Exhibit 10.1

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                                  VAXGEN, INC.

                                   $31,500,000
              5 1/2% Convertible Senior Subordinated Notes due 2010

                             NOTE PURCHASE AGREEMENT

                                 March 30, 2005

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                                  VAXGEN, INC.

                             NOTE PURCHASE AGREEMENT

      THIS NOTE PURCHASE AGREEMENT,  INCLUDING ANNEX I HERETO (this "Agreement")
is made as of the  30(th)  day of March  2005 by and  among  VAXGEN,  INC.  (the
"Company"),  a Delaware  corporation,  with its principal offices at 1000 Marina
Blvd.,  Suite  200,  Brisbane,   California,   and   ____________________   (the
"Purchaser").

      In consideration of the mutual covenants contained in this Agreement,  and
other good and valuable consideration,  the receipt and sufficiency of which are
hereby acknowledged, the Company and the Purchaser hereby agree as follows:

A. The Company has  authorized  the sale and issuance of  $31,500,000  aggregate
principal amount of the Company's 5 1/2% Convertible  Senior  Subordinated Notes
due  2010  (the  "Notes"),  subject  to  adjustment  by the  Company's  Board of
Directors, to certain investors in a private placement (the "Offering").

B. The Notes are to be issued  pursuant to an indenture to be executed and dated
as of the Closing (as defined in Annex I) (the "Indenture")  between the Company
and U.S. Bank, National Association, as trustee (the "Trustee"), and the form of
such Notes will be an exhibit to the  Indenture.  The Indenture  will conform in
all  material  respects to the  respective  statements  relating  thereto in the
Memorandum  (as  defined  below)  and will be  substantially  in the  form  last
delivered  to the  Purchaser  prior  to  the  execution  and  delivery  of  this
Agreement.

C. The Notes will be  convertible  into shares of common stock,  par value $0.01
per share,  of the Company (the "Common  Stock") in accordance with the terms of
the Notes and the  Indenture  and will be subject to such other terms as are set
forth herein and therein.

D. The Company and the Purchaser agree that the Purchaser will purchase from the
Company and the  Company  will issue and sell to the  Purchaser,  a Note for the
principal  amount of  $___________,  at a purchase price of one hundred  percent
(100%)  of the  principal  amount,  pursuant  to the Terms  and  Conditions  for
Purchase  of the Notes  attached  hereto as Annex I and  incorporated  herein by
reference as if fully set forth  herein.  The  Purchaser  acknowledges  that the
offering is not being underwritten by CIBC World Markets Corp. or Punk, Ziegel &
Company,  L.P.,  who are each acting  solely as placement  agents in  connection
herewith (the "Placement Agents").

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


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      Please  confirm  that the  foregoing  correctly  sets forth the  agreement
between us by signing in the space provided below for that purpose.

AGREED AND ACCEPTED:                    Purchaser: _____________________________


                                        By:            _________________________

                                        Name:          _________________________

                                        Title:         _________________________

                                        Address:       _________________________

                                        Fax Number:    _________________________

Exact name that your Notes are to be
registered in (This is the name that will
appear on your Note)*:                                 _________________________
                                                          (Registered Holder)

The Tax ID No. of the Registered Holder:               _________________________

Contact Name for Registered Holder (if
different than above):                                 _________________________

Mailing Address of Registered Holder (if
different than above):                                 _________________________

Affiliated Purchasers:                                 _________________________

                                                       _________________________

VAXGEN, INC.,
a Delaware corporation


By: ____________________________

Name: __________________________

Title: _________________________

*Please use Annex II attached  hereto if the Notes are to be issued to more than
one Registered Holder.


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                                     ANNEX I

                 TERMS AND CONDITIONS FOR PURCHASE OF THE NOTES

      1. PURCHASE AND SALE OF NOTES.

            1.1 Subject to the terms and  conditions  of the  Agreement,  on the
Closing  Date (as defined  herein),  the  Purchaser  agrees to purchase  and the
Company  agrees to issue and sell to the  Purchaser,  at a purchase price of one
hundred percent (100%) of the principal  amount,  the principal  amount of Notes
set forth in this Agreement.

      2. CLOSING.

            2.1 Closing.

                  (a) The  purchase  and sale of the  Notes  upon the  terms and
conditions hereof will take place at a closing (the "Closing") to be held at the
offices of Cooley Godward LLP, 3175 Hanover Street,  Palo Alto, CA 94304, on the
date  hereof  or on such  other  date as may be agreed  to by the  parties  (the
"Closing Date").

                  (b) The Company shall provide wire transfer  instructions  for
the payment of the purchase price for the Notes prior to the Closing.

                  (c) At the  Closing,  the  Purchaser  and  the  Company  shall
satisfy  all  of the  conditions  set  forth  in  Sections  2.2(a)  and  2.2(b),
respectively.

            2.2 Conditions to Closing.

                  (a) The Company's obligation to complete the purchase and sale
of  the  Notes  and  deliver  the  Notes  to the  Purchaser  is  subject  to the
fulfillment  to the  Company's  satisfaction  on or prior to the  Closing of the
following conditions, any of which may be waived by the Company:

                        (i) The receipt by the  Company of an  executed  copy of
this Agreement by the Purchaser;

                        (ii) The receipt by the Company of immediately available
funds in the full amount of the purchase price for the Notes being  purchased by
the  Purchaser  as set  forth  in the  Agreement,  in  accordance  with the wire
transfer instructions delivered by the Company pursuant to Section 2.1(b);

                        (iii) The receipt by the Company of at least $31,500,000
for the  Notes  being  purchased  in the  Offering  by the  Purchaser  and other
purchasers (together the "Investors");

                        (iv)  The  Purchaser's  performance,  satisfaction,  and
compliance,  in all  material  respects,  with  all  covenants,  agreements  and
conditions  required by Section 4 of this  Agreement  at or prior to the Closing
Date;


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                        (v) The  representations and warranties of the Purchaser
made pursuant to Section 4 shall be true and correct in all material respects as
of the  Closing  Date,  except  for  representations  and  warranties  that  are
expressly made as of a particular  date,  which shall be true and correct in all
material respects as of such date; and

                        (vi) No statute,  regulation,  executive order,  decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority or competent jurisdiction and shall be in
effect which prohibits the consummation of the transactions contemplated by this
Agreement.

                  (b) The  Purchaser's  obligation  to complete the purchase and
sale of the Notes is subject to the fulfillment to the Purchaser's satisfaction,
on or prior to the Closing, of all of the following conditions, any of which may
be waived by the Purchaser:

                        (i) The receipt by the  Purchaser of an executed copy of
this Agreement by the Company;

                        (ii)  The  Company's  performance,   satisfaction,   and
compliance,  in all  material  respects,  with  all  covenants,  agreements  and
conditions required by Section 3 of this Agreement to be performed,  at or prior
to the Closing Date;

                        (iii) The  representations and warranties of the Company
hereunder  shall be true and correct in all material  respects as of the Closing
Date as though made at that time, except for representations and warranties that
speak as of a particular  date,  which shall be true and correct in all material
respects as of such date;

                        (iv) The delivery by the Company to the  Purchaser of an
opinion,  dated as of the Closing Date, from Cooley Godward LLP,  counsel to the
Company, in the form attached as Appendix A hereto;

                        (v) The  delivery by the Company to the  Purchaser of an
opinion,  dated as of the Closing Date, from Covington & Burling LLP, regulatory
counsel to the Company, in the form attached as Appendix B hereto;

                        (vi) The receipt by the Company of at least  $31,500,000
for the Notes being purchased by all the Investors;

                        (vii) The Company's  delivery of a Note in the principal
amount set forth in the  Agreement  to the  Purchaser  or, if  requested  by the
Purchaser,  one or  more  Notes,  in  such  denominations  ($1,000  or  integral
multiples  thereof) and registered in such names as the Purchaser may request in
writing at lease one full business day before the Closing Date; and

                        (viii) No statute, regulation,  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction and shall be in
effect which prohibits the consummation of the transactions contemplated by this
Agreement.


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      3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

      The Company  hereby  represents  and warrants to, and covenants  with, the
Purchaser  as of the  Closing  Date (or such  other  date  specified  below)  as
follows:

            3.1 No  Material  Misstatements.  The Private  Placement  Memorandum
dated March 30,  2005,  relating to the  offering  of the Notes,  including  all
exhibits and annexes thereto,  all documents  incorporated by reference therein,
as the same may be amended or supplemented  (the  "Memorandum"),  did not, as of
its date, and does not, as of the date hereof, contain any untrue statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not  misleading,  except that no  representation  is
given as to  whether  the  absence  of Summary  Financial  Statements,  Selected
Financial Data, Supplementary Financial Information,  Capitalization,  Dilution,
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations,  Quantitative and Qualitative  Disclosures about Market Risk, Annual
Financial  Statements for the fiscal years ended December 31, 2001,  2002,  2003
and 2004 and the notes  thereto,  and  Quarterly  Financial  Statements  for the
quarters ended March 31, 2004,  June 30, 2004, and September 30, 2004,  from the
Memorandum constitutes a material omission.  The Indenture,  registration rights
contained in this  Agreement and the Notes conform to the  descriptions  thereof
contained in the Memorandum.

            3.2 SEC Filings.  With the exception of the financial statements and
related financial disclosure in the Company's Annual report on Form 10-K for the
year ended  December  31, 2003 (the "Form 10-K")  (including  but not limited to
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  and Selected  Financial  Data),  the documents  that the Company has
filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange  Act"),  since December 31, 2003  (including all exhibits
included  therein and documents  incorporated by reference  therein  hereinafter
being  referred to as the  "Reports"  and  together  with the Form 10-K the "SEC
Documents")  complied in all  material  respects  with the  requirements  of the
Exchange  Act,  and the rules and  regulations  of the  Securities  and Exchange
Commission  (the "SEC")  promulgated  thereunder as of their  respective  filing
dates,  and  except  as  to  the  financial  statements  and  related  financial
disclosure (including but not limited to Management's Discussion and Analysis of
Financial Condition and Results of Operations and Selected Financial Data), none
of the SEC Documents,  when filed,  contained any untrue statement of a material
fact or  omitted  to state a  material  fact  required  to be stated  therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not  misleading,  except that no  representation  is
given as to  whether  the  absence  of Summary  Financial  Statements,  Selected
Financial Data, Supplementary Financial Information, Management's Discussion and
Analysis of Financial  Condition  and Results of  Operations,  Quantitative  and
Qualitative  Disclosures about Market Risk, Annual Financial  Statements for the
fiscal years ended December 31, 2001, 2002, 2003 and 2004 and the notes thereto,
and Quarterly  Financial  Statements for the quarters ended March 31, 2004, June
30, 2004,  and September 30, 2004,  from the  Memorandum  constitutes a material
omission. The Company agrees to use reasonable best efforts to become current in
its reporting requirements under the Exchange Act as soon as practicable, and it
will notify each Purchaser  promptly  after the  Compliance  Date (as defined in
Section 6.2(a)(i)).


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            3.3 Book and  Records;  Internal  Controls.  The books,  records and
accounts of the Company and its  subsidiary  accurately and fairly  reflect,  in
reasonable  detail, the transactions in, and dispositions of, the assets of, and
the results of operations  of, the Company and its  subsidiary.  The Company and
its subsidiary  maintain a system of internal  accounting controls sufficient to
provide  reasonable  assurances that (i) transactions are executed in accordance
with  management's  general or specific  authorizations,  (ii)  transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
accordance with generally accepted  accounting  principles and to maintain asset
accountability,  (iii) access to assets is  permitted  only in  accordance  with
management's   general  or  specific   authorization   and  (iv)  the   recorded
accountability  for assets is compared  with the existing  assets at  reasonable
intervals and appropriate action is taken with respect to any differences;  with
respect to the Company's filed SEC Documents,  the chief  executive  officer and
the chief financial officer of the Company have made all certifications required
by the  Sarbanes-Oxley  Act of 2002 (the  "Sarbanes-Oxley  Act") and any related
rules and  regulations  promulgated by the SEC, and the statements  contained in
any  such  certification  are  complete  and  correct;   the  Company  maintains
"disclosure  controls and  procedures"  (as defined in Rule 13a-14(c)  under the
Exchange Act).

            3.4 Brokers or Finders. Based upon arrangements made by or on behalf
of the  Company,  no  broker,  investment  banker,  financial  advisor  or other
individual,  corporation,  general or  limited  partnership,  limited  liability
company, firm, joint venture, association, enterprise, joint securities company,
trust, unincorporated organization or other entity (each a "Person"), other than
the  Placement  Agents,  the fees  and  expenses  of  which  will be paid by the
Company,  is entitled to any broker's,  finder's,  financial  advisor's or other
similar fee or commission in connection  with the  transactions  contemplated by
this Agreement.

            3.5 Use of  Proceeds.  The Company  intends to use the net  proceeds
from the sale of the Notes hereunder as described in the Memorandum.

            3.6 Organization; Good Standing. The Company and its subsidiary, are
duly incorporated, validly existing and in good standing under the laws of their
respective  jurisdictions of incorporation or organization.  The Company and its
subsidiary  are duly  qualified  to do  business  and are in good  standing as a
foreign  corporation  in each  jurisdiction  in which the nature of the business
conducted  by them or  location  of the assets or  properties  owned,  leased or
licensed by them  requires  such  qualification,  except for such  jurisdictions
where the  failure  to so qualify  individually  or in the  aggregate  would not
result in a  material  adverse  effect  on the  assets,  properties,  condition,
financial or otherwise,  or in the results of  operations,  business  affairs or
business  prospects of the Company and its  subsidiary  considered as a whole (a
"Material Adverse Effect");  and to the Company's  knowledge,  no proceeding has
been instituted in any such jurisdiction  revoking,  limiting or curtailing,  or
seeking to revoke, limit or curtail, such power and authority or qualification.

            3.7 Absence of Litigation.  Except as set forth in the Memorandum or
SEC Documents,  there is no action, suit,  proceeding,  inquiry or investigation
before  or by  any  court,  public  board,  government  agency,  self-regulatory
organization  or body  pending  or, to the  actual  knowledge  of the  executive
officers of the Company or its  subsidiary,  threatened  in writing  against the
Company or its subsidiary or any of the Company's or the  subsidiary's  officers
or


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directors in their  capacities  as such,  that,  either  individually  or in the
aggregate, would result in a Material Adverse Effect.

            3.8 Due Authorization and Delivery.  All necessary  corporate action
has been duly and  validly  taken by the  Company to  authorize  the  execution,
delivery and performance of this Agreement,  the Indenture, and the issuance and
sale of the Notes by the Company. The Agreement,  the Indenture,  and Notes have
been duly and validly authorized, executed and delivered by the Company and will
constitute  legal,  valid and binding  obligations  of the Company,  enforceable
against the Company in accordance with their terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,  moratorium or
other similar laws affecting the enforcement of creditors'  rights generally and
by general equitable principles.

            3.9   Authentication  of  Notes;  TIA.  The  Notes  have  been  duly
authenticated  in  accordance  with the  provisions  of the  Indenture  and when
delivered  and paid for by the  Investor  in  accordance  with the terms of this
Agreement,  the Notes will be entitled to the benefits of the Indenture.  On the
Closing  Date,  the  Indenture  will  conform in all  material  respects  to the
requirements of the Trust Indenture Act of 1939, as amended (the "TIA" or "Trust
Indenture  Act"),  and the rules and  regulations  of the SEC  applicable  to an
indenture which is qualified thereunder.

            3.10 Conversion of Notes;  Authorization  and Reservation of Shares.
The Notes are convertible  into Common Stock in accordance with the terms of the
Indenture;  the shares of Common Stock initially issuable upon conversion of the
Notes have been duly  authorized and reserved for issuance upon such  conversion
and, when issued upon such  conversion,  will be validly issued,  fully paid and
nonassessable,  will conform in all material respects to the description thereof
contained  in the  Memorandum,  and we will use our  reasonable  best efforts to
cause the shares of Common Stock  issuable  upon  conversion  of the Notes to be
duly  authorized  for listing on the Nasdaq  National  Market or list its Common
Stock on any national exchange or the Nasdaq SmallCap Market,  subject to notice
of official  issuance,  as reasonably as  practicable  following the  Compliance
Date.  The  stockholders  of the  Company  or  other  holders  of the  Company's
securities  have no  pre-emptive  or similar rights with respect to the Notes or
the  shares  of  Common  Stock  issuable  upon  conversion  of  the  Notes.  The
certificates  evidencing the shares of Common Stock issuable upon  conversion of
the Notes will be in due and proper legal form.

            3.11  Exemption  from  Registration.  Assuming  the  accuracy of the
representations  and warranties of the Purchaser  contained in Section 4 hereof,
the sale and issuance of the Notes (and the shares of Common Stock issuable upon
conversion  thereof)  in  accordance  with the terms of this  Agreement  will be
exempt from the  registration  requirements  of the  Securities  Act of 1933, as
amended (the "Securities Act").

            3.12 No Default. Neither the execution,  delivery and performance of
this Agreement,  the Notes or the Indenture by the Company nor the  consummation
of any of the transactions  contemplated hereby (including,  without limitation,
the  issuance and sale by the Company of the Notes or the issuance of the shares
of Common Stock issuable upon  conversion  thereof) will give rise to a right to
terminate or accelerate the due date of any payment due under,


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<PAGE>

or  conflict  with or  result  in the  breach  of any term or  provision  of, or
constitute  a default  (or an event  which with  notice or lapse of time or both
would  constitute a default)  under,  or require any consent or waiver under, or
result in the execution or imposition of any lien,  charge or  encumbrance  upon
any  properties  or assets of the  Company or its  subsidiary,  or result in any
dilutive  adjustments to securities or instruments of the Company or trigger the
requirement to register any securities of the Company with the SEC,  pursuant to
the terms of,  any  indenture,  mortgage,  deed of trust or other  agreement  or
instrument to which the Company or its subsidiary are a party or by which either
the Company or its subsidiary or any of their properties or businesses is bound,
or any franchise,  license,  permit,  judgment,  decree, order, statute, rule or
regulation  applicable to the Company or its subsidiary or violate any provision
of the certificate of incorporation or by-laws of the Company or its subsidiary.

            3.13  Consents.   No  consent,   approval  or  authorization  of  or
designation,  declaration or filing with any governmental  authority on the part
of the Company is required in connection  with the valid  execution and delivery
of  this  Agreement  or  the  offer,  sale  or  issuance  of  the  Notes  or the
consummation of any other transaction contemplated by this Agreement (other than
any filings  which may be  required  to be made by the Company  with the SEC, or
pursuant  to any state or "blue sky"  securities  laws,  and,  any  registration
statement which may be filed pursuant to this Agreement).

            3.14 Listing. As soon as reasonably practicable after the Compliance
Date,  the Company shall file an  application to re-list its Common Stock on the
Nasdaq National Market or list its Common Stock on any national  exchange or the
Nasdaq SmallCap Market, and shall use all reasonable  commercial efforts to have
such  application  approved  and have its  Common  Stock  listed  on the  Nasdaq
National Market or any national exchange or the Nasdaq SmallCap Market, and will
comply in all material respects with the Company's  reporting,  filing and other
obligations  under the  bylaws  or rules of the  Nasdaq  National  Market or any
national  exchange or the Nasdaq SmallCap  Market.  The Company will notify each
Purchaser when its Common Stock is re-listed on the Nasdaq National Market or is
listed on any national exchange or the Nasdaq SmallCap Market.

            3.15  Licenses;  Leases.  The  Company and its  subsidiary  have all
requisite  corporate  power and  authority,  and all  necessary  authorizations,
approvals, consents, orders, licenses,  certificates and permits of and from all
governmental or regulatory  bodies or any other person or entity  (collectively,
the "Permits"),  to own, lease and license its assets and properties and conduct
its business,  all of which are valid and in full force and effect, except where
the lack of such Permits,  individually or in the aggregate, would not result in
a Material  Adverse  Effect.  The Company and its subsidiary  have fulfilled and
performed in all material  respects all of its obligations  with respect to such
Permits and no event has occurred that allows,  or after notice or lapse of time
would allow,  revocation or termination thereof or results in any other material
impairment  of the rights of the Company  thereunder.  Except as may be required
under the  Securities  Act and state and foreign Blue Sky laws, no other Permits
are required to enter into,  deliver and perform this Agreement and to issue and
sell the Notes.

            3.16 Intellectual Property. (i) To the Company's knowledge,  each of
the Company and its subsidiary own, or hold under license,  and will have on and
after the Closing  Date full,  legally  enforceable  rights to use, all patents,
patent  rights,  patent  applications,   licenses,


                                       6.
<PAGE>

trade  secrets,  know-how,  copyrights  (whether  registered  or  unregistered),
trademarks (whether registered or unregistered), trademark applications, service
marks and trade  names  (collectively,  the  "Intellectual  Property")  that are
material  and  necessary  to conduct and operate the  business of the Company as
currently  conducted  and as  proposed  to be  conducted,  as  described  in the
Memorandum (the "Company Business"),  (ii) to the Company's  knowledge,  neither
the conduct and operations of the Company Business,  nor the use or exploitation
of any of the  Intellectual  Property  owned by the Company or, to the Company's
knowledge,  the use or exploitation of any Intellectual Property licensed by the
Company, infringes upon, misappropriates,  violates or conflicts in any way with
the  Intellectual  Property  rights of any other Person,  (iii) to the Company's
knowledge, neither the conduct and operation of the Company Business nor the use
or exploitation of any of the Intellectual Property owned by the Company, or, to
the Company's  knowledge,  the use or exploitation of the Intellectual  Property
licensed by the Company will infringe upon, misappropriate,  violate or conflict
in any way with the Intellectual Property rights of any other Person, (iv) there
is no pending or, to the  Company's  knowledge,  threatened  assertion  or claim
related to the use or  exploitation  of the  Intellectual  Property  used in the
conduct  or  operation  of the  Company  Business  involving  the  infringement,
misappropriation, or violation of, or conflict with, in any way the Intellectual
Property  rights  of any other  Person,  (v) the  Company  is not a party to any
action, suit, proceeding or investigation which involves a claim of infringement
or misappropriation of any Intellectual Property of any Person, (vi) the Company
has  no  actual   knowledge  of,  any  claims  which   challenge  the  validity,
enforceability or ownership of any of its Intellectual Property and (vii) to the
Company's  knowledge,   there  have  been  no  unauthorized  uses,  disclosures,
infringements,  or  misappropriations  by any Person of any of the  Intellectual
Property  used in the  conduct  or  operation  of the  Company  Business  or any
breaches  by any  Person,  including  the  Company,  of any  licenses  or  other
agreements involving its Intellectual Property.

            3.17 Real  Property.  The Company and its  subsidiary  have good and
marketable  title in fee simple to all real  property,  and good and  marketable
title to all  other  property  owned by it,  in each  case free and clear of all
liens,  encumbrances,  claims, security interests and defects, except such as do
not materially affect the value of such property and do not materially interfere
with the use made or proposed to be made of such property by the Company and its
subsidiary.  All property held under lease by the Company and its subsidiary are
held by them under valid, existing and enforceable leases, free and clear of all
liens, encumbrances,  claims, security interests and defects, except such as are
not material and do not materially interfere with the use made or proposed to be
made of such property by the Company and its subsidiary. Neither the Company nor
its  subsidiary  have  sustained  any  loss or  interference  with  its  assets,
businesses  or  properties  (whether  owned or  leased)  from  fire,  explosion,
earthquake,  flood or other  calamity,  whether or not covered by insurance,  or
from any labor dispute or any court or legislative or other governmental action,
order or decree which would result in a Material Adverse Effect.

            3.18 Issuance of Securities. Except for the exchange of the warrants
to purchase  shares of the Company's  Common Stock issued in connection with the
sale of the  Company's  Series A  Preferred  Stock for new  warrants to purchase
common stock on  September  21,  2004,  and the sale of 3,018,870  shares of the
Company's  Common Stock to certain  investors on November 22, 2004 and except as
disclosed in the SEC Documents,  since the filing date of the Form 10-K, neither
the Company nor its subsidiary  have (i) issued any  unregistered  securities


                                       7.
<PAGE>

or incurred any  liability or  obligation,  direct or  contingent,  for borrowed
money, except such liabilities or obligations incurred in the ordinary course of
business,  (ii)  entered  into any  transaction  not in the  ordinary  course of
business or (iii) declared or paid any dividend or made any  distribution on any
shares of its stock or redeemed,  purchased  or otherwise  acquired or agreed to
redeem, purchase or otherwise acquire any shares of its capital stock.

            3.19  Material  Contracts.   With  the  exception  of  Contract  No.
HHSO100200500001C  between the Company  and the  Department  of Health and Human
Services,  dated  November  4,  2004  (the  "Anthrax  Contract"),  all  material
documents, contracts or other agreements are included in the exhibits to the SEC
Documents.  Each  description of such contracts,  documents or other  agreements
reflects in all material respects the terms of the underlying contract, document
or other  agreement and is in full force and effect and is valid and enforceable
by and against the Company or its subsidiary,  as the case may be, in accordance
with its terms.  Neither the Company nor its subsidiary,  if the subsidiary is a
party,  is in default in the observance or performance of any term or obligation
to be performed by it under any such agreement,  and no event has occurred which
with  notice or lapse of time or both would  constitute  such a default,  in any
such case which default or event, individually or in the aggregate, would result
in a Material Adverse Effect. No default exists, and no event has occurred which
with  notice or lapse of time or both would  constitute  a  default,  in the due
performance and observance of any term, covenant or condition, by the Company of
the Anthrax Contract, which default or event,  individually or in the aggregate,
would result in a Material Adverse Effect.

            3.20 No Violation.  With the  exception of the Company's  failure to
file its amended  Annual Report on Form 10-K for the fiscal year ended  December
31, 2003,  its Annual Report on Form 10-K for the fiscal year ended December 31,
2004, and its Quarterly  Reports for the quarters ended March 31, 2004, June 30,
2004 and  September  30,  2004,  neither the Company  nor its  subsidiary  is in
violation  of  any  term  or  provision  of its  charter  or  by-laws  or of any
franchise,   license,  permit,   judgment,   decree,  order,  statute,  rule  or
regulation,  where the  consequences of such  violation,  individually or in the
aggregate, would result in a Material Adverse Effect.

            3.21  Capitalization.  The  authorized  capital stock of the Company
consists of (i) 40,000,000  shares of Common Stock, of which  29,606,523  shares
were outstanding as of February 28, 2005 and (ii) 20,000,000 shares of Preferred
Stock,  none of which are  outstanding.  As of February 28, 2005, we had options
and warrants exercisable for 5,701,855 shares of common stock,  2,586,490 shares
of our common stock reserved for future grant under our stock option plans;  and
472,356 shares of our common stock  reserved for future  issuance under our 2001
Employee  Stock  Purchase  Plan.  The Notes are in due and proper legal form and
have been duly  authorized  for issuance by the  Company.  All of the issued and
outstanding  shares of Common  Stock have been duly and  validly  issued and are
fully paid and nonassessable.  Except for warrants to purchase 959,331 shares of
Common  Stock  (the  "Warrants")  and as set  forth  in this  Agreement  and the
Company's filings with the SEC, as of the date hereof, no shares of Common Stock
are  entitled  to  preemptive  rights or  registration  rights  and there are no
outstanding options,  warrants,  rights to subscribe to, or securities or rights
convertible into, any shares of capital stock of the Company,  other than rights
granted to employees or consultants of the Company  pursuant to equity incentive
and stock  purchase  plans  adopted  by the  Company's


                                       8.
<PAGE>

board  of  directors  and  disclosed  in the  Company's  filings  with  the SEC.
Furthermore, except for the Warrants, and as set forth in this Agreement and the
Company's  filings with the SEC, as of the date hereof,  there are no contracts,
commitments,  understandings,  or  arrangements  by which the  Company is or may
become bound to issue  additional  shares of the capital stock of the Company or
options,  securities or rights  convertible  into shares of capital stock of the
Company,  other than rights  granted to employees or  consultants of the Company
pursuant to equity  incentive and stock  purchase plans adopted by the Company's
board of directors and disclosed in the SEC Documents,  and except for customary
transfer  restrictions  contained in  agreements  entered into by the Company in
order to sell restricted securities, as of the date hereof, the Company is not a
party to any agreement granting  registration  rights to any person with respect
to any of its equity or debt securities. All outstanding shares of capital stock
of the Company's  subsidiary have been duly  authorized and validly issued,  and
are fully paid and  nonassessable and are owned directly by the Company free and
clear of any security interests, liens, encumbrances, equities or claims.

            3.22  Employees.  Neither the Company nor its subsidiary is involved
in any labor dispute nor, to the  knowledge of the Company,  is any such dispute
threatened, which dispute would result in a Material Adverse Effect. The Company
is not aware of any existing or imminent  labor  disturbance by the employees of
any of its principal  suppliers or contractors  which would result in a Material
Adverse Effect.

            3.23 Market  Stabilization.  The Company has not taken,  nor will it
take,  directly or indirectly,  any action designed to or which might reasonably
be  expected  to cause or result  in, or which has  constituted  or which  might
reasonably be expected to constitute,  the  stabilization or manipulation of the
price of the Common Stock or any security of the Company to facilitate  the sale
of the Notes.

            3.24 Taxes.  The Company and its  subsidiary  has filed all federal,
state,  local and foreign tax returns which are required to be filed through the
date hereof,  which returns are true and correct in all material respects or has
received timely extensions thereof, and has paid all taxes shown on such returns
and all assessments  received by it to the extent that the same are material and
have become due.  There are no tax audits or  investigations  pending,  which if
adversely  determined would result in a Material  Adverse Effect;  nor are there
any material  proposed  additional  tax  assessments  against the Company or its
subsidiary.

            3.25  Insurance.  The  Company  and its  subsidiary  are  insured by
insurers of recognized  financial  responsibility  against such losses and risks
and in such  amounts  as are  customary  in the  businesses  in  which  they are
engaged;  all  policies of insurance  and fidelity or surety bonds  insuring the
Company  or its  subsidiary  or the  Company's  or its  subsidiary's  respective
businesses,  assets,  employees,  officers and  directors  are in full force and
effect;  the Company and its subsidiary are in compliance with the terms of such
policies and instruments in all material  respects;  and neither the Company nor
any subsidiary of the Company has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to
obtain  similar  coverage from similar  insurers as may be necessary to continue
its business at a cost that is not materially greater than the current cost.


                                       9.
<PAGE>

            3.26  Environmental  Laws.  Except where failure to comply would not
result in a Material  Adverse  Effect (i) each of the Company and its subsidiary
is in compliance in all material  respects with all rules,  laws and  regulation
relating to the use,  treatment,  storage and disposal of toxic  substances  and
protection  of  health  or the  environment  ("Environmental  Laws")  which  are
applicable  to its  business;  (ii) neither the Company nor its  subsidiary  has
received  any  notice  from any  governmental  authority  or  third  party of an
asserted  claim  under  Environmental  Laws;  (iii) each of the  Company and its
subsidiary has received all permits,  licenses or other approvals required of it
under applicable  Environmental Laws to conduct its business as described in the
Memorandum  and is in  compliance  with all  terms  and  conditions  of any such
permit,  license or approval;  and (iv) no property  which is or has been owned,
leased or occupied by the Company or its  subsidiary  has been  designated  as a
Superfund   site   pursuant  to  the   Comprehensive   Environmental   Response,
Compensation  of Liability Act of 1980, as amended (42 U.S.C.  Section 9601, et.
seq.) or otherwise  designated as a contaminated  site under applicable state or
local  law.  Neither  the  Company  nor  its  subsidiary  has  been  named  as a
"potentially responsible party" under the CERCLA 1980.

            3.27  Regulatory  Compliance.  The  human  clinical  trials,  animal
studies and other  preclinical  tests  conducted  by the Company or in which the
Company  has  participated  or  that  are  described  in the  Memorandum  or SEC
Documents  or the  results of which are  referred  to in the  Memorandum  or SEC
Documents, and such studies and tests conducted on behalf of the Company or that
the Company  intends to rely on in support of regulatory  approval by the United
States Food and Drug Administration (the "FDA") or foreign regulatory  agencies,
were and, if still  pending,  are being  conducted in all  material  respects in
accordance with experimental  protocols,  procedures and controls generally used
by  qualified  experts  in the  preclinical  or  clinical  study of new drugs or
diagnostics  as applied to comparable  products to those being  developed by the
Company;  the  descriptions  of the  results  of such  studies,  test and trials
contained  in the SEC  Documents  are  accurate  and  complete  in all  material
respects,  and,  except as set forth in the SEC  Documents,  the  Company has no
knowledge  of any other  trials,  studies  or tests,  the  results  of which the
Company  believes  reasonably  call into  question  the clinical  trial  results
described  or  referred  to in the SEC  Documents  when viewed in the context in
which such results are described and the clinical state of development;  and the
Company has not received any notices or correspondence from the FDA or any other
domestic or foreign governmental agency requiring the termination, suspension or
material  modification  of any animal  studies,  preclinical  tests or  clinical
trials  conducted  by or on behalf of the  Company or in which the  Company  has
participated that are described in the SEC Documents or the results of which are
referred to in the SEC Documents.

            3.28 Investment Company. The Company is not and, after giving effect
to the  offering  and sale of the  Notes,  will not be an  "investment  company"
within the  meaning  of the  Investment  Company  Act of 1940,  as amended  (the
"Investment Company Act").

            3.29  Solicitation;  Other  Issuances  of  Securities.  Neither  the
Company nor its subsidiary or affiliate,  (i) has engaged in any form of general
solicitation  or general  advertising  (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of the Notes, (ii) has,
within the last 6 months directly or indirectly, made any offers or sales of any
security or solicited  any offers to buy any security,  under any  circumstances
that would require  registration  of the Notes under the Securities Act or (iii)
has taken or will take any action


                                      10.
<PAGE>

or steps that would require  registration  of any of the Notes, or the shares of
Common Stock issuable upon conversion thereof, under the Securities Act.

            3.30 Lock-Ups

                  (a) For a period of one  hundred  twenty  (120)  days from the
date on which the Securities are priced, the Company will not, without the prior
written  consent of CIBC World  Markets,  sell,  contract  to sell or  otherwise
dispose  of or issue any  equity or  equity-linked  securities  of the  Company,
except  pursuant  to  previously  issued  options or  warrants,  any  agreements
providing for  anti-dilution or other stock purchase or share issuance rights in
existence  on the date  hereof,  any  employee  benefit or  similar  plan of the
Company  in  existence  on the date  hereof or duly  adopted  hereafter,  or any
technology license  agreement,  strategic alliance or joint venture in existence
on the date hereof or which the Company may enter into hereafter.

                  (b) The  Company  shall,  prior  to or  concurrently  with the
execution  of this  Agreement,  deliver  an  agreement  executed  by each of the
directors and  executive  officers of the Company to the effect that such person
will not,  during  the  period  commencing  on the date such  person  signs such
agreement  and  ending one  hundred  twenty  (120)  days after the date  hereof,
without the prior written consent of the Purchaser, directly or indirectly, make
any offer, sale, assignment,  transfer, encumbrance,  contract to sell, grant of
an option to  purchase or other  disposition  of any Common  Stock  beneficially
owned  (within the meaning of Rule 13d-3 under the  Securities  Exchange  Act of
1934, as amended) on the date of such  agreement or thereafter  acquired,  other
than  Common  Stock  transferred  as a gift or gifts  (provided  that any  donee
thereof agrees in writing to be bound by the terms thereof).

      4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.

      The Purchaser  hereby  represents and warrants to, and covenants with, the
Company,  and  the  Placement  Agents  (as  third  party  beneficiaries  of  the
representations,  warranties and covenants hereunder) as of the Closing Date (or
such other date specified below) as follows:

            4.1 Organization.  If the Purchaser is an entity,  Purchaser is duly
organized  and  validly  existing  in  good  standing  under  the  laws  of  its
jurisdiction of  organization.  The Purchaser has all requisite  corporate power
and authority and all necessary  governmental approvals to carry on its business
as now being conducted,  except as would not result in a material adverse effect
on the  Purchaser's  ability to  consummate  the  transactions  and  perform the
obligations contemplated by this Agreement.

            4.2 Authorization,  Enforcement, and Validity. The Purchaser has the
requisite power and authority to enter into this Agreement and to consummate the
transactions  contemplated  hereby. The Purchaser has taken all necessary action
to authorize the execution, delivery and performance of this Agreement. Upon the
execution and delivery of this  Agreement,  this  Agreement  shall  constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms,  except  as  enforceability  may be  limited  by  applicable  bankruptcy,
insolvency, reorganization,  moratorium or similar laws affecting creditors' and


                                      11.
<PAGE>

contracting  parties'  rights  generally  and  except as  enforceability  may be
subject to general principles of equity.

            4.3 Consents and Approvals;  No Violation.  The execution,  delivery
and  performance of this Agreement by the Purchaser and the  consummation by the
Purchaser  of the  transactions  contemplated  hereby  will not (i)  result in a
violation of the Purchaser's  organizational  documents;  (ii) conflict with, or
constitute  a default or give to others any  rights of  termination,  amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Purchaser is a party  (except for such  conflicts,  defaults,  terminations,
amendments,   accelerations,   cancellations   and   violations  as  would  not,
individually  or in the  aggregate,  result in a material  adverse effect on the
Purchaser's  ability  to  consummate  the  transactions   contemplated  by  this
Agreement); or (iii) result in a violation of any law, rule, regulation,  order,
judgment or decree  applicable  to the Purchaser or its  subsidiary,  except for
such  violations as would not,  individually  or in the  aggregate,  result in a
material   adverse  effect  on  the   Purchaser's   ability  to  consummate  the
transactions  contemplated by this  Agreement.  The Purchaser is not required to
obtain  any  consent,   authorization  or  order  of,  or  make  any  filing  or
registration  with,  any  court or  governmental  agency  or any  regulatory  or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by this Agreement, except where the failure to
obtain  such  consents,  authorization  or  orders or to make  such  filings  or
registrations would not, individually or in the aggregate,  result in a material
adverse  effect  on the  Purchaser's  ability  to  consummate  the  transactions
contemplated by this Agreement.

            4.4 Investment  Experience.  The Purchaser is an accredited investor
within  the  meaning  of Rule  501(a)  of  Regulation  D  promulgated  under the
Securities Act, is knowledgeable,  sophisticated and experienced in making,  and
is  qualified  to make,  decisions  with respect to  investments  in  securities
representing  an  investment  decision like that involved in the purchase of the
Notes.

            4.5 Investment Intent And Limitation On Dispositions.  The Purchaser
is  acquiring  the  Notes for its own  account  for  investment  only and has no
intention of selling or  distributing  any of such Notes or any  arrangement  or
understanding  with any other Persons regarding the sale or distribution of such
Notes, or the shares of Common Stock issuable upon conversion thereof, except in
accordance  with the provisions of Section 6 and except as would not result in a
violation of the Securities Act. The Purchaser will not, directly or indirectly,
offer, sell, pledge,  transfer or otherwise dispose of (or solicit any offers to
buy, purchase or otherwise acquire or take a pledge of) any of the Notes, or the
shares of Common Stock issuable upon  conversion  thereof,  except in accordance
with the  provisions  of Section 6 or  pursuant  to and in  accordance  with the
Securities Act.

            4.6 Information And Risk.

                  (a) The  Purchaser has reviewed the  Memorandum  carefully and
has  requested,  received,  reviewed and considered  all other  information  the
Purchaser  deems relevant in making an informed  decision to purchase the Notes.
The  Purchaser  has  had an  opportunity  to  discuss  the  Company's  business,
management and financial affairs with its management and also had an opportunity
to  ask  questions  of  officers  of  the  Company  that  were  answered  to the
Purchaser's satisfaction.


                                      12.
<PAGE>

                  (b) The Purchaser  recognizes  that an investment in the Notes
involves  a  high  degree  of  risk,  including  a risk  of  total  loss  of the
Purchaser's  investment.  The  Purchaser  is able to bear the  economic  risk of
holding  the Notes,  and the shares of Common  Stock  issuable  upon  conversion
thereof,  for an indefinite  period,  and has  knowledge  and  experience in the
financial and business  matters such that it is capable of evaluating  the risks
of the investment in the Notes.

                  (c) The Purchaser has not, in connection  with the Purchaser's
decision to purchase Notes, relied upon any representations or other information
(whether  oral or written)  other than as set forth in the  representations  and
warranties of the Company contained herein and the Memorandum, and the Purchaser
has,  with respect to all matters  relating to this  Agreement and the offer and
sale of the Notes,  relied solely upon the advice of the Purchaser's own counsel
and has not relied  upon or  consulted  any counsel to the  Placement  Agents or
counsel to the Company.  The Purchaser has not relied upon the Placement  Agents
in  negotiating  the terms of its  investment  in the Notes and has made its own
decision to invest in the Notes, without the assistance of the Placement Agents.
The Purchaser is not relying on any  representation or warranty by the Placement
Agents or any of their agents or  affiliates.  Further,  the  Purchaser  has not
relied on any  investigation  that the Placement Agents, or any person acting on
their behalf, may have conducted with respect to the Company or the Notes.

                  (d) The Purchaser  acknowledges  that the Placement Agents are
not responsible for the contents of the Memorandum.  In addition,  the Purchaser
acknowledges   that  the  Placement   Agents  may  facilitate  the  exchange  of
information between the Purchaser and the Company,  but that such information is
not being provided by the Placement Agents.

            4.7 Lack of Financial  Statements  and Ability to File  Registration
Statement.  The Purchaser  understands  that the Company does not currently have
current  financial  statements  as  required  under  the  Exchange  Act,  and is
therefore not presently in compliance  with the filing  requirements of Sections
13 and 15(d) of the Exchange Act. The Purchaser understands that the Company may
never produce  current  financial  statements  and that a failure to do so would
mean  the  Company  would  continue  to not be in  compliance  with  the  filing
requirements  under the Exchange Act. The Purchaser  understands  that until the
Company is in  compliance  with the  requirements  under the  Exchange  Act, the
Company will not be able to file a Registration Statement (as defined in Section
6 hereto).  The Purchaser further  understands that the Company may never regain
compliance with the  requirements of the Exchange Act, and thus may never file a
Registration Statement.  Furthermore, the Purchaser understands that the Company
is not in compliance with the requirements  under Rule 144 promulgated under the
Securities  Act ("Rule  144"),  and is not in compliance  with the  requirements
under Rule 144A promulgated under the Securities Act ("Rule 144A") and may never
gain compliance  therewith.  The Purchaser  understands that until, if ever, the
Company regains  compliance with Rule 144, the Purchaser will not be able to use
the  benefits  of Rule  144 to sell the  Notes or the  shares  of  Common  Stock
issuable upon conversion thereof to the public without registration and will not
be able to use the benefits of Rule 144A to sell the Notes.

            4.8  Securities  Not  Listed.  The  Purchaser  understands  that the
Company's  securities,  including its Common Stock,  are not currently listed or
traded on any established  stock exchange or on The Nasdaq National Stock Market
or the Nasdaq SmallCap Market.


                                      13.
<PAGE>

Furthermore, the Purchaser understands that the Company's securities,  including
its Common Stock,  have been de-listed from The Nasdaq National Stock Market and
may never be listed or traded on any established stock exchange or on The Nasdaq
National Stock Market or the Nasdaq SmallCap  Market.  The Purchaser is aware of
the risks  involved with the Company's  securities,  including its Common Stock,
not being listed on any  established  stock  exchange or on The Nasdaq  National
Stock Market or the Nasdaq SmallCap Market.

            4.9 Disclosures to the Company.  The Purchaser  understands that the
Company is relying on the statements  contained herein to establish an exemption
from  registration  under federal and state  securities laws. The Purchaser will
promptly  notify the Company of any changes in the  information set forth in the
Registration  Statement  (as  defined in Section  6.1(c)  below)  regarding  the
Purchaser.

            4.10 Nature of Purchaser. To the knowledge of the Purchaser,  except
as  set  forth  on the  signature  page  to  the  Agreement  under  the  caption
"Affiliated Purchasers", the Purchaser: (i) is not an affiliate (as such term is
defined pursuant to Rule 12b-2 promulgated under the Exchange Act) of any of the
Investors, (ii) is not constituted as a partnership,  association, joint venture
or any other type of joint  entity with any of the  Investors,  and (iii) is not
acting as part of a group (as such term is defined  under  Section  13(d) of the
Exchange Act) with any of the  Investors.  If at any time after the Closing Date
the Purchaser  becomes an affiliate (as defined herein) of any of the Investors,
the Purchaser will provide prompt written notice to the Company.

            4.11 Ownership.  Such Purchaser  (including any Person  controlling,
controlled  by,  or  under  common  control  with  such  Purchaser,  as the term
"control" is defined pursuant to the  Hart-Scott-Rodino  Antitrust  Improvements
Act of 1976, as amended, and its implementing  regulations (the "HSR Act")) does
not,  and  upon  the  consummation  of the  transactions  contemplated  by  this
Agreement will not, hold voting securities of the Company exceeding an aggregate
fair market value as of the Closing Date of fifty-  three  million,  one hundred
thousand dollars ($53,100,000), calculated pursuant to the HSR Act.

            4.12 Brokers or Finders.  No broker,  investment  banker,  financial
advisor  or other  Person  is  entitled  to any  broker's,  finder's,  financial
advisor's or other similar fee or commission in connection with the transactions
contemplated  hereby  based  upon  arrangements  made  by or on  behalf  of  the
Purchaser.

            4.13 Acknowledgement. The Purchaser acknowledges and agrees that the
Company does not make and has not made any  representations  or warranties  with
respect to the  transactions  contemplated  by this  Agreement  other than those
specifically set forth in Section 3.

            4.14 No Short Sales.  Between the time such Purchaser  learned about
the Offering and the public announcement of the Offering, such Purchaser has not
taken,  and prior to the public  announcement of the Offering will not take, any
action  that has  caused or will  cause  such  Purchaser  to have,  directly  or
indirectly,  sold or agreed to sell any  shares of Common  Stock,  effected  any
short  sale,  whether or not against the box,  established  any "put  equivalent
position"  (as defined in Rule  16a-1(h)  under the  Securities  Exchange Act of
1934,  as amended)  with  respect to the Common  Stock,  granted any other right
(including,  without  limitation,  any


                                      14.
<PAGE>

put or call  option)  with  respect to the Common  Stock or with  respect to any
security that includes,  relates to or derived any significant part of its value
from the Common Stock, whether or not, directly or indirectly, in order to hedge
its  position in the Shares,  nor has such  Purchaser,  directly or  indirectly,
caused any Person to engaged  in any short  sales or similar  transactions  with
respect to the Common Stock.

            4.15 Release of Placement  Agents.  The Purchaser  hereby  expressly
releases  the  Placement  Agents  and their  affiliates,  and  their  respective
officers, employees, agents and controlling persons from any and all liabilities
arising from in or in connection  with an investment in the Notes and the Common
Stock issuable upon conversion  thereof  (including,  without  limitation,  with
respect to the accuracy of information  or the failure to disclose  information)
or any other  transaction  the Purchaser may undertake with respect to the Notes
or the Common Stock issuable upon conversion  thereof,  and the Purchaser hereby
agrees to make no claim (and  hereby  waives and  releases  all claims  that the
Purchaser  may otherwise  have) with respect to such  investment in the Notes or
the  shares of  Common  Stock  issuable  upon  conversion  thereof  against  the
Placement  Agents,  their affiliates and their respective  officers,  employees,
agents and controlling persons. The Purchaser hereby agrees that the release and
waiver contained in this paragraph is unconditional and irrevocable.

            4.16  Third  Party  Beneficiary   Reliance.   The  Purchaser  hereby
understands  and agrees that the  Placement  Agents  shall each be a third party
beneficiary  of  the  representations,  warranties  and  covenants  made  by the
Purchaser,  pursuant  to this  Section  4, and shall be able to rely on, and the
Purchaser shall be liable for any breach of, the representations, warranties and
covenants made by the Purchaser, to the same extent as the Company.

      5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.

      Notwithstanding  any investigation  made by any party to this Agreement or
by the Placement Agents, all  representations and warranties made by the Company
and the Purchaser  herein shall  survive for a period of one (1) year  following
the Closing Date.

      6. REGISTRATION RIGHTS; COMPLIANCE WITH THE SECURITIES ACT.

            6.1  Definitions.  As used in Sections 6 and 8, the following  terms
shall have the following respective meanings:

                  (a) "Holder" shall mean the holders of Registrable  Securities
or securities  convertible  into  Registrable  Securities and any person holding
such securities to whom the rights under this Agreement have been transferred in
accordance with Section 6.7 hereof.

                  (b) "Registrable  Securities" means the Notes until such Notes
have been converted  into or exchanged for  Underlying  Common Stock and, at all
times  subsequent to any such conversion,  the Underlying  Common Stock or other
securities into or for which such Underlying  Common Stock has been converted or
exchanged,  and any securities issued with respect thereto upon any stock split,
stock  dividend,  recapitalization,  subdivision  or  similar  event;  provided,
however,  that (A) the  foregoing  definition  shall  exclude  in all  cases any
Registrable  Securities  sold by a person in a transaction in which their rights
under this  Agreement are not assigned  pursuant to Section 6.7 hereof;  (B) the
Notes and the Underlying


                                      15.
<PAGE>

Common Stock or other securities shall only be treated as Registrable Securities
if and as long as they  have not been (1) sold to or  through a broker or dealer
or underwriter in a public  distribution or a public  securities  transaction or
(2) sold in a transaction  exempt from the registration and prospectus  delivery
requirements  of the  Securities  Act under  Section  4(1)  thereof  so that all
transfer restrictions, and restrictive legends with respect thereto, if any, are
removed upon the  consummation  of such sale; (C) any Note or Underlying  Common
Stock  held  by a  Holder  shall  cease  to be  included  in the  definition  of
Registrable  Securities  upon  the  earliest  to  occur  of:  (i) the  effective
registration  under  the  Securities  Act and  resale  in  accordance  with  the
Registration  Statement  covering it, (ii) when the Registrable  Securities then
held by the Holder are eligible for sale by the Holder  pursuant to Rule 144(k),
and (iii) the date such security  ceases to be outstanding  (whether as a result
of redemption,  repurchase and cancellation,  conversion or otherwise);  and (D)
the Notes  and the  Underlying  Common  Stock  shall no  longer  be  Registrable
Securities if, as a result of the event or circumstance  described in any of the
foregoing  clauses  (C)(i) and  (C)(ii),  the legend  with  respect to  transfer
restrictions  required under the Indenture is removed or removable in accordance
with the terms of the Indenture or such legend, as the case may be.

                  (c)   "Registration   Statement"  shall  mean  a  registration
statement on Form S-1 or Form S-3 (or any successor form to Form S-3),  filed by
the Company with the SEC pursuant to the Securities Act.

                  (d)  "Underlying  Common  Stock" means the Common Stock of the
Company issuable or issued with respect to, or in exchange for or in replacement
of, the Notes.

            6.2 Registration Procedures And Expenses.

                  (a) Except for such times as the  Company  may be  required to
suspend the use of a prospectus  forming a part of the  Registration  Statement,
the Company will:

                        (i) as soon as reasonably  practicable,  but in no event
later than thirty (30) days following the first date the Company becomes current
in its reporting  requirements  under the Exchange Act (the "Compliance  Date"),
the Company will file a  registration  statement on Form S-1, for an offering to
be made on a  delayed  or  continuous  basis  pursuant  to Rule  415  under  the
Securities  Act,  registering  the resale of the  Registrable  Securities by the
Holders thereof.  To further clarify the intent of the parties,  the "first date
the Company  becomes  current in its reporting  requirements  under the Exchange
Act" shall mean the first date on which the  Company  has filed with the SEC all
delinquent  periodic  reports  pursuant to Sections 13 and 15(d) of the Exchange
Act (regardless of any deficiency  thereof or comments that may be received with
respect  thereto).  The  Company  covenants  and agrees to notify each Holder in
writing of the  Compliance  Date  within five (5)  business  days  thereof.  The
Company  shall use  commercially  reasonable  efforts,  subject  to  receipt  of
necessary information from the Holders of the Registrable  Securities,  to cause
the SEC to declare such Registration  Statement effective within (1) ninety (90)
days after the filing of such  Registration  Statement  if there is no review of
the Registration Statement by the SEC or (2) one hundred twenty (120) days after
the  filing  of  such  Registration  Statement  if  there  is a  review  of  the
Registration  Statement  by the SEC.  The  Company  will  file a  post-effective
amendment  to  such   Registration   Statement  on  Form  S-1  to  convert  such
Registration  Statement to Form S-3 (or any  successor  form to Form S-


                                      16.
<PAGE>

3) within  thirty (30) days after the Company  becomes  eligible to register the
Registrable  Securities  on Form  S-3 (or any  successor  form to Form  S-3) for
resale by the Holders thereof;

                        (ii) prepare and file with the SEC such  amendments  and
supplements to the Registration  Statement and the prospectus used in connection
therewith  (A)  as  may  be  necessary  to  keep  the   Registration   Statement
continuously  effective  until the earlier of (i) the second  anniversary of the
Closing  Date,  or (ii)  such  time as all  Registrable  Securities  held by the
Holders have been sold pursuant to the Registration  Statement and (B) as may be
reasonably requested by a Holder in order to incorporate  information concerning
such Holder or such Holder's intended method of distribution;

                        (iii) so long as the Registration Statement is effective
covering the resale of Registrable  Securities owned by the Holders,  furnish to
each Holder with  respect to the  Registrable  Securities  registered  under the
Registration Statement such reasonable number of copies of prospectuses and such
other documents as such Holder may reasonably request in order to facilitate the
public sale or other disposition of all or any of the Registrable  Securities by
such Holder;

                        (iv)  use  commercially   reasonable   efforts  to  file
documents  required  of the  Company  for normal  Blue Sky  clearance  in states
specified in writing by the Holders;  provided,  however, that the Company shall
not be  required  to  qualify  to do  business  or consent to service of process
generally  in any  jurisdiction  in which the Company is not now so qualified or
has not so consented;

                        (v) bear all expenses in connection  with the procedures
in this Section 6.2 and the registration of the Registrable  Securities pursuant
to the Registration Statement,  other than fees and expenses, if any, of counsel
or other advisers to the Holders or, brokerage fees and commissions  incurred by
the  Holders,  if  any in  connection  with  the  offering  of  the  Registrable
Securities;

                        (vi) use all commercially  reasonable efforts to prevent
the issuance of any stop order or other order  suspending the  effectiveness  of
such  Registration  Statement  and,  if such an order is  issued,  to obtain the
withdrawal  thereof at the earliest  possible  time and to notify each Holder of
the issuance of such order and the resolution thereof; and

                        (vii)  permit  counsel  for the  Holders  to review  the
Registration  Statement and all  amendments  and  supplements  thereto,  and any
comments  made by the  staff  of the SEC and the  Company's  responses  thereto,
within a reasonable period of time prior to the filing thereof with the SEC (or,
in the case of comments made by the staff of the SEC, within a reasonable period
of time following the receipt thereof by the Company);

      provided,  that in the case of clauses (vi) and (vii)  above,  the Company
shall not be  required  to  provide,  and shall not  provide,  any  Holder  with
material,  non-public  information  unless the Purchaser  agrees to receive such
information  and  enters  into a  written  confidentiality  agreement  with  the
Company.

                  (b)  If  (i)  a  Registration   Statement   covering  all  the
Registrable  Securities  required to be covered thereby and required to be filed
by the Company  pursuant to


                                      17.
<PAGE>

this  Section  6.2 is (A) not filed with the SEC on or before  thirty  (30) days
after the  Compliance  Date (a "Filing  Failure") or (B) if the Company fails to
use reasonable best efforts to cause such Registration  Statement to be declared
effective  by the SEC on or before (1) ninety (90) days after the filing of such
Registration  Statement if there is no review of the  Registration  Statement by
the  SEC or (2)  one  hundred  twenty  (120)  days  after  the  filing  of  such
Registration Statement if there is a review of the Registration Statement by the
SEC (each an  "Effectiveness  Failure")  or (ii) on any day after the  effective
date of the  Registration  Statement  sales  of all the  Registrable  Securities
required  to be included on such  Registration  Statement  cannot be made (other
than as  permitted  during a  Suspension  pursuant  to  Section  6.6(b)  of this
Agreement)  pursuant  to  such  Registration   Statement   (including,   without
limitation,  because of a failure to keep such Registration Statement effective,
to disclose  such  information  as is necessary for sales to be made pursuant to
such  Registration  Statement or to register  sufficient  number of  Registrable
Securities) (a "Maintenance Failure"), then, the Company shall pay as liquidated
damages (the "Liquidated  Damages") for such failure and not as a penalty to any
Holder of  Registrable  Securities  an amount equal to 1% of the purchase  price
paid to the Company for all the Registrable Securities (which for the Underlying
Common Stock shall be equal to the principal  amount of Notes that would then be
convertible into such number of shares of Underlying  Common Stock) then held by
such  Holder  for  each  thirty  (30) day  period  following  a Filing  Failure,
Effectiveness Failure or Maintenance Failure (pro rated for any period less than
thirty (30) days) until the  applicable  failure has been cured.  Payments to be
made pursuant to this Section 6.2(c) shall be due and payable  semi-annually  in
arrears,  with the first  semi-annual  payment due on the first interest payment
date in respect of the Registrable  Securities  following the date on which such
Liquidated  Damages  begin to accrue.  The  parties  agree  that the  Liquidated
Damages  represent a reasonable  estimate on the part of the parties,  as of the
date of this  Agreement,  of the amount of damages  that may be  incurred by the
Holders of Registrable Securities if a Filing Failure,  Effectiveness Failure or
Maintenance  Failure occurs.  The parties agree that Liquidated Damages shall be
the exclusive  monetary  damages under this Agreement with respect to any Filing
Failure, Effectiveness Failure or Maintenance Failure.

                  (c)  With a view to  making  available  to the  Purchaser  the
benefits of Rule 144 (or its successor rule) and any other rule or regulation of
the SEC  that may at any  time  permit  the  Purchaser  to sell the  Registrable
Securities to the public without registration,  the Company covenants and agrees
to, after the Compliance Date: (i) make and keep public  information  available,
as those terms are  understood and defined in Rule 144, until the earlier of (A)
six months after such date as all of the Purchaser's  Registrable Securities may
be resold  pursuant  to Rule  144(k) or any other rule of similar  effect or (B)
such  date as all of the  Purchaser's  Registrable  Securities  shall  have been
resold;  (ii)  file  with the SEC in a  timely  manner  all  reports  and  other
documents  required of the Company  under the Exchange Act; and (iii) furnish to
the  Purchaser  upon  request,  as long as the  Purchaser  owns any  Registrable
Securities,  such other  information as may be reasonably  requested in order to
avail  the  Purchaser  of any rule or  regulation  of the SEC that  permits  the
selling of any such Registrable Securities without registration.

                  (d)  In  connection  with  the  Registration  Statement,   the
following provisions shall apply:


                                      18.
<PAGE>

                        (i) Not less than 30 calendar  days prior to the date on
which the SEC  declares  the  Registration  Statement  effective or on which the
Registration  Statement  otherwise becomes effective (the "Effective Time"), the
Company  shall mail a Notice and  Questionnaire  to the  holders of  Registrable
Securities.  No holder shall be entitled to be named as a selling securityholder
in the  Registration  Statement as of the Effective Time, and no holder shall be
entitled to use the  prospectus  for resales of  Registrable  Securities  at any
time,  unless  such  holder has  returned  a  completed  and  signed  Notice and
Questionnaire  to the Company by the deadline  for  response set forth  therein;
provided,  however,  holders of  Registrable  Securities  shall have at least 20
calendar  days  from the date on which the  Notice  and  Questionnaire  is first
mailed to such holders to return a completed and signed Notice and Questionnaire
to the Company.

                        (ii) After the Effective  Time, the Company shall,  upon
the request of any holder of Registrable Securities that is not then an Electing
Holder,  promptly send a Notice and  Questionnaire  to such holder.  The Company
shall  not be  required  to take any  action  to name  such  holder as a selling
securityholder in the Registration Statement or to enable such holder to use the
Prospectus for resales of Registrable  Securities until such holder has returned
a completed and signed Notice and Questionnaire to the Company.

                        (iii) The term  "Electing  Holder" shall mean any holder
of  Registrable  Securities  that has returned a completed and signed Notice and
Questionnaire to the Company in accordance with Section  6.2(d)(i) or 6.2(d)(ii)
hereof.

                        (iv) The Company shall furnish to each Electing  Holder,
and counsel to the Electing  Holders,  if any, no fewer than five  Business Days
prior  to the  initial  filing  of the  Registration  Statement,  a copy of such
Registration  Statement,  and shall furnish to such holders,  and counsel to the
Electing Holders, if any, no fewer than two Business Days prior to the filing of
any  amendment  to the  Registration  Statement,  a copy  of such  amendment  or
supplement,  as the case may be, and shall use its  reasonable  best  efforts to
reflect in each such  document  when so filed with the SEC such comments as such
holders and their respective counsel reasonably may propose.

                        (v) Not later than the Effective Time, the Company shall
cause the Indenture to be qualified under the Trust Indenture Act; in connection
with such qualification,  the Company shall cooperate with the Trustee under the
Indenture  and the Holders (as defined in the  Indenture) to effect such changes
to the  Indenture  as may be required  for such  Indenture to be so qualified in
accordance  with the terms of the Trust  Indenture  Act;  and the Company  shall
execute,  and shall use its  reasonable  best  efforts  to cause the  Trustee to
execute, all documents that may be required to effect such changes and all other
forms and  documents  required  to be filed with the  Commission  to enable such
Indenture to be so qualified in a timely manner.

            6.3 Restrictions on Transferability.

                  (a) Each Holder agrees that it will not effect any disposition
of the Registrable Securities that would constitute a sale within the meaning of
the Securities Act or pursuant to any  applicable  state  securities or Blue Sky
laws of any state,  except (i) as


                                      19.
<PAGE>

contemplated  in the  Registration  Statement  referred to in Section 6.2 above,
(ii) pursuant to the requirements, if then-permitted, of Rule 144 (in which case
the  Purchaser  will  provide  the  Company  with  reasonable  evidence  of  the
Purchaser's  compliance therewith) or Rule 144A (after the Rule 144A Eligibility
Date, as defined below) or (iii) pursuant to a written  opinion of legal counsel
reasonably  satisfactory  to the  Company  and  addressed  to the Company to the
effect that registration  under the Securities Act is not required in connection
with the proposed  transfer;  whereupon the holder of such  securities  shall be
entitled to transfer such securities. Each certificate evidencing the securities
transferred as above provided shall bear the appropriate  restrictive legends as
may be required by Section 7.

                  (b) None of the Registrable  Securities  shall be transferable
except upon the  conditions  specified  in this Section 6, which are intended to
ensure  compliance  with the provisions of the Securities  Act. Each Holder will
cause any proposed transferee of the Registrable  Securities held by such Holder
to agree to take and hold such Registrable  Securities subject to the provisions
and upon the  conditions  specified  in this Section 6 if and to the extent that
such Registrable Securities continue to be restricted securities in the hands of
the transferee.

            6.4  Termination Of Conditions And  Obligations.  The conditions and
obligations  imposed on a Holder  under this Section 6 shall remain in force and
effect as to such Holder until the first date upon which (a) all the Registrable
Securities held by such Holder have been sold or otherwise  transferred pursuant
to the  Registration  Statement  or  otherwise  in a  transaction  in which  the
Holder's  rights  pursuant to this Section 6 have not been assigned;  or (b) the
earlier to occur of: (i) two years  from the date of  Closing,  or (ii) when the
Registrable  Securities  then held by the  Holder are  eligible  for sale by the
Holder pursuant to Rule 144(k).

            6.5 Compliance.  Each Holder,  severally and not jointly,  covenants
and agrees that it will comply with the prospectus delivery  requirements of the
Securities  Act  as  applicable  to it in  connection  with  the  sales  of  the
Registrable Securities pursuant to the Registration Statement.

            6.6 Suspension Period

                  (a) Except in the event that paragraph (b) below applies,  the
Company  shall:  (i) if  necessary  to keep  any  registration  statement  filed
pursuant  to  this  Section  6  current  and  effective  and,  to  convert  such
registration statement to Form S-3 (or any successor form to Form S-3), promptly
prepare and file from time to time with the SEC  post-effective  amendments to a
registration  statement or supplements to the related  prospectus or supplements
or  amendments  to any  document  incorporated  therein by reference or file any
other required document (x) so that the registration  statement will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and so that, as thereafter delivered to purchasers of the Registrable Securities
being sold thereunder, such prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not  misleading  and (y) with respect to the  registration
statement filed pursuant to Section 6.2, to convert such registration  statement
to Form S-3 (or any  successor  form to Form S-3);  (ii)  provide the Holders of
Registrable  Securities registered under the applicable  registration


                                      20.
<PAGE>

statement with copies of any documents filed pursuant to Section 6.6(a)(i);  and
(iii)  inform  the  Holders  of  Registrable  Securities  registered  under  the
applicable  registration  statement  that  the  Company  has  complied  with its
obligations  in  Section  6.6(a)(i)  (or  that,  if  the  Company  has  filed  a
post-effective  amendment to the  registration  statement  that has not yet been
declared  effective,  the Company will notify such Holders to that effect,  will
use its  commercially  reasonable  efforts to secure the  effectiveness  of such
post-effective  amendment as promptly as possible and will  promptly  notify the
Holders  pursuant  to Section  6.6(a)(i)  hereof when the  amendment  has become
effective).

                  (b) Subject to Section 6.6(c) below, in the event:  (i) of any
request by the SEC or any other federal or state  governmental  authority during
the period of effectiveness  of a registration  statement filed pursuant to this
Section 6 for amendments or supplements to the registration statement or related
prospectus or for additional information so that the registration statement will
not contain an untrue  statement of a material  fact or omit to state a material
fact required to be stated therein or necessary to make the  statements  therein
not  misleading  or  otherwise  fail to  comply  with the  applicable  rules and
regulations of the federal  securities  laws; (ii) of the issuance by the SEC or
any other federal or state  governmental  authority of any stop order suspending
the  effectiveness  of  the  registration  statement  or the  initiation  of any
proceedings  for  that  purpose;  (iii) of the  receipt  by the  Company  of any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of  any of  the  Registrable  Securities  for  sale  in any
jurisdiction  or the  initiation of any  proceeding  for such purpose,  provided
that, considering the advice of counsel, the Company reasonably believes that it
must  qualify  in such  jurisdiction;  (iv) of any event or  circumstance  that,
considering the advice of counsel, the Company reasonably believes  necessitates
the making of any changes in the registration  statement or related  prospectus,
or any document  incorporated or deemed to be incorporated therein by reference,
so that,  in the case of the  registration  statement,  it will not  contain any
untrue  statement of a material  fact or any  omission to state a material  fact
required to be stated  therein or necessary to make the  statements  therein not
misleading,  and that in the case of a related  prospectus,  it will not contain
any untrue statement of a material fact or any omission to state a material fact
required to be stated  therein or necessary to make the statements  therein,  in
the light of the circumstances  under which they were made, not misleading;  (v)
that the Company reasonably  believes,  considering the advice of counsel,  that
the Company may, in the absence of a suspension described hereunder, be required
under state or federal  securities  laws to disclose any corporate  development,
the disclosure of which could  reasonably be expected to have a material adverse
effect upon the Company, its stockholders, a potentially material transaction or
event  involving  the Company,  or any  negotiations,  discussions  or proposals
directly  relating  thereto  or (vi)  that,  with  respect  to the  registration
statement   filed  pursuant  to  Section  6.2,  the  Company  can  convert  such
registration statement to Form S-3 (or any successor form to Form S-3); then the
Company  shall deliver a  certificate  in writing to each Holder of  Registrable
Securities   registered  under  the  applicable   registration   statement  (the
"Suspension  Notice") to the effect of the  foregoing  and, upon receipt of such
Suspension  Notice,  the  Holder  will  refrain  from  selling  any  Registrable
Securities  pursuant to the Registration  Statement (a  "Suspension")  until the
Holder's receipt of copies of a supplemented or amended prospectus  prepared and
filed by the  Company or until the  Holder is advised in writing by the  Company
that the current  prospectus  may be used and the Holder has received  copies of
any  additional  or  supplemental   filings  that  are  incorporated  or  deemed
incorporated  by  reference  in  any  such  prospectus.  In  the  event  of  any
Suspension,  the Company will use its commercially  reasonable


                                      21.
<PAGE>

efforts to cause the use of the prospectus so suspended to be resumed as soon as
reasonably practicable after delivery of a Suspension Notice to the Holders.

                  (c) Notwithstanding  the foregoing  paragraphs of this Section
6.6, no Holder shall be prohibited from selling  Registrable  Securities under a
registration  statement  filed  pursuant  to Section  6.2 after such time as the
registration  statement is converted to Form S-3 (or any successor  form to Form
S-3) as a result of  Suspensions  on more than two occasions of not more than 45
days each in any 12-month period;  provided,  however, that, in each case, in no
event shall any  Suspension  pursuant to Section  6.6(b)(v)  exceed  twenty (20)
business days. The Company shall use  commercially  reasonable  efforts to limit
the duration of any  Suspension  that occurs prior to the time the  registration
statement filed pursuant to Section 6.2 is converted to Form S-3.

                  (d)  Provided  that a Suspension  is not then in effect,  each
Holder  may  sell  Registrable   Securities  under  an  effective   registration
statement, provided that it arranges for delivery of a current prospectus to the
transferee of such Registrable Securities.

            6.7  Covenant to Provide  Information.  Each  Holder of  Registrable
Securities  hereby  agrees  to  provide  to  the  Company,   upon  request,  the
information  required  to  be  included  about  such  Holder  in a  Registration
Statement where such Holder's Registrable Securities are included, no later than
10 days  prior  to the  date  upon  which  the  Company  intends  to  file  such
Registration Statement or amendment or supplement thereto.

      7. LEGENDS.

                  (a) The Purchaser understands and agrees that each certificate
or other document  evidencing any of the Notes or Underlying  Common Stock shall
be  endorsed  with the  legend in the form set forth  below,  and the  Purchaser
covenants  that the Purchaser  will not transfer the Notes or Underlying  Common
Stock represented by any such document or certificate without complying with the
restrictions on transfer described in the legend endorsed on such certificate or
document  (unless  there  is  in  effect  a  registration  statement  under  the
Securities Act covering such proposed  transfer,  such securities have been sold
under Rule 144 or as otherwise  permitted by the  provisions of Section 6 above)
and understands that the Company will refuse to register a transfer of any Notes
or  Underlying  Common Stock unless the  conditions  specified in the  following
legend are satisfied:

      "THE NOTES EVIDENCED  HEREBY AND THE SHARES OF COMMON STOCK ISSUABLE
      UPON THE CONVERSION  HEREOF HAVE NOT BEEN REGISTERED  UNDER THE U.S.
      SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES  ACT"), OR OTHER
      SECURITIES  LAWS.  NONE OF THIS  NOTE,  THE  SHARES OF COMMON  STOCK
      ISSUABLE  UPON  CONVERSION  HEREOF OR ANY INTEREST OR  PARTICIPATION
      HEREIN MAY BE  RE-OFFERED,  SOLD,  ASSIGNED,  TRANSFERRED,  PLEDGED,
      ENCUMBERED  OR  OTHERWISE   DISPOSED  OF  IN  THE  ABSENCE  OF  SUCH
      REGISTRATION  OR  UNLESS  THE  TRANSACTION  IS EXEMPT  FROM,  OR NOT
      SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE
      HOLDER OF THIS


                                      22.
<PAGE>

      SECURITY  BY ITS  ACCEPTANCE  HEREOF  (1)  REPRESENTS  THAT IT IS AN
      "ACCREDITED  INVESTOR" (AS DEFINED IN REGULATION D UNDER  SECURITIES
      ACT), (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO
      YEARS (OR SUCH  SHORTER  PERIOD OF TIME AS  PERMITTED BY RULE 144(K)
      UNDER THE  SECURITIES  ACT OR ANY  SUCCESSOR  PROVISION  THEREUNDER)
      AFTER  THE  LATER  OF THE  ORIGINAL  ISSUE  DATE  HEREOF  (OR OF ANY
      PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH VAXGEN, INC. (THE
      "COMPANY")  OR ANY  AFFILIATE  OF THE  COMPANY WAS THE OWNER OF THIS
      NOTE (OR ANY  PREDECESSOR  OF THIS NOTE) AND (Y) SUCH LATER DATE, IF
      ANY, AS MAY BE REQUIRED BY APPLICABLE  LAW (THE "RESALE  RESTRICTION
      TERMINATION  DATE"),  OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE OR
      THE SHARES OF COMMON STOCK  ISSUABLE UPON  CONVERSION  HEREOF EXCEPT
      (A) TO THE COMPANY,  (B) PURSUANT TO A REGISTRATION  STATEMENT WHICH
      HAS BEEN DECLARED  EFFECTIVE  UNDER THE SECURITIES ACT, (C) WHEN AND
      FOR SO LONG AS THE  SECURITIES  ARE ELIGIBLE FOR RESALE  PURSUANT TO
      RULE  144A  UNDER THE  SECURITIES  ACT,  TO A PERSON  IT  REASONABLY
      BELIEVES  IS A  "QUALIFIED  INSTITUTIONAL  BUYER" AS DEFINED IN RULE
      144A UNDER THE  SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR
      FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
      GIVEN THAT THE  TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,  OR
      (D) PURSUANT TO ANY OTHER AVAILABLE  EXEMPTION FROM THE REGISTRATION
      REQUIREMENTS  OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
      TO EACH  PERSON  TO WHOM THIS  NOTE OR THE  SHARES  OF COMMON  STOCK
      ISSUABLE   UPON   CONVERSION   HEREOF  ARE   TRANSFERRED   A  NOTICE
      SUBSTANTIALLY  TO THE  EFFECT  OF THIS  LEGEND;  PROVIDED  THAT  THE
      COMPANY, THE TRUSTEE AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO
      ANY SUCH  OFFER,  SALE OR  TRANSFER  (I)  PURSUANT  TO CLAUSE (D) TO
      REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,  CERTIFICATION AND/OR
      OTHER  INFORMATION  SATISFACTORY TO EACH OF THEM AND (II) IN EACH OF
      THE FOREGOING  CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN
      THE FORM  APPEARING ON THE OTHER SIDE OF THE NOTE IS  COMPLETED  AND
      DELIVERED BY THIS  TRANSFEROR  TO THE  TRUSTEE.  THIS LEGEND WILL BE
      REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE  RESTRICTION
      TERMINATION DATE.

      THIS NOTE,  ANY SHARES OF COMMON STOCK  ISSUABLE UPON THE CONVERSION
      HEREOF AND ANY RELATED  DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED
      FROM TIME TO TIME TO MODIFY THE  RESTRICTIONS  ON RESALES  AND OTHER
      TRANSFERS  OF THIS NOTE AND ANY SUCH SHARES TO REFLECT ANY CHANGE IN
      APPLICABLE LAW OR REGULATION (OR THE  INTERPRETATION


                                      23.
<PAGE>

      THEREOF)  OR IN  PRACTICES  RELATING  TO THE RESALE OR  TRANSFER  OF
      RESTRICTED  SECURITIES  GENERALLY.  THE HOLDER OF THIS NOTE AND SUCH
      SHARES SHALL BE DEEMED BY THE  ACCEPTANCE  OF THIS NOTE AND ANY SUCH
      SHARES TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.

                  (b) Any legend  referred to in Section 7(a) hereof  stamped on
the Notes or Underlying  Common Stock and the stock  transfer  instructions  and
record notations with respect to such Notes or Underlying  Common Stock shall be
removed and the Company  shall issue a  certificate  without  such legend to the
holder of such Notes or Underlying Common Stock if (i) a Registration  Statement
covering the resale of the Notes or Underlying  Common Stock is effective  under
the  Securities  Act,  (ii) such holder  provides the Company with an opinion of
counsel reasonably acceptable to the Company to the effect that a public sale or
transfer  of  such  securities  may  be  made  without  registration  under  the
Securities  Act or (iii)  such  holder  provides  the  Company  with  reasonable
assurances,  which  may,  at the  option of the  Company,  include an opinion of
counsel  satisfactory to the Company,  that such securities can be sold pursuant
to Section (k) of Rule 144 under the  Securities  Act.  Following the receipt by
the Company of such opinion or reasonable assurances, the Company will, no later
than five trading days  following the delivery by a holder to the Company or the
Company's transfer agent of a legended certificate representing such securities,
deliver or cause to be delivered to such holder a certificate  representing such
securities that is free from all restrictive and other legends.

                  (c) The  Purchaser  covenants  that  the  Purchaser  will  not
transfer the Notes or Underlying  Common Stock  represented by any such document
or certificate  without  complying with any  applicable  requirements  under the
Securities  Act to  deliver  the  final  prospectus  included  in the  effective
Registration Statement to any offeree of such Notes or Underlying Common Stock.

      8. INDEMNIFICATION.

                  (a) For purposes of this Section 8:

                        (i) the term "Prospectus"  shall mean the prospectus and
any  amendment  or  supplement  thereto  in the form  first  filed  with the SEC
pursuant  to Rule 424(b)  promulgated  under the  Securities  Act or, if no Rule
424(b) filing is required,  filed as part of the  Registration  Statement at the
time of effectiveness, as supplemented or amended from time to time; and

                        (ii) the term "Registration Statement" shall include any
final prospectus,  exhibit, supplement or amendment included in or relating to a
Registration Statement filed pursuant to Section 6 of this Agreement.

                  (b) The Company  agrees to indemnify and hold harmless each of
the Holders and each Person, if any, who controls any Holder, within the meaning
of the  Securities  Act (each such  person  being  sometimes  referred  to as an
"Indemnified  Person"),  against any losses,  claims,  damages,  liabilities  or
expenses, joint or several, to which such Indemnified Person may become subject,
under the  Securities  Act,  the  Exchange  Act,  or any other  federal or


                                      24.
<PAGE>

state statutory law or regulation,  or at common law or otherwise  (including in
settlement of any  litigation,  but only if such settlement is effected with the
written  consent of the  Company),  insofar  as such  losses,  claims,  damages,
liabilities or expenses (or actions in respect  thereof as  contemplated  below)
arise out of or are based upon any untrue  statement or alleged untrue statement
of any material fact contained in the Registration  Statement or Prospectus,  or
arise out of or are based upon the omission or alleged omission to state therein
a  material  fact  required  to be  stated  therein  or  necessary  to make  the
statements  therein,  in light of the circumstances in which they were made, not
misleading,  and will reimburse each Indemnified  Person for any legal and other
expenses  reasonably  incurred as such expenses are reasonably  incurred by such
Indemnified  Person  in  connection  with  investigating,  defending,  settling,
compromising  or paying  any such loss,  claim,  damage,  liability,  expense or
action; provided,  however, that the Company will not be liable for amounts paid
in  settlement  of any such loss,  claim,  damage,  liability  or action if such
settlement is effected  without the consent of the Company,  which consent shall
not be  unreasonably  withheld,  and the Company shall not be liable in any such
case to the  extent  that any such loss,  claim,  damage,  liability  or expense
arises  out of or is based  upon  (i) an  untrue  statement  or  alleged  untrue
statement or omission or alleged omission made in the Registration  Statement or
Prospectus in reliance upon and in conformity with written information furnished
to the  Company  by or on behalf of the  Indemnified  Person  expressly  for use
therein,  or (ii) any statement or omission in any Prospectus  that is corrected
in any  subsequent  Prospectus  that was delivered to the  Indemnified  Person a
reasonable time prior to the pertinent sale or sales by the Indemnified  Person,
and provided that the  Indemnified  Person has been notified by the Company that
such earlier Prospectus should no longer be delivered by the Indemnified Person.

                  (c) Each Holder will severally, and not jointly, indemnify and
hold  harmless  the  Company,  each of its  directors,  each of its officers who
signed the Registration Statement, each Person, if any, who controls the Company
within the meaning of the  Securities  Act, and each other Holder  (together the
"Indemnitees"),  against any losses, claims, damages, liabilities or expenses to
which each Indemnitee may become subject, under the Securities Act, the Exchange
Act, or any other federal or state statutory law or regulation, or at common law
or  otherwise  (including  in  settlement  of any  litigation,  but only if such
settlement is effected with the written  consent of such Holder) insofar as such
losses, claims, damages,  liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based upon: (i) the inaccuracy of any
representation  made by such Holder, (ii) any untrue or alleged untrue statement
of any material fact contained in the Registration  Statement or the Prospectus,
(iii) the omission or alleged omission to state therein a material fact required
to be stated  therein or necessary to make the statements  therein,  in light of
the circumstances in which they were made, not misleading, or (iv) any violation
or alleged  violation  by the Company of the  Securities  Act  (collectively,  a
"Holder  Violation"),  in each case to the extent, but only to the extent,  that
such Holder  Violation  occurs in reliance upon and in  conformity  with written
information  furnished to the Company by or on behalf of such  Holder,  and such
Holder,  will  reimburse  each  Indemnitee  for  any  legal  and  other  expense
reasonably   incurred,   as  such  expenses  are  reasonably  incurred  by  such
Indemnitees in connection with investigating,  defending, settling, compromising
or paying any such loss, claim, damage, liability,  expense or action; provided,
however,  the  liability of each  Holder,  under this  subsection  (c) shall not
exceed the net proceeds  received by such Holder,  from the sale of  Registrable
Securities covered by the Registration  Statement unless such liability resulted
from willful misconduct by such Holder.


                                      25.
<PAGE>

                  (d) Promptly after receipt by an indemnified  party under this
Section  8 of  notice  of  the  threat  or  commencement  of  any  action,  such
indemnified  party will, if a claim in respect  thereof is to be made against an
indemnifying  party under this Section 8, promptly notify the indemnifying party
in writing thereof,  but the omission so to notify the  indemnifying  party will
not relieve it from any  liability  which it may have to any  indemnified  party
hereunder or otherwise  to the extent it is not  prejudiced  as a result of such
failure.  In case any such action is brought against any  indemnified  party and
such  indemnified  party seeks or intends to seek indemnity from an indemnifying
party,  the  indemnifying  party will be entitled to participate in, and, to the
extent that it may wish, jointly with all other  indemnifying  parties similarly
notified, to assume the defense thereof with counsel reasonably  satisfactory to
the parties;  provided,  however, that an indemnified party shall have the right
to retain its own counsel  (together with appropriate  local counsel),  with the
fees  and  expenses   thereof  to  be  paid  by  the   indemnifying   party,  if
representation  of  such  indemnified  party  by  the  counsel  retained  by the
indemnifying  party would be inappropriate due to actual or potential  differing
interests between such indemnified party and any other party represented by such
counsel  in such  proceeding.  The  failure  to  deliver  written  notice to the
indemnifying  party within a  reasonable  time of the  commencement  of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Section 8 to the extent, and only to the extent, prejudicial to
its ability to defend such action, but the omission so to deliver written notice
to the indemnifying  party will not relieve it of any liability that it may have
to any indemnified party otherwise than under this Section 8.

                  (e) The  obligations  of the Company  and  Holders  under this
Section 8 shall survive completion of any offering of Registrable  Securities in
a Registration Statement and, with respect to liability arising from an offering
to which this Section 8 would apply that is covered by a Registration  Statement
filed before  termination of this Agreement,  such termination.  No indemnifying
party,  in the defense of any such claim or litigation,  shall,  except with the
consent of each  indemnified  party,  consent to entry of any  judgment or enter
into any settlement which does not include as an unconditional  term thereof the
giving by the claimant or plaintiff to such Indemnified  Party of a release from
all liability in respect to such claim or litigation.

      9. NOTICES.

                  (a) All notices,  requests,  consents and other communications
hereunder  shall be in writing,  shall be mailed by  first-class  registered  or
certified  airmail,  confirmed  facsimile  or  nationally  recognized  overnight
express courier postage prepaid, and shall be as addressed as follows:

      if to the Company, to:

                  VaxGen, Inc.
                  1000 Marina Blvd.
                  Suite 200
                  Brisbane, CA 94005
                  Attention: James M. Cunha
                  Telephone No.: 650-624-1004


                                      26.
<PAGE>

                  Telecopy No.: 650-624-1001

      with a copy to:

                  Laura A. Berezin, Esq.
                  Cooley Godward LLP
                  Five Palo Alto Sq.
                  3000 El Camino Real
                  Palo Alto, CA 94306
                  Telephone No.: 650-843-5128
                  Telecopy No.: 650-849-7400

and if to the  Purchaser,  at its address as set forth in the signature  page to
the Agreement, or at such other address or addresses as may have been previously
furnished to the Company in writing in accordance with this Section 9.

                  (b) Such  notices  or  other  communications  shall be  deemed
delivered upon receipt,  in the case of overnight  delivery,  personal delivery,
facsimile transmission (as evidenced by the confirmation thereof), or mail.

      10. MISCELLANEOUS.

            10.1  Amendments.  Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular  instance and either  retroactively or  prospectively)  only with the
written  consent of the Company and the Purchaser;  provided that, any amendment
of Section 6  "Registration  Rights;  Compliance  with the Securities Act" shall
require only the consent of the Company and the Purchasers holding a majority in
aggregate  principal  amount of Registrable  Securities  then  outstanding.  Any
amendment  or waiver  effected in  accordance  with this  Section  10.1 shall be
binding upon each holder of any securities purchased under this Agreement at the
time   outstanding   (including   securities  into  which  such  securities  are
convertible), each future holder of all such securities, and the Company.

            10.2 Fees and  Expenses.  Except as set  forth  herein,  each of the
Company and the Purchaser shall pay its respective fees and expenses  related to
the transactions contemplated by this Agreement.

            10.3  Headings.  The  headings  of  the  various  sections  of  this
Agreement are for  convenience  of reference  only and shall not be deemed to be
part of this Agreement.

            10.4 Severability. In the event that any provision in this Agreement
is held to be invalid,  illegal or unenforceable  in any respect,  the validity,
legality and enforceability of the remaining  provisions  contained herein shall
not in any way be affected or impaired thereby.

            10.5  Successors and Assigns.  This Agreement shall be binding upon,
inure to the benefit  of, and shall be  enforceable  by the  parties  hereto and
their respective  successors and permitted  assigns.  The Company may not assign
this Agreement or any rights or obligations hereunder, other than the rights set
forth under Section 6 of this  Agreement,  without the prior written  consent of
the  Purchaser.  Prior to the date upon  which the Notes are  eligible  for sale


                                      27.
<PAGE>

pursuant to Rule 144A of the Securities Act (the "Rule 144A Eligibility  Date"),
the Purchaser may assign its rights under this  Agreement,  including the rights
under Section 6 of this Agreement,  to any person to whom the Purchaser  assigns
or  transfers  any Notes or  Underlying  Common  Stock,  provided  that (a) such
transferee  agrees in writing to be bound, with respect to the transferred Notes
or Underlying Common Stock, by the provisions hereof that apply to the Purchaser
and (b) in the event  Purchaser  transfers  any of its rights under Section 6 of
this Agreement,  it shall give prompt written notice of such transfer (including
the name, address and telephone number of the transferee) to the Company.  After
the  Rule  144A  Eligibility  Date,  in the  event  that any  transferee  of any
Purchaser  shall  acquire the Notes or Underlying  Common Stock,  in any manner,
whether  by  gift,  bequest,  purchase,  operation  of  law or  otherwise,  such
transferee shall, without any further writing or action of any kind, be entitled
to receive the benefits of and, if an Electing Holder, be conclusively deemed to
be bound by and to perform all of the terms and  provisions of this Agreement to
the aforesaid extent.

            10.6 Governing Law And Forum.  This  Agreement  shall be governed by
and construed in accordance with the laws of the State of New York applicable to
agreements made and to be fully performed  therein.  The parties hereto agree to
submit to the  exclusive  jurisdiction  of the federal  and state  courts of the
State of New York with respect to the  interpretation  of this  Agreement or for
the purposes of any action arising out of or related to this Agreement.

            10.7  Counterparts.  This  Agreement  may be executed in two or more
counterparts,  each of which  shall  constitute  an  original,  and all of which
together  shall  constitute one and the same  instrument.  In the event that any
signature is delivered via facsimile transmission, such signature shall create a
valid and binding  obligation  of the party  executing  (or on whose behalf such
signature  is  executed)  the same  with the same  force  and  effect as if such
facsimile signature page were an original hereof.

            10.8  Entire   Agreement.   This   Agreement   contains  the  entire
understanding  of the  parties  with  respect  to the  matters  covered  herein,
supersedes all prior agreements and understandings  with respect to such matters
and  executed  by and  among  the  Company  and the  Purchaser,  and,  except as
specifically set forth herein or therein,  neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters.


                                      28.
<PAGE>

                                   APPENDIX A

                         FORM OF COMPANY COUNSEL OPINION


                                      29.
<PAGE>

                                   APPENDIX B

                   FORM OF COMPANY REGULATORY COUNSEL OPINION


                                      30.
<PAGE>

                                    ANNEX II
                  Schedule of Registered Holders For Purchaser

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Registered Holder   Principal Amount   Address, Telephone and   Tax ID Number   Name of Broker (if
                    of Notes           Contact Person                           any)
--------------------------------------------------------------------------------------------------
<S>                 <C>                <C>                      <C>             <C>

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

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

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

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

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

--------------------------------------------------------------------------------------------------
</TABLE>


                                      31.