential Information of VaxGen,  Inventions,
               or other technology,  processes and materials  developed,  owned,
               disclosed  or licensed  by VaxGen,  other than to use the same to
               conduct the Collaborative


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               Project in accordance with this Agreement.  It is understood that
               each  potential  collaborator  must  submit  in  writing  to  the
               Scientific  Review  Committee  described in section g below,  for
               their review and approval,  a detailed proposal  describing their
               intended research project.  The decisions (approval or rejection)
               of the  Scientific  Review  Committee  will  be  communicated  in
               writing to the  applicant by BBI Biotech who will  function as an
               Executive Secretary.  If approval is given to an investigator for
               their  proposed  research  collaboration,  BBI Biotech  will also
               include  in their  letter  a copy of  VaxGen's  Database  License
               Agreement  ("DLA").  See  Attachment  E for a copy of this  form.
               (Note: The Database License  Agreement is a model.  Investigators
               may  negotiate  with VaxGen and make  changes  that are  mutually
               acceptable to the  investigators and to VaxGen.) While failure of
               an  investigator  to reach an agreement with VaxGen  concerning a
               mutually acceptable DLA will not be a condition of award, it will
               significantly  limit  the scope of the  investigator's  contract.
               Investigators  are not  required  to sign a DLA;  however,  a DLA
               needs to be  executed  before  any  VaxGen  proprietary  database
               information will be disclosed to that investigator. The following
               statement    will    be    included    in    that    form:    "No
               Collaborative-Project-generated   specimen  will  be  moved  from
               freezers  housed  at BBI  Biotech  and  given  to any  individual
               without written approval from the Scientific  Review  Committee",
               such  Scientific  Review  Committee  being the one referred to in
               paragraph g below.  Before any interim data are either  presented
               at a meeting,  published in a journal,  or otherwise disclosed by
               an  investigator,  all  data  must  first  be  submitted  to  the
               Scientific  Review  Committee for their input and VaxGen's review
               at least 30 calendar days prior to such disclosure.

          o    Confidentiality:  BBI  Biotech  agrees  that BBI  Biotech and all
               those  involved  with BBI  Biotech  in  performing  the  services
               hereunder  shall protect VaxGen Property from  unauthorized  use,
               access,  duplication,  disclosure,  loss or damage. In protecting
               VaxGen  Property,   BBI  Biotech  will  take  adequate  measures,
               including but not limited to the following:  (1) limit access and
               use of VaxGen  Property  to  authorized  personnel  for whom such
               access  and use are  required  for  performance  of the  Specimen
               Process;  (2) use VaxGen Property only for the purposes described
               in the this Agreement or for other purposes as approved by VaxGen
               in writing;  (3) prevent any  unauthorized  duplication of VaxGen
               Property in written or electronic form and any  recompilation  or
               modification  of the Vaccine or the  Specimens;  (4) use at least
               the same degree of care and discretion it uses in maintaining the
               confidentiality  of its  own  Confidential  Information;  and (5)
               prevent  transfer or disclosure  of VaxGen  Property to any other
               person or entity  without  joint  written  approval by VaxGen and
               NIAID,  until after the Collaborative  Project is declared closed
               and the data set closed.  Aggregate  information  or summary data
               obtained  from  the  Database   Materials   does  not  constitute
               Confidential  Information  and can be disclosed for scientific or
               public health purposes by the Licensee subject to Article 7.

          o    BBI Biotech  shall not disclose or use for any purpose other than
               performance  of the  Collaborative  Project,  any  trade  secret,
               privileged   record   or  other   confidential   or   proprietary
               information   (collectively,   the  "Confidential   Information")
               disclosed to or developed by VaxGen,  BBI Biotech,  or the Sites,
               pursuant to this  Agreement.  BBI Biotech  shall cause each staff
               member to follow the  confidentiality  requirements  specified in
               this agreement.  Such Confidential Information shall be disclosed
               to BBI


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               Biotech by VaxGen hereunder in writing, or if disclosed orally or
               in other than  documentary  form,  shall be summarized in writing
               within 30 days thereafter.  Confidential  Information that is not
               in oral or written  form,  with the  exception of data related to
               Specimens,  shall be designated in writing as confidential within
               thirty   (30)  days   after   disclosure.   The   obligation   of
               non-disclosure shall not apply to information that: (i) was known
               to BBI Biotech as evidenced by prior  written  records,  prior to
               receiving such  information  either  directly or indirectly  from
               VaxGen,  or (ii) is generally known to the public or that becomes
               generally  known to the public  through no act or omission on the
               part of BBI  Biotech,  or (iii) is  disclosed to BBI Biotech on a
               non-confidential  basis at any time by a third  party who has not
               obtained  or  disclosed  such  information  through  improper  or
               unlawful means. If BBI Biotech is ordered to provide Confidential
               Information by a lawful judicial or government order, BBI Biotech
               shall  promptly  inform  VaxGen and shall permit VaxGen to defend
               against such order of disclosure and shall assist in such defense
               to the extent permitted by law, however BBI Biotech's costs shall
               not be charged to the Prime Contract.  In no other  circumstances
               may BBI Biotech disclose information without the consultation and
               prior written consent of VaxGen.

f.   Scientific Review Committee:

     o    Under the direction of NIAID,  BBI Biotech will establish a Scientific
          Review   Committee   to  review   scientific   projects   proposed  by
          investigators   who  want  to  use  specimens   collected  during  the
          Collaborative Project.

     o    This Committee will be comprised of representatives  from BBI Biotech,
          VaxGen and other  scientific  experts from both the private sector and
          government agencies.

     o    This committee will meet on a quarterly  basis or as needed due to the
          number of new and/or  existing  submitted  projects and the individual
          requests associated with each project.

     o    Following the review of each proposal,  this Committee will notify BBI
          Biotech in  writing of their  decision  to  approve  or  disapprove  a
          potential  collaboration.   Therefore,  under  the  direction  of  the
          Scientific  Review  Committee,  BBI Biotech  will also  function as an
          Executive  Secretary  to this  committee  and in writing  will  notify
          potential collaborators of any decision the committee makes concerning
          his/her project.

g.   Disclosure to NIAID

     The Subcontractor agrees to disclose to NIAID all data in the database that
     the Subcontractor has disclosed to investigators  under DLAs, provided that
     NIAID has signed a DLA with the Subcontractor  that is mutually  acceptable
     to both NIAID and the Subcontractor..

h.   The Database

     The proprietary VaxGen database, portions of which are to be licensed under
     each DLA, shall consist of the following data fields in records  pertaining
     to all specimens collected under the Collaborative Project:

     1.   All demographic data (includes age and gender)

     2.   Treatment assignment (or randomization code identifying which subjects
          received vaccine or placebo


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     3.   Vaccine  administration log (when each subject received (or missed) an
          immunization)

     4.   Concomitant  medication log (which  antiretroviral  a subject may have
          taken either prophylactically or therapeutically once infected as well
          as    antimicrobials,    other   treatments   for   AIDS   and   other
          immunosuppressive agents)

     5.   Status Change Form (tracks participation,  when and reason why subject
          stopped immunizations and/or discontinued from the study).

     6.   HIV-1 Infection (laboratory data that confirms infection and indicates
          the date of the diagnosis.)

SECTION C - DESCRIPTION/SPECIFICATIONS/WORK

ARTICLE C.1.  STATEMENT OF WORK

Independently  and  not as an  agent  of the  Government  or  BBI  Biotech,  the
subcontractor  shall make all  reasonable  efforts to furnish  all the  required
services,  within the  constraints  of the  funding  provided,  to  perform  the
Statement of Work,  SECTION J,  ATTACHMENT B, attached hereto and made a part of
this subcontract.

ARTICLE C.2.  REPORTING REQUIREMENTS, OTHER DELIVERABLES & BIOLOGICAL  SPECIMENS

VaxGen shall cooperate, as requested by BBI Biotech, in furnishing input for all
reports set forth in BBI Biotech's  prime  contract,  which  include:  quarterly
progress  report,  an  annual  report,  interim  reports,  a  final  report  and
compliance-relevant enrollment data files.

At the conclusion of the trial, or the completion of this subcontract, whichever
shall occur  first,  VaxGen shall  provide  information  on vaccine  efficacy to
NIAID.

By the  completion  date of this  Subcontract,  VaxGen,  when  instructed by BBI
Biotech,  shall  deliver  to BBI  Biotech  (or its  designee)  stored  volunteer
specimens  and  material  derived from  volunteer  specimens  (peripheral  blood
mononuclear cells and seminal plasma).

At the conclusion of the  Collaborative  Project,  or upon the full execution or
termination of this Subcontract (whichever occurs first), the disposition of all
biological  specimens used in the Collaborative  Project shall be as directed by
NIAID.

ARTICLE C.3. INVENTION REPORTING REQUIREMENT

All reports and documentation required by FAR clause 52.227-11,  incorporated by
reference in this Subcontract,  shall be furnished to BBI Biotech as required by
the clause.

SECTION D - PACKAGING, MARKING AND SHIPPING

All deliverables  required under this Subcontract shall be packaged,  marked and
shipped in accordance with Government-supplied specifications. The Subcontractor
warrants that all required  materials  shall be delivered in immediately  usable
and acceptable condition.


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SECTION E - INSPECTION AND ACCEPTANCE

BBI Biotech or its duly authorized  representative  will perform  inspection and
acceptance  of  materials  and  services  to  be  provided.   This   Subcontract
incorporates  the following  clause by reference,  appropriately  modified:  FAR
52.249-6, Inspection of Research and Development (Short Form) (April 1984).

SECTION F - DELIVERIES OR PERFORMANCE

ARTICLE F.1 .  DELIVERIES

Not Applicable, except as specified above under Reporting Requirements and Other
Deliverables.

ARTICLE F.2.  CLAUSES INCORPORATED BY REFERENCE , FAR  52.252-2 (FEBRUARY 1998)

This subcontract incorporates FAR clauses by reference,  with the same force and
effect  as if they were  given in full  text.  The full text of a clause  may be
accessed  electronically  at this  address:  http://www.arnet.gov/far/.  In each
clause,  substitute  the term  "VaxGen"  for  "Contractor,"  and BBI Biotech for
"Government" or "Contracting Officer" as required by the text of the clause.

FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSE:

     52.242-15, Stop Work Order (AUGUST 1989) with ALTERNATE I (APRIL 1984).

SECTION G - CONTRACT ADMINISTRATION DATA

ARTICLE G.1.  PROJECT OFFICER

Dr. Mark Cosentino of BBI Biotech.

ARTICLE G.2.  CONTRACT PERSONNEL

Ms. Marlene Chernow shall represent the  Subcontractor  and shall be responsible
for the technical matters related to the Statement of Work.

ARTICLE G.3 .INVOICE SUBMISSION

Invoices are to be submitted to:

     BBI Biotech Research Laboratories, Inc. (ATTN: Accounts Payable)
     217 Perry Parkway
     Gaithersburg, MD 20877-2138

ARTICLE G.4.  GOVERNMENT PROPERTY

In addition to the requirements of the clause Government  Property  incorporated
in this Subcontract, the


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Subcontractor shall comply with the provisions of DHHS Publication, Contractor's
Guide for  Control  of  Government  Property,  1990,  which is  incorporated  by
reference. BBI Biotech will provide a copy upon request.

SECTION H - SPECIAL CONTRACT REQUIREMENTS

ARTICLE H.1.  REIMBURSEMENT  OF COSTS FOR  INDEPENDENT  RESEARCH AND DEVELOPMENT
PROJECTS

The primary purpose of the Public Health Service (PHS) is to support and advance
independent research within the scientific  community.  This support is provided
in the form of contracts and grants  totaling  approximately  7 billion  dollars
annually.  PHS has  established  effective,  time  tested  and  well  recognized
procedures for stimulating and supporting this independent research by selecting
from multitudes of applications  those research  projects most worthy of support
within the  constraints of its  appropriations.  The  reimbursement  through the
indirect  cost  mechanism  of  independent  research and  development  costs not
incidental to product improvement would circumvent this competitive process.

To ensure that all research and development  projects  receive similar and equal
consideration,  all  organizations may compete for direct funding of independent
research and development  projects they consider worthy of support by submitting
those projects to the appropriate Public Health Service grant office for review.
Since these projects may be submitted for direct funding,  the Contractor agrees
that no costs for any independent  research and development  project,  including
all applicable indirect costs, will be claimed under this contract.

ARTICLE  H.2.  HUMAN SUBJECTS

It is hereby understood and agreed that research  involving human subjects shall
not be  conducted  under  this  Subcontract,  and  that no  material  developed,
modified,  or delivered by or to the  Government  or to  BBI-Biotech  under this
Subcontract,  or any subsequent  modification of such material,  will be used by
the Subcontractor or made available by the Subcontractor for use by anyone other
than the  Government,  for  experimental  or  therapeutic  use involving  humans
without the prior written  approval of BBI-Biotech,  which approval shall not be
granted  without  the  approval  of  the  Contracting  Officer  responsible  for
BBI-Biotech's prime contract.

ARTICLE H.3. HUMAN MATERIALS/ASSURANCE

It is understood that the acquisition and supply of all human specimen  material
(including  fetal  material)  used under this contract  shall be obtained by the
Contractor  in full  compliance  with  applicable  State and Local  laws and the
provisions of the Uniform  Anatomical  Gift Act in the United States and that no
undue  inducements,  monetary  or  otherwise,  will be  offered to any person to
influence their donation of human material.


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The Subontractor  shall provide written  documentation  that all human materials
obtained as a result of research  involving human subjects  conducted under this
subcontract,  by collaborating sites, or by subcontractors identified under this
subcontract,  were obtained with prior approval by the Office for Human Research
Protections  (OHRP)of an assurance to comply with the  requirements of 45 CFR 46
to  protect  human  research   subjects.   This   restriction   applies  to  all
collaborating  sites  without  OHRP-approved  assurances,  whether  domestic  or
foreign, and compliance must be ensured by the Subcontractor.

The  Subcontractor  shall provide to BBI-Biotech a properly  completed  Optional
Form 310 certifying IRB review and approval of the protocol from which the human
materials  were  obtained.  The  human  subject  certification  can  be  met  by
submission of a self designated form,  provided that it contains the information
required by the Optional Form 310.

ARTICLE H.4.  CONTINUED BAN ON FUNDING OF HUMAN EMBRYO

a. Pursuant to Public  Law(s) cited in paragraph  b.,  below,  NIH is prohibited
from using appropriated  funds to support human embryo research.  Contract funds
may not be used for (1) the  creation of a human  embryo or embryos for research
purposes;  or (2)  research in which a human  embryo or embryos  are  destroyed,
discarded,  or knowingly  subjected to risk of injury or death greater than that
allowed for research on fetuses in utero under 45 CFR  46.208(a)(2)  and Section
498(b) of the Public  Health  Service Act (42 U.S.C.  289g(b)).  The term "human
embryo or embryos" includes any organism, not protected as a human subject under
45 CFR 46 as of the  date of the  enactment  of this  Act,  that is  derived  by
fertilization,  parthenogenesis,  cloning,  or any other  means from one or more
human gametes or human diploid cells.

     Additionally,  in accordance with a March 4, 1997 Presidential  Memorandum,
Federal funds may not be used for cloning of human beings.

b.   Public Law and Section No.              Fiscal Year
Period Covered

     105-227, Section 510                        1999
10/01/98 - 09/30/99
     106-113, Section 510                        2000
10/01/99 - 09/30/00

ARTICLE H.5.  SALARY RATE LIMITATION LEGISLATION PROVISIONS

a. Pursuant to Public  Law(s) cited in paragraph  b., below,  no NIH Fiscal Year
funds  may be  used to pay the  direct  salary  of an  individual  through  this
contract  at a rate in excess of  applicable  amount  shown for the fiscal  year
covered. Direct salary is exclusive of overhead, fringe benefits and general and
administrative  expenses.  The per  year  salary  rate  limit  also  applies  to
individuals proposed under subcontracts. If this is a


                                       10
<PAGE>

multiple year  contract,  it may be subject to unilateral  modifications  by the
Government  if an  individual's  salary rate  exceeds  any salary  rate  ceiling
established in future DHHS appropriation acts.

Dollar Amount of

b.   Public Law No.          Fiscal Year               Salary
Limitation

     105-277                 FY-99                     Executive
Level III*
     106-113                 FY-00                     Executive
Level II**

c.  Direct  salaries  which  will be paid with  FY-99  funds are  limited to the
Executive  Level III rate which was in effect on the  date(s)  the  expense  was
incurred. Direct salaries which will be paid with FY-00 funds are limited to the
Executive  Level II rate  which was in effect on the  date(s)  the  expense  was
incurred.

* For contract expenditures using FY 99 funds, for the period  10/1/98-12/31/99,
this amount is $125,900.  Effective 1/1/00 , for contract  expenditures using FY
99 funds,  this amount is  increased  to $130,200  and will remain at this level
until  such  time as the  Executive  Level III is  increased.  See the web sites
listed below for Executive Level III rates of pay.

** For  contract  expenditures  using FY 00  funds,  for the  period  10/1/99  -
12/31/99,  this amount is $136,700.  Effective 1/1/00, for contract expenditures
using FY 00 funds,  this amount is increased to $141,300 and will remain at this
level until such time as the Executive Level II is increased.  See the web sites
listed below for Executive Level II rates of pay.

FOR FY-99 EXECUTIVE LEVEL SALARIES:
http://www.opm.gov/oca/99tables/EXECses/html/99excsch.htm

FOR FY-00 EXECUTIVE LEVEL SALARIES:
http://www.opm.gov/oca/2000tbls/Execses/html/execschd.htm

The direct  salaries paid under the rate  structure set forth in Attachment E to
this Subcontract comply with the above limitations.

ARTICLE H.6.  EPA ENERGY STAR REQUIREMENTS

In compliance with Executive Order 12845 (requiring  Agencies to purchase energy
efficient computer equipment) all microcomputers,  including personal computers,
monitors,  and  printers  that are  deliverables  under the  procurement  or are
purchased  by the  subcontractor  using  Government  funds in  performance  of a
contract shall be equipped with or meet the energy efficient  low-power  standby
feature


                                       11
<PAGE>

as defined by the EPA Energy Star program unless the equipment  always meets EPA
Energy  Star  efficiency  levels.  The  microcomputer,  as  configured  with all
components, must be Energy Star compliant.

This low-power feature must already be activated when the computer  equipment is
delivered to BBI Biotech and be of  equivalent  functionality  of similar  power
managed  models.  If the  equipment  will be used on a local area  network,  the
vendor  must  provide  equipment  that is  fully  compatible  with  the  network
environment.  In  addition,  the  equipment  will run  commercial  off-the-shelf
software both before and after recovery from its energy conservation mode.

ARTICLE H.7.  PUBLICATION AND PUBLICITY

The subcontractor  shall  acknowledge the support of the National  Institutes of
Health  whenever  publicizing  the work  under  this  contract  in any  media by
including an acknowledgment substantially as follows:

     "This  project has been funded in whole or in part with Federal  funds from
     the  National  Institute  of  Allergy  and  Infectious  Diseases,  National
     Institutes of Health, under Contract No. NO1-AI-85341."

ARTICLE H.8.  PRESS RELEASES AND OTHER PUBLIC STATEMENTS

a.  Subcontractor  agrees that it shall not issue press releases or other public
statements   relating  to  the  work  performed  under  this  Agreement  without
submitting such statements to NIAID at least 10 (ten) working days in advance of
any  release.  Pursuant to Public  Law(s)  cited in  paragraph  b.,  below,  the
contractor  shall  clearly  state,  when  issuing  statements,  press  releases,
requests  for  proposals,  bid  solicitations  and  other  documents  describing
projects  or programs  funded in whole or in part with  Federal  money:  (1) the
percentage  of the total costs of the program or project  which will be financed
with Federal  money;  (2) the dollar  amount of Federal funds for the project or
program;  and (3) the  percentage  and dollar  amount of the total  costs of the
project or program that will be financed by nongovernmental sources.

b.   Public Law and Section No.                  Fiscal Year
Period Covered

     105-227, Section 507                           1999
10/01/98 - 09/30/99
     106-113, Section 507                           2000
10/01/99 - 09/30/00

ARTICLE H.9.  NEEDLE EXCHANGE

a. Pursuant to Public Law(s) cited in paragraph b., below,  contract funds shall
not be used to carry out any program of distributing sterile needles or syringes
for the hypodermic injection of any illegal drug.


                                       12
<PAGE>

b.   Public Law and Section No.                  Fiscal Year
Period Covered

     105-227, Section 505                            1999
10/01/98 - 09/30/99
     106-113, Section 505                            2000
10/01/99 - 09/30/00


ARTICLE H.10. REPORTING MATTERS INVOLVING FRAUD, WASTE AND ABUSE

Anyone who becomes aware of the existence or apparent  existence of fraud, waste
and abuse in NIH funded programs is encouraged to report such matters to the HHS
Inspector General's Office in writing or on the Inspector General's Hotline. The
toll free number is 1-800-HHS-TIPS (1-800-447-8477). All telephone calls will be
handled confidentially.  The e-mail address is Htips@os.dhhs.gov and the mailing
address is:

          Office of Inspector General
          Department of Health and Human Services
          TIPS HOTLINE
          P.O. Box 23489
          Washington, D.C.  20026

Information  regarding procedural matters is contained in the NIH Manual Chapter
1754, which is available on (http://www1.od.nih.gov/oma/oma.htm)

ARTICLE H.11. YEAR 2000 COMPLIANCE

In  accordance  with FAR  39.106,  Information  Technology  acquired  under this
subcontract must be Year 2000 compliant as set forth in the following clause(s):

1.   Service Involving the Use of Information Technology

     YEAR 2000 COMPLIANCE--SERVICE INVOLVING THE USE OF INFORMATION TECHNOLOGY

     The Subcontractor agrees that each item of hardware, software, and firmware
     used under this  contract  shall be able to  accurately  process  date data
     (including,  but not limited to,  calculating,  comparing  and  sequencing)
     from,  into and between the  twentieth and  twenty-first  centuries and the
     Year 1999 and the Year 2000 and leap year calculations.

                                 (End of Clause)

2.   Noncommercial Supply Items Warranty

     YEAR 2000 WARRANTY--NONCOMMERCIAL SUPPLY ITEMS


                                       13
<PAGE>

     The  Subcontractor  warrants  that  each  noncommercial  item of  hardware,
     software,  and  firmware  delivered or  developed  under this  contract and
     listed below shall be able to accurately process date data (including,  but
     not limited to,  calculating,  comparing  and  sequencing)  from,  into and
     between the twentieth and twenty-first  centuries and the Year 1999 and the
     Year 2000 and leap year calculations, when used in accordance with the item
     documentation  provided by the  subcontractor,  provided that all listed or
     unlisted items (e.g., hardware,  software and firmware) used in combination
     with such listed item properly  exchange date data with it. If the contract
     requires that specific  listed items must perform as a system in accordance
     with the foregoing warranty, then that warranty shall apply to those listed
     items as a system. The duration of this warranty and the remedies available
     to the  Government  for breach of this warranty shall be as defined in, and
     subject to, the terms and limitations of any general warranty provisions of
     this contract provided that  notwithstanding  any provision to the contrary
     in such  warranty  provision(s),  or in the  absence  of any such  warranty
     provision(s),  the remedies available to the Government under this warranty
     shall include repair or replacement of any listed item whose  noncompliance
     is discovered  and made known to the  contractor  in writing  within ninety
     (90) days after acceptance.  Nothing in this warranty shall be construed to
     limit any rights or remedies the  Government  may otherwise have under this
     contract with respect to defects other than Year 2000 performance.

                            YEAR 2000 COMPLIANT ITEMS


                                 (end of clause)


3.   Commercial Supply Products Warranty

     YEAR 2000 WARRANTY--COMMERCIAL SUPPLY ITEMS

     The  Subcontractor  warrants  that each  hardware,  software  and  firmware
     product  delivered under this subcontract and listed below shall be able to
     accurately process date data (including,  but not limited to,  calculating,
     comparing,  and  sequencing)  from,  into,  and between the  twentieth  and
     twenty-first  centuries  and the Year  1999 and the Year 2000 and leap year
     calculations,  when  used in  accordance  with  the  product  documentation
     provided by the contractor,  provided that all listed or unlisted  products
     (e.g., hardware,  software,  firmware) used in combination with such listed
     product properly  exchange date data with it. If the contract requires that
     specific  listed  products must perform as a system in accordance  with the
     foregoing warranty, then that warranty shall apply to those listed products
     as a system.  The duration of this  warranty and the remedies  available to
     the  Government  for breach of this  warranty  shall be as defined  in, and
     subject  to,  the  terms  and  limitations  of  the  contractor's  standard
     commercial warranty or warranties contained in this contract, provided that
     notwithstanding  any provision to the contrary in such commercial  warranty
     or warranties, the remedies available to the Government under this warranty
     shall  include   repair  or   replacement   of  any  listed  product  whose
     non-compliance  is discovered  and made known to the  contractor in writing
     within ninety (90) days after acceptance. Nothing in this warranty shall be
     construed to limit any rights or remedies the Government may otherwise have
     under  this   contract  with  respect  to  defects  other  than  Year  2000
     performance.

                           YEAR 2000 COMPLIANT ITEMS


                                 (end of clause)


                                       14
<PAGE>

ARTICLE H12.  COMPLIANCE WITH PUBLIC LAWS

VaxGen  will assure that all  federal  regulations  regarding  research on human
subjects  and  linked  specimens  are  adhered to  including  those on which the
successful  performance of this subcontract  depend.  Upon BBI Biotech's request
VaxGen will supply access to the  documentation of this compliance (eg. informed
consent forms, IRB approvals).


                          PART II - SUBCONTRACT CLAUSES

SECTION I - SUBCONTRACT CLAUSES

ARTICLE I.1. GENERAL CLAUSES FOR A TIME AND MATERIAL OR A LABOR HOUR SUBCONTRACT
- FAR 52.252-2, CLAUSES INCORPORATED BY REFERENCE (FEBRUARY 1998)

This contract incorporates one or more clauses by reference, with the same force
and effect,  as if they were given in full text. Upon request,  BBI Biotech will
make their full text available.  Also, the full text of a clause may be accessed
electronically  at this  address:  http://www.arnet.gov/far/.  In  each  clause,
substitute  the term "VaxGen" for  "Contractor,"  and substitute BBI Biotech for
"Government" or "Contracting Officer" as required by the text of the clause.

a.   FEDERAL ACQUISITION REGULATION (FAR) (48 CHAPTER 1) CLAUSES

   FAR
  CLAUSE
    NO.                 DATE             TITLE
    ---                 ----             -----

 52.202-1             Oct 1995          Definitions

 52.203-3             Apr 1984          Gratuities (Over $100,000)

 52.203-5             Apr 1984          Covenant Against Contingent Fees (Over
                                        $100,000)

 52.203-6             Jul 1995          Restrictions on Subcontractor Sales to
                                        the Government (Over $100,000)

 52.203-7             Jul 1995          Anti-Kickback Procedures(Over $100,000)

 52.203-8             Jan 1997          Cancellation, Recission, and Recovery of
                                        Funds for Illegal or Improper Activity
                                        (Over $100,000)


                                       15
<PAGE>

 52.203-10            Jan 1997          Price or Fee Adjustment for Illegal or
                                        Improper Activity (Over $100,000)

 52.203-12            Jun 1997          Limitation on Payments to Influence
                                        Certain Federal Transactions (Over
                                        $100,000)

 52.215-2             Jun 1999          Audit and Records - Negotiation (Over
                                        $100,000)

 52.215-8             Oct 1997          Order of Precedence - Uniform Contract
                                        Format

 52.215-10            Oct 1997          Price Reduction for Defective Cost or
                                        Pricing Data

 52.215-12            Oct 1997          Subcontractor Cost or Pricing Data (Over
                                        $500,000)

 52.215-14            Oct 1997          Integrity of Unit Prices (Over $100,000)

 52.215-15            Dec 1998          Pension Adjustments and Asset Reversions

 52.215-18            Oct 1997          Reversion or Adjustment of Plans for
                                        Post-Retirement Benefits (PRB) other
                                        than Pensions

 52.215-19            Oct 1997          Notification of Ownership Changes

 52.215-21            Oct 1997          Requirements for Cost or Pricing Data or
                                        Information Other Than Cost or Pricing
                                        Data - Modifications

 52.219-8             Oct 1999          Utilization of Small Business Concerns
                                        (Over $100,000)

 52.222-26            Feb 1999          Equal Opportunity

 52.222-35            Apr 1998          Affirmative Action for Disabled Veterans
                                        and Veterans of the Vietnam Era

 52.222-36            Jun 1998          Affirmative Action for Workers with
                                        Disabilities

 52.222-37            Jan 1999          Employment Reports on Disabled Veterans
                                        and Veterans of the Vietnam Era

 52.223-14            Oct 1996          Toxic Chemical Release Reporting

 52.225-13            Aug 1998          Restrictions on Certain Foreign
                                        Purchases


                                       16
<PAGE>

 52.227-1             Jul 1995          Authorization and Consent

 52.227-11            June 1997         Patent Rights-Retention by the
                                        Contractor (Short Form). Paragraph (f)
                                        is modified to include the requirements
                                        in FAR 27.303(a)(2)(i) through (iv). The
                                        frequency of reporting in (i) is annual

 52.227-2             Aug 1996          Notice and Assistance Regarding Patent
                                        and Copyright Infringement (Over
                                        $100,000)

 52.232-7             Feb 1997          Payments under Time-and-Materials and
                                        Labor-Hour Contracts

 52.232-17            Jun 1996          Interest (Over $100,000)

 52.232-25            Jun 1997          Prompt Payment

 52.243-3             Aug 1987          Changes - Time-and-Materials and
                                        Labor-Hours; provided however that the
                                        parties agree that BBI Biotech may make
                                        changes only to the extent such changes
                                        are required by change orders from NIAID
                                        pursuant to the Prime Contract.

 52.245-5             Jan 1986          Government Property (Cost-Reimbursement,
                                        Time and Material, or Labor-Hour
                                        Contract)

 52.249-6             Sep 1996          Termination (Cost-Reimbursement),
                                        Alternate IV (Sep 1996); provided
                                        however, that BBI Biotech may invoke
                                        this clause only if the Government
                                        exercises its termination rights under
                                        the Prime Contract; and such exercise by
                                        BBI Biotech shall only be to the same
                                        extent that the Government exercises its
                                        rights.

 52.249-14            Apr 1984          Excusable Delays


                                       17
<PAGE>

b.   DEPARTMENT OF HEALTH AND HUMAN SERVICES ACQUISITION  REGULATION (HHSAR) (48
     CFR CHAPTER 3) CLAUSES

  HHSAR
CLAUSE NO.               DATE            TITLE
----------               ----            -----

 352.202-1            Apr 1984           Definitions

 352.228-7            Dec 1991           Insurance - Liability to Third Persons

 352.232-9            Apr 1984           Withholding of Contract Payments


ARTICLE I.2  AUTHORIZED SUBSTITUTION OF CLAUSES

Not Applicable

ARTICLE I.3.  ADDITIONAL SUBCONTRACT CLAUSES

a.   FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES

     FAR  52.227-14,  Rights in  Data-General  (June  1987)  AND FAR  52.227-16,
     Additional Data  Requirements  (June 1987),  PROVIDED,  however,  that data
     subject  to these  clauses  shall be limited  to the  Database,  as defined
     previously in this Agreement in Article B.4.i.

     FAR 52.251-1, Government Supply Sources (APRIL 1984).

ARTICLE I.4. ADDITIONAL FAR SUBCONTRACT CLAUSES INCLUDED IN FULL TEXT

Note: Substitute "VaxGen" wherever the term "Contractor" appears, and substitute
BBI Biotech wherever the term "Contracting  Officer" or "Government" appears, as
required by the text.

     FAR  Clause  52.244-6  SUBCONTRACTS  FOR  COMMERCIAL  ITEMS AND  COMMERCIAL
     COMPONENTS (APRIL 1998)

     (a)  Definition.

          Commercial item, as used in this clause,  has the meaning contained in
          the clause at 52.202-1, Definitions.


                                       18
<PAGE>

          Subcontract, as used in this clause, includes a transfer of commercial
          items between divisions, subsidiaries, or affiliates of the Contractor
          or subcontractor at any tier.

     (b)  To the maximum extent  practicable,  the Contractor shall incorporate,
          and require its subcontractors at all tiers to incorporate, commercial
          items or non developmental items as components of items to be supplied
          under this contract.

     (c)  Notwithstanding  any other clause of this contract,  the Contractor is
          not required to include any FAR provision or clause,  other than those
          listed below to the extent they are  applicable and as may be required
          to  establish  the  reasonableness  of  prices  under  Part  15,  in a
          subcontract at any tier for commercial items or commercial components:

          (1)  52.222-26, Equal Opportunity (E.O. 11246);

          (2)  52.222-35,  Affirmative Action for Disabled Veterans and Veterans
               of the Vietnam Era (38 U.S.C. 4212(a));

          (3)  52.222-36,  Affirmative Action for Handicapped Workers (29 U.S.C.
               793); and

          (4)  52.247-64, Preference for Privately Owned U.S.-Flagged Commercial
               Vessels (46 U.S.C. 1241) (flow down not required for subcontracts
               awarded beginning May 1, 1996).

     (d)  The Contractor shall include the terms of this clause,  including this
          paragraph (d), in subcontracts awarded under this contract.


ARTICLE I.5  DISPUTES

     Except as set forth below, any dispute arising under this Subcontract which
     is not  settled by  agreement  of the  parties  shall be  submitted  by the
     parties  to  binding   arbitration  under  the  auspices  of  the  American
     Arbitration  Association  in  accordance  with its  commercial  arbitration
     rules, and judgement upon any determination,  which may include an award of
     damages,  may be  entered by the  highest  State or  Federal  court  having
     jurisdiction. Pending any decision, appeal or judgement referred to in this
     clause or the  settlement of any disputes  arising under this  Subcontract,
     Subcontractor  shall  diligently  continue  with  the  performance  of this
     Subcontract while disputes are arbitrated.

     Not covered under the above arbitration clause are efforts by Subcontractor
     to protect its intellectual  property from misappropriation or copyright or
     patent  infringement.  Such  legal  action  may be  brought in any court of
     competent jurisdiction at Subcontractor's discretion.

                                    PART III

SECTION J - LIST OF ATTACHMENTS

The following documents are attached and incorporated in this subcontract:


Budget, Statement of Work ATTACHMENT A, including VaxGen Hourly billing rates, 2
pages.

Statement of Work ATTACHMENT B, 1 page.


                                       19
<PAGE>

Safety and Health (Deviation),  PHSAR Clause 352.223-70, (8/97), ATTACHMENT C, 1
page.

Procurement of Certain Equipment.  Procurement of Certain Equipment,  NIH(RC)-7,
4/1/84, ATTACHMENT D, 1 page.

                                     PART IV

SECTION K - REPRESENTATIONS AND CERTIFICATIONS

Not applicable.

In witness whereof,  the parties have caused this Agreement to be executed as of
the date written by their duly  authorized  representatives,  and this Agreement
shall be effective as of May 1, 1999:

FOR: BBI BIOTECH RESEARCH LABORATORIES INC.


----------------------------
Mark Manak,
Vice President and General Manager


-----------------------------
Date


FOR:   VaxGen, Inc..

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


-----------------------------
Date


                               END of the SCHEDULE
                                   (CONTRACT)


                                       20
<PAGE>

ATTACHEMENT A BUDGET

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                   Year         Year          Year         Year         Year       Year       Year
Line Item Description                 1            2             3            4            5          6          7          Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>   <C>            <C>          <C>          <C>              <C>        <C>   <C>
VaxGen Costs
Contract Amendments
                                           $ 204,750            --           --           --         --         --      $ 204,750
Protocol Amendments
                                     --       25,000            --           --           --         --         --         25,000
Project Management - Step A
Uninfected                           --        5,500         4,000        4,000        4,000         --         --         17,500
Project Management -  Step B
Infected                             --        5,500         4,000        4,000        4,000         --         --         17,500
Site Management - Steps A&B
                                     --       48,000        48,000       50,000       46,500         --         --        192,500
Data Management - Steps A&B
                                     --           --            --           --       31,500         --         --         31,500
Vax Gen Subtotal
                                     --      288,750        56,000       58,000       86,000         --         --        488,750
Pass Through Costs to Sites
IRB Submission
                                              39,500            --           --           --         --         --         39,500
Site Reimbursements - Step A
Uninfected                           --      150,000       350,000      300,000      200,000         --         --      1,000,000
Site Reimbursements - Step B
Infected                             --       28,500        40,500       40,500       40,500         --         --        150,000
Site Reimbursements - Step B
Infected                                       9,500        13,500       13,500       13,500         --         --         50,000
Subtotal Study Sites
                                     --      227,500       404,000      354,000      254,000         --         --       1,239500
----------------------------------------------------------------------------------------------------------------------------------

Total                                $0    $ 516,250      $460,000     $412,000     $340,000         $0         $0    $ 1,728,250
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       21
<PAGE>

                                  VaxGen, Inc.
                                Hourly Bill Rates

                                            1999                     2000
                                          Government              Government
       Department / Position                Rate*                   Rate**
--------------------------------------------------------------------------------

Administration
------------------------------------
Executive Management                       125.00                   117.00
Senior Director                            125.00                   105.00
Director                                   110.00                    80.00
Associate Director                         100.00                    75.00
Administrative / Staff Support II           80.00                    65.00
Administrative / Staff Support I            65.00                    50.00


Clinical
------------------------------------
Executive Management                       165.00                   117.00
Director                                   165.00                   115.00
Associate Director                         155.00                   100.00
Clinical Program Manager                   145.00                    95.00
Senior Clinical Research Associate         135.00                    85.00
Clinical Research Associate                125.00                    75.00
Administrative / Staff Support I           115.00                    65.00


Data Management / Biostatistics
------------------------------------
Director                                   170.00                   110.00
Associate Director                         150.00                   105.00
Senior Analyst                             135.00                    90.00
Analyst                                    120.00                    80.00
Data Manager                               120.00                    75.00
Clinical Data Associate                    110.00                    65.00


Laboratory
------------------------------------
Executive Management                       185.00                   170.00
Director                                   175.00                   135.00
Associate Director                         165.00                   125.00
Senior Research Associate                  150.00                   115.00
Research Associate                         135.00                   105.00
Administrative / Staff Support II          125.00                   115.00
Administrative / Staff Support I           115.00                   100.00

* 1999 salaries capped at $125,900
** 2000 salaries capped at $141,300


                                       22
<PAGE>

ATTACHMENT B  STATEMENT OF WORK

Contract  N01-AI-85341entitled  "Laboratory  Support for AIDS  Vaccine and Other
Prevention  Clinical  Trials"  which was  awarded to BBI  Biotech  has a need to
establish a  subcontract  with  VaxGen.  The purpose of this  subcontract  is to
facilitate  a four year  collaborative  research  project  in  conjunction  with
VaxGen's  VAX 004 Phase  III  Clinical  Trial  but does not alter in any  manner
VaxGen's  sole  responsibility  for  VAX  004  design,  conduct,   analysis  and
reporting.  The specimens associated with this subcontract will be housed at BBI
Biotech's repository and will not be given to any investigator during the period
of this contract except as provided in this Subcontract.

Specifically, VaxGen agrees to do the following for this Collaborative Project:

     o    Coordinate and oversee all activities at the clinical sites.

     o    Submit protocol changes to clinical sites for IRB submissions.

     o    Act as a communication link between any clinical site and BBI Biotech.

     o    Review and oversee sample  processing and storage  Standard  Operating
          Procedures (SOPs) and Quality Assurance  (QA)-related  tasks performed
          at  BBI  Biotech  for  this  study  as  related  to  peripheral  blood
          mononuclear cells and seminal plasma.

     o    Approve  format and  information  field  design of specimen  inventory
          system called Biological Specimen Inventory System version.

     o    Be involved in and ultimately  approve the resolution of any sample or
          sample related data discrepancy.

     o    Provide BBI Biotech for BBI Biotech's  approval,  a copy of a standard
          "Scientific    Collaborator    Agreement"   that   protects   VaxGen's
          intellectual property rights".

     o    All other  activities  necessary  for  successful  completion  of this
          Subcontract  Agreement,  subject to the funding  limitations stated in
          this Subcontract.


                                       23
<PAGE>

ATTACHMENT C PHS 352.223-70  SAFETY AND HEALTH (DEVIATION) (AUGUST 1997)

(a)  To help ensure the protection of the life and health of all persons, and to
     help prevent damage to property,  the  Subcontractor  shall comply with all
     Federal,  State and local laws and regulations applicable to the work being
     performed under this contract.  These laws are implemented  and/or enforced
     by the  Environmental  Protection  Agency,  Occupational  Safety and Health
     Administration  and other  agencies at the Federal,  State and local levels
     (Federal, State and local regulatory/enforcement agencies).

(b)  Further,  the  Subcontractor  shall  take or cause  to be taken  additional
     safety measures as the Contracting  Officer in conjunction with the project
     or other appropriate  officer,  determines to be reasonably  necessary.  If
     compliance with these additional  safety measures results in an increase or
     decrease in the cost or time required for  performance  of any part of work
     under this  contract,  an equitable  adjustment  will be made in accordance
     with the applicable "Changes" Clause set forth in this contract.

(c)  The Subcontractor shall maintain an accurate record of, and promptly report
     to the  Contracting  Officer,  all accidents or incidents  resulting in the
     exposure of persons to toxic substances,  hazardous  materials or hazardous
     operations;  the injury or death of any person;  and/or  damage to property
     incidental  to work  performed  under the contract and all  violations  for
     which  the  Contractor  has  been  cited  by any  Federal,  State  or local
     regulatory/enforcement  agency.  The  report  shall  include  a copy of the
     notice of violation and the findings of any inquiry or  inspection,  and an
     analysis  addressing  the  impact  these  violations  may  have on the work
     remaining  to be  performed.  The  report  shall  also  state the  required
     action(s),  if any,  to be taken to correct any  violation(s)  noted by the
     Federal,  State or local  regulatory/enforcement  agency and the time frame
     allowed by the agency to accomplish the necessary corrective action.

(d)  If the Subcontractor  fails or refuses to comply promptly with the Federal,
     State or local  regulatory/enforcement  agency's directive(s) regarding any
     violation(s) and prescribed corrective  action(s),  the Contracting Officer
     may  issue an order  stopping  all or part of the work  until  satisfactory
     corrective   action  (as   approved   by  the   Federal,   State  or  local
     regulatory/enforcement  agencies)  has been  taken  and  documented  to the
     Contracting  Officer.  No part of the time lost due to any stop work  order
     shall be  subject to a claim for  extension  of time or costs or damages by
     the Contractor.

(e)  The  Subcontractor  shall  insert  the  substance  of this  clause  in each
     subcontract involving toxic substances, hazardous materials, or operations.
     Compliance with the provisions of this clause by subcontractors will be the
     responsibility of the Contractor.

                                 (End of clause)


                                       24
<PAGE>

ATTACHMENT  D PROCUREMENT OF CERTAIN EQUIPMENT

Notwithstanding any other clause in this contract,  the subontractor will not be
reimbursed for the purchase, lease, or rental of any item of equipment listed in
the following Federal Supply Groups, regardless of the dollar value, without the
prior written approval of the Contracting Officer.

            67 - Photographic Equipment
            69 - Training Aids and Devices
            70 - General Purpose ADP Equipment, Software, Supplies and Support
                 (Excluding 7045-ADP Supplies and Support Equipment.)
            71 - Furniture
            72 - Household and Commercial Furnishings and Appliances
            74 - Office Machines and Visible Record Equipment
            77 - Musical Instruments, Phonographs, and Home-type Radios
            78 - Recreational and Athletic Equipment


                                       25
<PAGE>

                    ATTACHMENT E - DATABASE LICENSE AGREEMENT

This database licensing  agreement is a model.  Investigators may negotiate with
VaxGen and make changes that are mutually acceptable to the investigators and to
VaxGen.


                           DATABASE LICENSE AGREEMENT

THIS DATABASE LICENSE AGREEMENT ("Agreement") is made , 2000 ("Effective Date"),
by and between  VaxGen,  Inc., a California  corporation  located at 1000 Marina
Blvd.,   Brisbane,   CA   94005-1841   ("VaxGen"),   and   ________________,   a
________________   corporation   with   offices   at   _________________________
("Licensee").

                                    RECITALS

     WHEREAS, VaxGen has developed a proprietary database pertaining to clinical
trials  related  to a vaccine  for  prevention  of  Acquired  Immune  Deficiency
Syndrome ("AIDS") and supporting  information as further described in Exhibit A,
a portion of which VaxGen desires to license to Licensee (the "Database");

     WHEREAS, Licensee desires to perform research pertaining to an AIDS vaccine
under a  subcontract  funded by the  National  Institute  of Allergy  and Immune
Deficiencies ("NIAID);

     WHEREAS,  VaxGen  desires to grant,  and  Licensee  desires to obtain,  the
necessary  rights and license to use the  Database to conduct  said  research in
accordance with the terms and conditions set forth in this  Agreement;  and

     NOW,  THEREFORE,  in  consideration of the foregoing  premises,  the mutual
covenants  and  agreements   contained  herein,  and  other  good  and  valuable
consideration the receipt and sufficiency of which is hereby  acknowledged,  the
parties hereto agree as follows:

1. LICENSE. Subject to the terms and conditions of this Agreement, VaxGen hereby
grants  Licensee  a  nonexclusive,  nontransferable  license,  without  right to
sublicense, license to use, and copy for internal use only, the VaxGen Database.
The license  granted to Licensee under this Agreement is solely for the purposes
set forth in Exhibit B (the "Licensed Purposes").

2. UNAUTHORIZED USE.

2.1 Any use, copying,  disclosure, or distribution of the Database not expressly
authorized  in this  Agreement  is strictly  prohibited.  Without  limiting  the
generality  of  the  foregoing,   Licensee  is  expressly  prohibited  from  (i)
sublicensing  or  reselling  all or any portion of the  Database;  (ii) using or
allowing  third  parties  to use the  Database  for the  purpose  of  compiling,
enhancing,  verifying,  supplementing,  adding to or  deleting  from any mailing
list,  geographic  or  trade  directories,   business  directories,   classified
directories,  classified advertising,  or other compilation of information which
is sold,  rented,  published,  furnished  or in any manner  provided  to a third
party;  (iii) using the  Database  in any  service or product  not  specifically
authorized  in this  Agreement or offering it through any third  party;  or (iv)
modifying  or  otherwise  altering  the  Database  or any part  thereof  without
VaxGen's  prior written  consent,  such consent may be withheld in VaxGen's sole
discretion.

2.2 Licensee will protect all data in the Database in a secure location and make
its best  effort to  prevent  unauthorized  usage or  copying  of the  Database.
Without  limiting the  foregoing  Licensee  will  implement a system of controls
designed to: a) protect the integrity of the Database;  b) control access to the
VaxGen  Database;  and, if applicable  c)  reasonably  ensure that the amount of
usage of the VaxGen Database is accurately recorded.


                                       26
<PAGE>

2.3 Licensee  acknowledges  that any unauthorized use distribution or disclosure
of the Database will cause irreparable harm and injury to VaxGen for which there
is no adequate remedy at law. In addition to all other remedies  available under
this Agreement,  at law or in equity,  Licensee further agrees that VaxGen shall
be entitled to  injunctive  relief in the event  Licensee  uses  distributes  or
discloses  all or a portion of the Database in violation of the limited  license
granted hereunder.

3. LICENSE FEES AND ROYALTIES.

3.1 Licensee shall not be required to pay license fees to VaxGen.

4 DELIVERY.

4.1  VaxGen  will  provide  Licensee  with the  Database  and at  VaxGen's  sole
discretion, updates thereto.

4.2 If Licensee  should be in default of the Agreement  VaxGen may,  among other
actions, and in its sole discretion, withhold updates of the VaxGen Database.

5 TERMINATION.

5.1 Either party may terminate this Agreement if the other party: (a) materially
breaches any term or condition of this Agreement  (except as otherwise  provided
in  paragraph  5.2 of this  Agreement)  and fails to remedy such  breach  within
thirty (30) days after written notice of such breach;  or (b) becomes subject to
any receivership,  insolvency,  bankruptcy, moratorium or similar proceeding for
more than thirty (30) days.

5.2 VaxGen may terminate this Agreement immediately if (a) Licensee participates
in any unauthorized use of the VaxGen Database  (including,  without limitation,
participating in or allowing an unauthorized third party's use thereof or access
to or failing to maintain  controls as outlined in paragraph  2.2 above) (b) all
or substantially  all of the assets of Licensee are sold,  assigned or otherwise
transferred  to any  direct  competitor  of VaxGen (c) 50% or more of the equity
securities or voting interests of Licensee or the ultimate parent of Licensee is
sold,  assigned or otherwise  transferred in a single transaction or a series of
related  transactions to a direct  competitor of VaxGen;  or (d) Licensee or its
ultimate  parent  is a  party  to  a  merger,  consolidation  or  other  similar
transaction with a direct competitor of VaxGen.

5.3 Upon  termination or expiration of this  Agreement for any reason,  Licensee
shall (i)  ensure  that all  copies of the  Database  and any  related  data and
information  is deleted  from its  computers  and the  computers  of any service
provider  or other  third  party  who  processed  the  VaxGen  Database  for the
Licensee;  (ii) cease any and all use of the VaxGen  Database;  (iii) return all
copies,  whether in print, tape or other media, of all or any part of the VaxGen
Database  to  VaxGen  no later  than ten (10)  days  after  termination  of this
Agreement;   and,  (iv)  certify  in  writing  within  twenty  (20)  days  after
termination  of this  Agreement  that  Licensee and its service  providers  have
deleted or returned to VaxGen all copies of the VaxGen Database.

5.4 Except as otherwise  provided in this Agreement,  the remedies  contained in
this Agreement are in addition to all other  remedies  available to either party
at law or in equity.

6. PROPRIETARY RIGHTS. Licensee acknowledges that all rights, title and interest
to the Database, regardless of the form of media in which it is contained, shall
be and are retained by VaxGen,


                                       27
<PAGE>

subject to the license granted to Licensee under this Agreement. Nothing in this
Agreement  shall be  construed  as  granting  VaxGen  any  rights  in  software,
services, technology, or information created by outside of this Agreement, which
shall at all times remain the sole property of Licensee.

7. INVENTIONS.

7.1 If Licensee conceives or reduces to practice an invention arising from or in
connection  with  the  subject  matter  of  this  Agreement   during  the  Term,
(hereinafter  a  "Subject  Invention")  Licensee  agrees  to  grant  VaxGen  the
exclusive option for an exclusive license subject to the nonexclusive  rights of
the U.S. Agreement,  on reasonable terms, to practice the invention in the field
of AIDS  treatment.  The terms of such license will be subject to negotiation by
the parties.  During the first six (6) months  after notice  election to take an
exclusive  offer by VaxGen,  the parties shall in good faith negotiate the terms
of such  license.  During this time,  Licensee  will not  negotiate or grant any
license to the invention to any other party or practice the invention itself for
commercial purposes.  If, after six (6) months, the parties have failed to agree
on terms, the parties will engage in nonbinding  mediation.  Thereafter,  VaxGen
shall have a right of first  refusal over any license  purposed to be granted by
Licensee.

7.2 Licensee  shall fully  disclose to VaxGen in writing all Subject  Inventions
within  ninety (90) days after the  conception  or  reduction to practice of any
such invention,  whichever occurs first.  Neither Licensee nor VaxGen shall make
any disclosure  regarding or related to a Subject  Invention to any third party,
except the U.S. Government,  until VaxGen or Licensee, as the parties may agree,
shall  have at  least  ninety  (90)  days  after  such  agreement,  to  complete
appropriate patent or FDA filings, or both.

7.3 All proposed publications or other disclosures of Licensee pertaining to its
research on AIDS vaccines  sponsored by NIAID which shall have relied in any way
on data  licensed to it  hereunder  by VaxGen,  shall be submitted to VaxGen for
comment at least thirty (30) days prior to such publication or other disclosure.
The purpose of such comment period shall be to afford VaxGen the  opportunity to
protect its intellectual property rights in the Database.

8. CONFIDENTIALITY.

8.1 Confidential Information.  As used herein,  "Confidential Information" means
(i) any business or technical information of a party,  including but not limited
to, the Database  Materials,  information  relating to a party's  product plans,
designs,  costs, product prices and names,  finances,  marketing plans, business
opportunities,   personnel,   research,   development  or  know-how;   (ii)  any
information  identified in writing by a party as "confidential" or "proprietary"
or  which,  under  the  circumstances  taken as a  whole,  would  reasonably  be
understood to be  confidential;  and (iii) the terms and conditions (but not the
existence) of this Agreement,  other than this Section 8. Aggregate  information
or  summary  data  obtained  from the  Database  Materials  does not  constitute
Confidential  Information  and can be disclosed for  scientific or public health
purposes by the Licensee subject to Article 7.

8.2 Conditions. Except to the extent permitted by this Agreement or as otherwise
agreed by the parties in writing,  the  parties  agree that the party  receiving
Confidential Information hereunder (the "Receiving Party") shall keep completely
confidential, shall not publish or otherwise disclose and shall not use directly
or indirectly for any purpose any  Confidential  Information  furnished to it by
the other party (the "Disclosing Party") pursuant to this Agreement or otherwise
relating  to  any  transaction   contemplated  hereby,   including   information
heretofore  furnished to it, except to the extent that the  Receiving  Party can
establish by competent proof that such information: (a) was already known to the
Receiving Party, other than under an obligation of confidentiality,  at the time
of disclosure by the


                                       28
<PAGE>

Disclosing  Party, as evidenced by the Receiving Party's prior written and dated
records;  (b) was  known  to the  public  at the time of its  disclosure  by the
Disclosing Party in substantially  the same usable form; (c) became known to the
public  in  substantially  the same  usable  form  after its  disclosure  by the
Disclosing Party,  other than through any act or omission of the Receiving Party
in breach of this  Agreement;  or (d) was disclosed to the Receiving  Party by a
third party who was  rightfully  in possession  of such  information  and had no
obligation not to disclose such information to others.

8.3  Authorized  Disclosure.  Each party may disclose  Confidential  Information
received  from  another  party  only  to the  extent  that  such  disclosure  is
reasonably  necessary in complying with  applicable  government  laws,  rules or
regulations or judicial  orders or decrees,  provided that if a Receiving  Party
intends to make any such  disclosure,  it shall give reasonable  advance written
notice to the Disclosing Party of such intention.  Furthermore,  nothing in this
Section  8  shall  be  construed  to  preclude  a  party  from  disclosing  such
information  to such third  parties as may be necessary in  connection  with the
transactions  contemplated by this Agreement,  provided that the Receiving Party
in question shall in each case obtain from the proposed third party  recipient a
written confidentiality  undertaking containing  confidentiality  obligations no
less restrictive than those set forth in this Section 8.

8.4  Notification.  The  Receiving  Party  shall  notify  the  Disclosing  Party
immediately, and cooperate with the Disclosing Party as the Disclosing Party may
reasonably  request,  upon  the  Receiving  Party's  discovery  of any  loss  or
compromise of the Disclosing Party's Confidential Information.

8.5 Remedies.  Each party agrees that the  unauthorized use or disclosure of any
material or Confidential Information by the Receiving Party in violation of this
Agreement  shall  be  a  material  breach  of  this  Agreement  and  will  cause
irreparable harm to the Disclosing  Party. In the event of any violation of this
Section  8, the  Receiving  Party  agrees  that the  Disclosing  Party  shall be
authorized  and  entitled  to obtain  from any court of  competent  jurisdiction
injunctive relief, whether preliminary or permanent, as well as any other relief
permitted by applicable law. The Receiving Party agrees to waive any requirement
that the  Disclosing  Party  post bond as a  condition  for  obtaining  any such
relief.

9. DISCLAIMER OF WARRANTY, LIMITATION OF REMEDY, AND LIMITATION OF LIABILITY.

9.1 The Database is licensed on an "AS IS" basis without guarantee.  VaxGen does
not guarantee that the VaxGen  Database will meet the  Licensee's  requirements;
that it will operate in the combinations,  or in the equipment,  selected by the
Licensee  or that its  operation  will be  error-free  or without  interruption.
Licensee  assumes sole  responsibility  for results obtained from the use of the
Database by Licensee and for conclusions drawn from such use.

9.2  VAXGEN  MAKES  NO  WARRANTIES,   EXPRESS  OR  IMPLIED,  INCLUDING,  WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, NONINFRINGEMENT, OR FITNESS
FOR A PARTICULAR  PURPOSE.  NO REPRESENTATION OR STATEMENT SHALL BE BINDING UPON
VAXGEN AS A WARRANTY OR OTHERWISE UNLESS EXPRESSLY CONTAINED IN THIS AGREEMENT.

9.3  NOTWITHSTANDING  PARAGRAPHS  9.1 AND 9.2 ABOVE,  IF FOUND  LIABLE  VAXGEN'S
ENTIRE  LIABILITY FOR DAMAGES IN CONNECTION  WITH THE USE OF THE VAXGEN DATABASE
PROVIDED  TO  LICENSEE  OR  PROVIDED  BY  LICENSEE  TO USERS  (WHETHER  BASED IN
CONTRACT, TORT OR OTHERWISE), WILL IN NO EVENT EXCEED $10,000.


                                       29
<PAGE>

9.4 VAXGEN SHALL NOT BE LIABLE FOR  CONSEQUENTIAL  OR INCIDENTAL  DAMAGES OR FOR
ANY LOST  PROFITS  OR ANY CLAIM OR DEMAND OF A SIMILAR  NATURE OR KIND,  WHETHER
ASSERTED BY LICENSEE AGAINST VAXGEN OR AGAINST LICENSEE BY ANY OTHER PARTY, EVEN
IF VAXGEN HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

10.  INDEMNIFICATION.  Licensee  agrees to defend,  indemnify  and hold harmless
VaxGen, its officers, directors,  employees, agents, and affiliates from any and
all claims,  actions,  demands, or liability to third parties that arise from or
in connection with Licensee's use of the VaxGen Database.

11.  FORCE  MAJEURE.  Except  for  payment  of  money,  neither  party  shall be
responsible for delays or failures in performance resulting from acts beyond the
reasonable  control of such party. Such acts shall include but not be limited to
acts of God, riots,  acts of war, and other disasters.  In the event such an act
occurs,  the party whose  performance  is delayed or  affected  will give prompt
notice to the other  party,  stating  the period of time the delay or failure is
expected to continue.

12. ASSIGNMENTS.  Licensee shall not assign or transfer this Agreement (directly
or  indirectly)  without  the prior  written  consent of VaxGen.  Any  attempted
assignment to transfer in violation of this section shall be void.

13.  MODIFICATION.  No  modification of this Agreement shall be binding upon the
Licensee  and  VaxGen  unless  made in  writing  and  signed by duly  authorized
officers of both parties.

14. NOTICES. All correspondence required by this Agreement shall be addressed to
the individuals  listed below. Any notice required shall be given in writing and
shall be deemed  effectively given upon personal  delivery,  deposit in the U.S.
post office as certified or  registered  mail or deposited in a private next day
delivery service.

           Licensee

           ____________________

           ____________________

           ____________________

           ____________________


           VaxGen, Inc.

           Ms. Marlene Chernow
           Sr. Director, Corporate Development
           VaxGen, Inc
           1000 Marina Blvd.
           Brisbane, CA 94005


15. WAIVERS.  The failure of either party to require the performance of any term
or condition of this Agreement  shall not prevent any subsequent  enforcement of
this  term or  condition,  nor  shall it be  deemed a wavier  of any  subsequent
breach.


                                       30
<PAGE>

16.  GOVERNING  LAW.  This  Agreement  shall be  governed  by and  construed  in
accordance  with the laws of the  State of  California,  without  regard  to its
conflicts  of  laws  principles  and  both  parties  consent  to  the  exclusive
jurisdiction of the state or federal courts located in ________________.

17. SEVERABILITY. A decision by any court of competent jurisdiction invalidating
or holding unenforceable any part of this Agreement will not affect the validity
and enforceability of any other part of this Agreement.

18. NO THIRD PARTY BENEFICIARIES. This Agreement is made solely and specifically
between and for the benefit of the parties signatory hereto, and no other person
or entity whatsoever shall have any rights,  interests or claims hereunder or be
entitled to any benefits  under or on account of this Agreement as a third party
beneficiary or otherwise.

19.  RELATIONSHIP OF PARTIES.  This Agreement does not create a joint venture or
partnership between VaxGen and the Licensee,  and each will act independently of
the  other.  Neither  party is  empowered  to bind or  commit  the  other to any
contract or other obligation.

20.  COMPLIANCE.  Licensee  shall use,  and shall ensure that its Users use, the
VaxGen  Database in strict  compliance  with all applicable  federal,  state and
local laws, rules and regulations, including but not limited to those concerning
fax and/or e-mail transmissions, direct marketing, and any third-party's patent,
copyright or other intellectual property rights and interests.  Licensee further
acknowledges   that   Licensee  is  aware  that  certain   states  have  enacted
restrictions  regarding promotional mailings,  and that Licensee or its customer
should consult with legal counsel  regarding state statutes before  initiating a
promotional mailing.

21. TAXES. Licensee shall be responsible to pay all taxes of any type, nature or
description (including,  but not limited to, sale, use, gross receipts,  excise,
import, export, income and employment taxes); provided,  however, Licensee shall
not be  responsible  for any  income  taxes  imposed  upon  VaxGen by any taxing
jurisdiction, arising by virtue of the performance of this Agreement.

22. ENTIRE  AGREEMENT.  This Agreement  constitutes the entire Agreement between
the Parties and merges all prior and contemporaneous communications.

     IN WITNESS  WHEREOF,  this Agreement has been executed and delivered by the
duly authorized officers of the parties hereto on the date first above written.


LICENSEE                                    VAXGEN, INC.

By:__________________________               By:______________________________

Name:________________________               Name_____________________________

Title:_______________________               Title:___________________________

E-mail_______________________               E-mail:__________________________

Fax:_________________________               Fax:_____________________________


                                       31
<PAGE>

                                    EXHIBIT A

                     DATABASE DESCRIPTION AND SPECIFICATIONS


Definition of Database: "Database"  shall mean the following data fields in each
                        and every record pertaining to specimens collected under
                        the Collaborative Project.

     1.   All demographic data (includes age and gender).

     2.   Treatment assignment (or randomization code identifying which subjects
          received vaccine or placebo).

     3.   Vaccine  administration log (when each subject received (or missed) an
          immunization).

     4.   Concomitant  medication log (which  antiretroviral  a subject may have
          taken either prophylactically or therapeutically once infected as well
          as    antimicrobials,    other   treatments   for   AIDS   and   other
          immunosuppressive agents).

     5.   Status Change Form (tracks participation,  when and reason why subject
          stopped immunizations and/or discontinued from the study).

     6.   HIV-1 Infection (laboratory data that confirms infection and indicates
          the date of the diagnosis).


                                       32
<PAGE>

                                    EXHIBIT B

                                LICENSED PURPOSES



Evaluation  of the cellular  immune  response  and  cellular  factors of AIDSVAX
recipients in VAX004.




                                       33