Exhibit 10.1

                              SETTLEMENT AGREEMENT

      This Settlement  Agreement  ("Agreement")  is made this third day of April
2007, by and between  VaxGen,  Inc.  ("VaxGen") and the Department of Health and
Human  Services,  including  the  Office  of  Public  Health  Emergency  Medical
Countermeasures  ("OPHEMC")  within the Office of the  Assistant  Secretary  for
Preparedness and Response,  and the National Institute of Allergy and Infectious
Diseases  ("NIAID")  within the  National  Institutes  of Health  (collectively,
"HHS").

      VaxGen is a corporation  organized under the laws of the State of Delaware
with its  principal  place of  business  at 1000  Marina  Boulevard,  Suite 200,
Brisbane,  California  94005-1841.  HHS is an Executive Department of the United
States  Government  with its  headquarters  at 200  Independence  Avenue,  S.W.,
Washington,  D.C.  20201.  The  signatories  to this Agreement  hereinafter  are
referred  to  singularly  or  collectively  as,  respectively,  a "Party" or the
"Parties."

      This  Agreement  is made  as a  compromise  between  the  Parties  for the
complete and final settlement of the dispute and litigation  before the Civilian
Board of Contract  Appeals  ("CBCA"),  known as VaxGen,  Inc. v.  Department  of
Health  and  Human   Services,   CBCA  No.  674,   arising  under  Contract  No.
HHSO100200500001C  ("OPHEMC Contract"),  as well as any and all other claims and
disputes  between  the  Parties  related to the OPHEMC  Contract,  Contract  No.
N01-Al-25494 ("First NIAID Contract"), and/or Contract No. N01-Al-30053 ("Second
NIAID Contract").

                                    PREAMBLE

      WHEREAS,  in September 2002, NIAID awarded VaxGen the First NIAID Contract
for research and development  associated with a new anthrax vaccine.  VaxGen has
completed performance of the First NIAID Contract.


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      WHEREAS, in September 2003, NIAID awarded VaxGen the Second NIAID Contract
for further research and development associated with the new anthrax vaccine.

      WHEREAS,  in  November  2004,  the  Office  of  Research  and  Development
Coordination  within  the HHS  Office of Public  Health  Emergency  Preparedness
awarded VaxGen the OPHEMC Contract for the development,  production and delivery
of the new anthrax vaccine.  During the course of contract  performance,  and as
the  result of an agency  reorganization,  administration  of the  contract  was
transferred to OPHEMC.

      WHEREAS,  on March 30, 2006,  VaxGen  submitted a certified  claim to HHS,
pursuant to the Contract  Disputes Act of 1978,  for an equitable  adjustment to
the price and schedule for alleged  formal and  constructive  changes  under the
OPHEMC Contract.

      WHEREAS,  on April 21, 2006, the OPHEMC Contracting Officer issued a final
decision  denying  VaxGen's  certified  claim in its  entirety  under the OPHEMC
Contract.

      WHEREAS,  on December 19, 2006,  the OPHEMC  Contracting  Officer issued a
notice to VaxGen  terminating the OPHEMC Contract for default.  In the notice of
default  termination,  the Contracting Officer stated,  among other things, that
"[t]he supplies terminated may be purchased against VaxGen's account, and VaxGen
will be held liable for any excess  costs.  . . . The  government  reserves  all
rights and remedies  provided by law or under contract,  in addition to charging
excess costs."

      WHEREAS, on December 21, 2006, the NIAID Contracting Officer issued a Stop
Work order to VaxGen,  suspending  performance of the Second NIAID Contract.  On
January 5, 2007,  and again on March 21,  2007,  the NIAID  Contracting  Officer
extended the duration of the stop work order.


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      WHEREAS,  on January 22,  2007,  the NIAID  Contracting  Officer  notified
VaxGen that the agency was  suspending  payment of a total of  $6,477,141.64  in
outstanding  invoice  payments under the Second NIAID Contract,  as an offset to
potential future VaxGen liability for excess  reprocurement costs related to the
default termination of the OPHEMC Contract.

      WHEREAS,  on February 8, 2007,  VaxGen submitted a certified claim to HHS,
pursuant to the Contract  Disputes Act of 1978,  challenging  the  suspension of
invoice payments under the Second NIAID Contract.

      WHEREAS,  on March 14,  2007,  VaxGen filed a Notice of Appeal at the CBCA
regarding the default termination of the OPHEMC Contract.

      WHEREAS, HHS and VaxGen wish to avoid the necessity,  risk, and expense of
further litigation and to resolve and settle all claims, liabilities,  disputes,
and obligations between them arising under, out of, related to, or pertaining in
any way to the First  NIAID  Contract,  the Second  NIAID  Contract,  and/or the
OPHEMC Contract (the "Claims and Disputes").

      NOW,  THEREFORE,  in  consideration of the payment,  mutual promises,  and
releases contained herein and other good and valuable consideration, the receipt
and sufficiency of which hereby are acknowledged, the Parties agree as follows:

1.0   SETTLEMENT

      1.1 HHS  shall  pay  VaxGen  Eleven  Million  Dollars  ($11,000,000)  (the
"Settlement  Funds") in full  settlement of the Claims and  Disputes.  HHS shall
make,  and VaxGen shall receive,  such payment by taking the following  actions:
(a) NIAID shall issue a bilateral modification to the Second NIAID Contract that
incorporates  by reference and attaches this  Agreement,  and that obligates the
Settlement Funds to the Second NIAID Contract;  (b) VaxGen shall submit a proper
invoice for the Settlement Funds (attached); and (c) NIAID shall authorize


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payment  of the  Settlement  Funds to VaxGen  and shall  take all other  actions
necessary  to process and ensure  payment  within 30 days of NIAID's  receipt of
VaxGen's invoice for the Settlement Funds.

      1.2 HHS shall  terminate the Second NIAID Contract for the  convenience of
the Government.  To accomplish this, NIAID shall issue a bilateral  modification
to the Second NIAID  Contract that  incorporates  by reference and attaches this
Agreement,  and that  institutes the  termination  for  convenience on a no-cost
basis.

      1.3 The Parties agree that VaxGen,  and its successors,  its assigns,  and
its affiliates,  shall have the right to access and use those research  results,
reports,  and data,  relating  exclusively  to those studies where only VaxGen's
investigational  recombinant anthrax vaccine was used, developed by or on behalf
of NIAID (for example,  through the Animal  Working Group  process) prior to the
date of this Agreement. The parties further agree VaxGen shall have the right to
access and use research results, reports, and data developed by VaxGen under the
First NIAID Contract or the Second NIAID Contract.

      1.4 HHS shall convert the  termination  for default of the OPHEMC Contract
to a termination  for the  convenience of the  Government.  To accomplish  this,
OPHEMC  shall  issue  a  bilateral  modification  to the  OPHEMC  Contract  that
incorporates by reference and attaches this  Agreement,  and that institutes the
termination for convenience on a no-cost basis.

      1.5 Upon  receipt  by  VaxGen  of the  Settlement  Funds  within  the time
required by Paragraph 1.1(c), the Parties shall execute, and file with the CBCA,
a Joint  Motion to Dismiss  with  Prejudice  the Appeal  regarding  the  default
termination of the OPHEMC Contract.

      1.6 The Parties'  performance  of the  obligations  set forth herein shall
finally settle and resolve any and all claims,  demands and defenses that either
Party asserted or could have


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asserted against the other Party,  arising out of, under, or in any way relating
to the Claims and Disputes.

2.0   COMPROMISE

      2.1 This  Agreement  is the  result of a  compromise  and  shall  never be
construed  as an  admission  by the  Parties of any  liability,  wrongdoing,  or
responsibility on their part or on the part of their  predecessors,  successors,
assignees,  agents,  parents,  subsidiaries,  affiliates,  attorneys,  officers,
directors, or employees.  Indeed, the Parties expressly deny any such liability,
wrongdoing, or responsibility.

      2.2 The Parties agree that this Agreement  shall not be cited or otherwise
referred to in any other  proceedings,  except as is  necessary  to enforce this
Agreement.

3.0   RELEASES

      3.1 VaxGen for itself, its predecessors,  its successors, its assigns, its
affiliates,  its  subcontractors  (of every tier), and its vendors for the first
NIAID   Contract,   the  Second  NIAID  Contract,   and  the  OPHEMC   Contract,
respectively, hereby relinquishes,  releases, waives, and forever discharges all
claims,  demands,  and  defenses of whatever  kind that it has asserted or could
have asserted  against HHS arising out of, under,  or in any way relating to the
Claims and Disputes, including without limitation (a) any unpaid costs under the
First NIAID  Contract,  (b) the certified claim dated February 8, 2007 under the
Second NIAID  Contract,  (c) the certified  claim dated March 30, 2006 under the
OPHEMC  Contract,  and (d) the CBCA appeal filed March 14, 2007 under the OPHEMC
Contract.

      3.2 HHS for itself, its predecessors, its successors, its assigns, and its
affiliates,  including NIAID and OPHEMC, hereby relinquishes,  releases, waives,
and forever discharges all claims,  demands,  and defenses of whatever kind that
it has asserted or could have asserted


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against VaxGen  arising out of, under,  or in any way relating to the Claims and
Disputes, including but not limited to future excess reprocurement costs related
to the default termination of the OPHEMC Contract.

4.0   ADDITIONAL TERMS AND CONDITIONS

      4.1 This Agreement sets forth and constitutes the entire agreement between
the Parties with respect to its subject  matter and supersedes any and all prior
agreements,  understandings,  promises,  warranties, and representations made by
each to the other concerning its subject matter.  This Agreement may be modified
only by a written document signed by the Parties. No waiver of this Agreement or
any of its  promises,  obligations,  terms or  conditions  is valid unless it is
written and signed by the Party against whom the waiver is to be enforced.

      4.2 This  Agreement  may be executed in  identical  counterparts,  each of
which shall constitute an original and all of which shall constitute one and the
same Agreement.  Copies of all or part of this Agreement,  including  signatures
thereto,  which are copies or  transmitted  by facsimile or electronic  mail are
presumed valid.

      4.3  This  Agreement  is  binding  on  the  Parties,  their  predecessors,
successors,  parents,  subsidiaries,  affiliates,  assignees, agents, directors,
officers, employees, shareholders and attorneys. Each of the signatories of this
Agreement  represents  and warrants  that he/she is  authorized  to execute this
Agreement on behalf of his/her  respective  Party and by such  signature to bind
that Party to this Agreement.

      4.4 Each Party  agrees,  upon the request of the other  Party,  to execute
such  additional  documents  and  perform  such other  acts,  as are  reasonably
necessary or appropriate to accomplish the intent of the Parties as expressed in
this Agreement.


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      IN WITNESS  WHEREOF,  we have  hereunto  set our hands and seals as of the
date above written.


      VAXGEN, INC.

      By:   /s/ James P. Panek
         ----------------------------
            James P. Panek
            Chief Executive Officer


      DEPARTMENT OF HEALTH AND HUMAN SERVICES


      By:   /s/ Brian K. Goodger
         ----------------------------
            Brian K. Goodger
            Contracting Officer
            HHS/OS/ASPR/OPHEMC


      By:   /s/ Barbara A. Shadrick
         ----------------------------
            Barbara A. Shadrick
            Contracting Officer
            HHS/NIH/NIAID


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