Exhibit 4.1

                            STOCK PURCHASE AGREEMENT

      THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the __ day
of November 2004 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 $40,000,000 worth of
shares of common stock of the Company, subject to adjustment by the Company's
Board of Directors, to certain investors in a private placement (the
"Offering").

B. The Company and the Purchaser agree that the Purchaser will purchase from the
Company and the Company will issue and sell to the Purchaser, _________________
shares of common stock of the Company (the "Shares"), for a purchase price of
$__________ per share, or an aggregate purchase price of $_________, pursuant to
the Terms and Conditions for Purchase of the Shares 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 Punk, Ziegel &
Company, L.P. and Trout Capital LLC (the "Placement Agents").

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


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<PAGE>

      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 shares are to be registered
(This is the name that will appear on your
stock certificate):                                _____________________________
                                                         (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):                         _____________________________

VAXGEN, INC.,
a Delaware corporation

By: __________________________

Name: ________________________

Title: _______________________


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                                     ANNEX I

                 TERMS AND CONDITIONS FOR PURCHASE OF THE SHARES

      1. PURCHASE AND SALE OF STOCK.

            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 that number of whole shares of
the Company's common stock, $0.01 par value (the "Common Stock"), set forth in
the Agreement.

      2. CLOSING.

            2.1 Closing.

                  (a) The purchase and sale of the Shares 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 prior to the Closing.

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

            2.2 Conditions to Closing.

                  (a) The Company's obligation to complete the purchase and sale
of the Shares and deliver stock certificate(s) for the Shares 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 Shares being purchased by
the Purchaser as set forth in the Agreement (the "Purchase Price"), 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 $25,000,000
for the Shares being purchased by all investors in the Offering (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;


                                      B-1.
<PAGE>

                        (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 Shares is subject to the fulfillment of the Purchaser's
satisfaction, on or prior to the Closing, of all 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 receipt by the Company of at least $25,000,000
for the Shares being purchased by all the Investors;

                        (vi) The Company's delivery to its transfer agent of
irrevocable instructions to issue to the Purchaser or in such nominee name(s) as
designated by the Purchaser in writing such number of Shares set forth in the
Agreement or, if requested by the Purchaser, one or more certificates
representing such Shares; and

                        (vii) 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.

      3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

      Except as otherwise disclosed in: (i) the Private Placement Memorandum
dated November 17, 2004, relating to the offering of the Shares, including all
exhibits and annexes thereto, as the same may be amended or supplemented, (the
"Memorandum"); (ii) the


                                      2.
<PAGE>

Company's Annual Report on Form 10-K for the year ended December 31, 2003 (the
"Form 10-K"); or (iii) 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"); or as specifically contemplated by this Agreement, 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 Memorandum, did not, as of its
date, 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 ending December 31, 2001, 2002 and 2003 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.

            3.2 SEC Filings. With the exception of the financial statements and
related financial disclosure in 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 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 ending December 31, 2001,
2002 and 2003 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.

            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


                                      3.
<PAGE>

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; 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 Securities
Exchange Act of 1934, as amended (the "Exchange Act")); the Company is otherwise
in compliance in all material respects with all applicable effective provisions
of the Sarbanes-Oxley Act and is actively taking reasonable commercial steps to
comply with other applicable provisions of the Sarbanes-Oxley Act upon the
effectiveness of such provisions.

            3.4 Independent Accountants. PricewaterhouseCoopers LLP, are the
Company's independent public accountants as required by the Exchange Act, and
the rules and regulations of the SEC thereunder.

            3.5 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
Punk, Ziegel & Company, L.P. or Trout Capital LLC (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.

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

            3.7 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.

            3.8 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


                                      4.
<PAGE>

against the Company or its subsidiary or any of the Company's or the
subsidiary's officers or directors in their capacities as such, that, either
individually or in the aggregate, would result in a Material Adverse Effect.

            3.9 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 issuance and sale of the Shares
by the Company. This Agreement has 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.

            3.10 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 Shares 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").

            3.11 No Default. Neither the execution, delivery and performance of
this Agreement 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 Shares) will give rise to a right to terminate or accelerate the
due date of any payment due under, 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 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.

            3.12 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 Shares 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).

            3.13 Listing. As soon as reasonably practicable after the Compliance
Date (as defined in Section 6.2(a)(i)) 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


                                      5.
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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.

            3.14 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 material 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 Shares.

            3.15 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, 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.

            3.16 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


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<PAGE>

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. 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 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 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.

            3.17 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 a 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.

            3.18 No Violation. 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.

            3.19 Capitalization. The authorized capital stock of the Company
consists of (i) 40,000,000 shares of Common Stock, of which 25,645,957 shares
were outstanding as of October 31, 2004; and (ii) 20,000,000 shares of Preferred
Stock, none of which are outstanding.


                                      7.
<PAGE>

The certificates evidencing the Shares 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 1,845,620 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 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 or by another wholly-owned
subsidiary of the Company free and clear of any security interests, liens,
encumbrances, equities or claims.

            3.20 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.

            3.21 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
or resale of any of the Shares.

            3.22 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.

            3.23 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


                                      8.
<PAGE>

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.

            3.24 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.

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

            3.26 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 Shares, (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 Shares under the Securities
Act or (iii) has issued any shares of Common Stock or shares of any series of
preferred stock or other securities or instruments convertible into,
exchangeable for or otherwise entitling the holder thereof to acquire shares of
Common Stock which would be integrated with the sale of the Shares to the
Purchaser for purposes of the Securities Act or of any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated, nor will the Company or its
subsidiary or affiliate take any action or steps that would require registration
of any of the Shares under the Securities Act or cause the offering of the
Shares to be integrated with other offerings. Assuming the accuracy of the
representations and warranties of Purchaser, the offer and sale of the Shares by
the Company to the Purchaser pursuant to this Agreement will be exempt from the
registration requirements of the Securities Act.

      4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.


                                      9.
<PAGE>

      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
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 material 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 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 shares representing an
investment decision like that involved in the purchase of the Shares.


                                     10.
<PAGE>

            4.5 Investment Intent And Limitation On Dispositions. The Purchaser
is acquiring the Shares for its own account for investment only and has no
intention of selling or distributing any of such Shares or any arrangement or
understanding with any other Persons regarding the sale or distribution of such
Shares 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 Shares 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 Shares.
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.

                  (b) The Purchaser recognizes that an investment in the Shares
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 Shares 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 Shares.

                  (c) The Purchaser has, in connection with the Purchaser's
decision to purchase Shares, not 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 Shares, 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
Shares and has made its own decision to invest in the Shares, without the
assistance of the Placement Agents.

            4.7 Lack of Financial Statements. 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 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 may never gain compliance therewith.
The Purchaser understands that until, if ever, the Company regains compliance
with Rule 144,


                                     11.
<PAGE>

the Purchaser will not be able to use the benefits of Rule 144 to sell the
Shares to the public without registration.

            4.8 Common Stock Not Listed. The Purchaser understands that the
Company's Common Stock is not currently listed or traded on any established
stock exchange or on The Nasdaq National Stock Market or the Nasdaq SmallCap
Market. Furthermore the Purchaser understands that the Company's Common Stock
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 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, the
Purchaser: (i) is not an affiliate (as such term is defined pursuant to Rule
122 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 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.

            4.12 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.

            4.13 No Short Sales. Between the time the Purchaser learned about
the Offering and the public announcement of the Offering, the Purchaser has not
engaged in any short sales or similar transactions with respect to the Shares,
nor has the Purchaser, directly or indirectly, caused any Person to engaged in
any short sales or similar transactions with respect to the Shares.

            4.14 Third Party Beneficiary Reliance. The Purchaser hereby
understands and agrees that each of the Placement Agents shall 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.


                                     12.
<PAGE>

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

      6. REGISTRATION OF THE SHARES; 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 Shares, and any Common
Stock of the Company issuable or issued with respect to, or in exchange for or
in replacement of, the Shares, or other securities convertible into or
exercisable for the Shares 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) shares of 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; and (C) any share of Common Stock held by a Holder
shall cease to be included in the definition of Registrable Securities upon 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).

                  (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.

            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. 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)


                                      13.
<PAGE>

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-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


                                      14.
<PAGE>

unless the Purchaser agrees to receive such information and enters into a
written confidentiality agreement with the Company.

            (b) If the Company shall furnish to the Holders of Registrable
Securities a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be filed and it is therefore essential to defer the filing of such registration
statement, then the Company shall have the right to defer such filing for one or
more periods (provided that the aggregate length of such deferral shall not
exceed thirty business days in any 365 day period) (each a "Deferral Period");
provided, however, that the Company shall not register any securities for the
account of itself or any other stockholders of the Company during such Deferral
Period (other than a registration relating solely to the sale of securities to
participants in a Company stock option or employee stock purchase plan).

            (c) 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 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 shares 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 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 immediately upon demand at the
option of the Holders of Registrable Securities. 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.

            (d) 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 Shares 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


                                      15.
<PAGE>

date as all of the Purchaser's Shares 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
Shares 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
Shares, 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 Shares without registration.

            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 contemplated in the Registration Statement
referred to in Section 6.2 above, (ii) pursuant to the requirements of Rule 144
(in which case the Purchaser will provide the Company with reasonable evidence
of the Purchaser's compliance therewith) 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


                                      16.
<PAGE>

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 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


                                      17.
<PAGE>

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 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 Transfer of Registration Rights. The rights to cause the Company
to register securities granted Holders hereunder may be assigned to a transferee
or assignee (a) in connection with any transfer or assignment by a Holder of
more than 250,000 shares of Registrable Securities (as adjusted for stock
splits, stock dividends, subdivisions, combinations, recapitalizations and the
like), or to any transferee or assignee who is (i) an "affiliate" (as defined in
Rule 405 under the Securities Act) or a subsidiary, parent, general partner,
limited partner, retired partner, member or retired member of a Holder or (ii) a
member of Holder's immediate family or a trust for the benefit of a Holder who
is an individual; provided that (b)(i) the Company is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned, (ii) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
and (iii) the assignee or transferee enters into a written agreement with the
Company whereby the assignee or transferee agrees to be bound by the terms of
this Agreement including, but not limited to, the terms of Section 6 of this
Agreement. For the purposes of determining the number of shares of Registrable
Securities held by a transferee or assignee, the holdings of transferees and
assignees of a partnership who are partners or retired partners of such
partnership (including spouses and ancestors, lineal descendants and siblings of


                                      18.
<PAGE>

such partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the partnership;
provided that all assignees and transferees who would not qualify individually
for assignment of registration rights shall have a single attorney-in-fact for
the purpose of exercising any rights, receiving notices or taking any action
hereunder.

            6.8 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, within 10
days of receipt of such request from the Company.

      7. LEGENDS.

                  (a) The Purchaser understands and agrees that each certificate
or other document evidencing any of the Shares shall be endorsed with the legend
in the form set forth below, and the Purchaser covenants that the Purchaser will
not transfer the shares represented by any such certificate without complying
with the restrictions on transfer described in the legend endorsed on such
certificate (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
Shares unless the conditions specified in the following legend are satisfied:

      "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
      EXCEPT AS SPECIFIED IN THIS LEGEND, SUCH SHARES MAY NOT BE SOLD, OFFERED
      FOR SALE, PLEDGED OR HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE
      OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT THERETO UNDER SUCH ACT
      UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT OR UNLESS SUCH SALE, PLEDGE,
      HYPOTHECATION OR TRANSFER IS OTHERWISE EXEMPT FROM REGISTRATION AND ANY
      APPLICABLE STATE SECURITIES LAWS. THE COMPANY MAY REQUEST A WRITTEN
      OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT
      THAT REGISTRATION UNDER THE SECURITIES ACT IS NOT REQUIRED IN CONNECTION
      WITH SUCH SALE OR OTHER TRANSFER."

                  (b) Any legend referred to in Section 7(a) hereof stamped on a
certificate evidencing the Shares and the stock transfer instructions and record
notations with respect to such Shares shall be removed and the Company shall
issue a certificate without such legend to the holder of such Shares if (i) a
Registration Statement covering the resale of the Shares 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


                                      19.
<PAGE>

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 Shares represented by any such 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 Shares.

      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, against any losses, claims, damages, liabilities or
expenses, joint or several, to which such Holders or such controlling Person 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 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 Holder and each such controlling Person for
any legal and other expenses reasonably incurred as such expenses are reasonably
incurred by such Holder or such controlling 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


                                      20.
<PAGE>

Statement or Prospectus in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Holder 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 Holder a
reasonable time prior to the pertinent sale or sales by the Holder, and provided
that the Holder has been notified by the Company that such earlier Prospectus
should no longer be delivered by the Holder.

                  (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 herein, (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
expressly for use therein, 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.

                  (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


                                      21.
<PAGE>

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
                        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.


                                      22.
<PAGE>

                  (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. 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
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. The Company may not assign this Agreement or any rights
or obligations hereunder without the prior written consent of the Purchaser. The
Purchaser may assign its rights under this Agreement to any person to whom the
Purchaser assigns or transfers any Shares, provided that such transferee agrees
in writing to be bound, with respect to the transferred Shares, by the
provisions hereof that apply to the Purchaser.

            10.6 Governing Law And Forum. This Agreement shall be governed by
and construed in accordance with the laws of the State of California 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 California 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


                                      23.
<PAGE>

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.


                                      24.
<PAGE>

                                   APPENDIX A

                         FORM OF COMPANY COUNSEL OPINION