Sample Business Contracts

Employment Agreement - VaxGen Inc. and James P. Panek

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                              EMPLOYMENT AGREEMENT

      This  Employment  Agreement  ("Agreement")  by and between  James P. Panek
("Panek")  and  VaxGen,  Inc.  ("VaxGen"),  is  effective  February 4, 2002 (the
"Effective  Date"). In consideration of the mutual promises made herein,  VaxGen
and Panek agree as follows:

EMPLOYMENT.  VaxGen hereby  employs Panek,  and Panek hereby accepts  employment
with VaxGen,  upon all of the terms and conditions  described in this Agreement.
This Agreement  supersedes,  replaces and restates any and all prior  agreements
between the parties  hereto  relating  to the terms of Panek's  employment  with
VaxGen,    including   any   prior   agreements   concerning    confidentiality,
non-disclosure and inventions.

WORK RESPONSIBILITIES.  Subject to the terms of this Agreement,  Panek is hereby
employed in the position of Senior Vice President,  Manufacturing Operations and
shall perform the functions and  responsibilities of that position.  Panek shall
devote substantially all of his professional time, attention and energies to the
performance of his work  responsibilities.  Panek's  position,  job description,
duties  and  responsibilities  may be  modified  from  time to time in the  sole
discretion of VaxGen.

COMPENSATION.  As consideration for the services and covenants described in this
Agreement,  VaxGen agrees to compensate  Panek during the term of this Agreement
in the following manner:

Salary/Wages.  VaxGen  agrees to pay Panek an annual base salary of $175,000 per
year,  working 25 hours per week.  Panek's salary,  less required and authorized
deductions,  shall be paid in equal,  periodic  installments  no less frequently
than  semi-monthly in accordance  with VaxGen's then current payroll  practices.
The  Compensation  Committee of the VaxGen Board of Directors (the "Board") will
consider Panek's salary annually for potential increase.

Initial Option Grant and Subsequent  Option Grants. On the Effective Date, Panek
shall be granted an option to purchase  100,000 shares of common stock of VaxGen
at a per share exercise price equal to the fair market value of the common stock
of VaxGen on the  Effective  Date in  accordance  with the form of grant used by
VaxGen for grants made to its senior executive  officers (the "Initial Option").
The Initial  Option  shall be  Incentive  Stock  Options to the  maximum  extent
permitted  by VaxGen's  stock  option  plan.  The Initial  Option shall vest and
become  exercisable  in  accordance  with the  following  schedule:  twenty-five
percent (25%) of the Initial Option shall vest on the first (1st) anniversary of
the Effective Date and an additional  1/48th of the Initial Option shall vest on
the last day of each of the next 36 months following such anniversary;  provided
that, in each case,  Panek has been  continuously  employed with VaxGen from the
Effective Date through the applicable vesting date, except as otherwise provided
herein or under the terms of VaxGen's  stock  option  plan.  Except as otherwise
provided  herein,  the  Initial  Option  shall  be  subject  to such  terms  and
conditions, including provisions regarding post-termination  exercisability,  as
generally apply to stock options granted to other senior executive  officers who
participate in VaxGen's equity  incentive plans as such terms and conditions are
in effect on the  Effective  Date.  Panek will be  eligible to receive an annual
award of stock options,


which will be issued,  if at all, in accordance with the terms and conditions of
this  Agreement  and VaxGen's  stock option plan as in effect at the time of the
award, in an amount to be determined in the sole discretion of the Board. In the
event that  Panek's  employment  is  terminated  by the  Company  without  Cause
pursuant to paragraph  16(a)(iv)  below or by Panek with Good Reason pursuant to
paragraph  16(a)(v) below or following a Change in Control pursuant to paragraph
16(d) below,  then Panek shall have one (1) year from the date of termination to
exercise  all  options  which are then  vested or which vest as a result of this
Agreement,  provided however that in no event will Panek be entitled to exercise
such stock  options  after the  expiration of 10 years from the date of grant of
such stock options.

Performance  Bonus.  Panek is eligible to receive an annual performance bonus of
up to thirty percent (30%) of his annual base salary in cash,  VaxGen securities
or a  combination  thereof,  provided  that no more than 50% of the  performance
bonus shall be paid in securities. The Chief Executive Officer ("CEO") and Panek
will mutually  cooperate to establish annual  performance  objectives for Panek.
Such  performance  bonus shall be awarded,  if at all, in the sole discretion of
the Compensation Committee of the Board. The Compensation Committee of the Board
will consider Panek's bonus annually for potential increase.

Benefits.  Panek shall be entitled to  employment  benefits in  accordance  with
policies  established by or at the direction of the Board with respect to senior
officers of VaxGen,  including  holidays,  leaves of absence,  health insurance,
dental  insurance,  vacation and other benefits,  if any, in accordance with any
eligibility  requirements,  policies,  procedures,  or benefit  plans adopted by
VaxGen from time to time during the existence of this Agreement. Panek's rights,
or those of Panek's  dependents under any such benefits policies or plans, shall
be governed solely by the terms of such policies or plans.  VaxGen's  employment
benefits, and policies related thereto, are subject to termination, modification
or limitation at VaxGen's sole discretion.

Total Compensation.  Panek agrees that the compensation stated above constitutes
the full and exclusive monetary  consideration and compensation for all services
rendered  under this Agreement and for all promises and  obligations  under this

Business  Expenses.  VaxGen  shall pay  Panek's  reasonable  business  expenses,
including  expenses  incurred for travel on VaxGen business,  in accordance with
the policies and procedures of VaxGen, as may be adopted or amended from time to
time at VaxGen's sole discretion.  If Panek incurs business  expenses under this
Agreement,  he shall  submit  monthly  to  VaxGen a  request  for  reimbursement
together with supporting documentation satisfactory to VaxGen.

VAXGEN  POLICIES.  Panek  agrees  to abide by  VaxGen's  written  policies,  and
procedures  that have been  communicated  or made  available to him, as they may
from time to time be  adopted  or  modified  by  VaxGen in its sole  discretion.
VaxGen's written policies and procedures, including the Employee Handbook, shall
be binding on Panek unless  superseded by, or in conflict with,  this Agreement.
Copies of written  policies and procedures are available to Panek in the offices
of VaxGen,  and Panek  shall be  responsible  at all times to  review,  and make
himself familiar with, these policies and procedures.

WARRANTIES.  Panek hereby  represents  and warrants  that he has not  unlawfully
misappropriated  any confidential,  proprietary or trade secret information from
Panek's prior


employer or  employers  and,  except to the extent such  information  has become
publicly  available,  will not knowingly  disclose such information to VaxGen or
improperly use any such information on behalf of VaxGen. Panek acknowledges that
VaxGen has  specifically  requested  that,  if Panek has any such  confidential,
proprietary  or  trade  secret  knowledge  or  information,  Panek  not use such
information  while  employed by VaxGen for the benefit of VaxGen.  Panek further
warrants  that by entering into this  Agreement  with VaxGen he is not violating
any of  the  terms,  agreements  or  covenants  of any  previous  employment  or

PRIOR INVENTIONS.  Panek acknowledges that, except for the inventions  disclosed
on  Appendix A, Panek does not have any right or claim to any  invention,  idea,
process, formula, discovery,  copyright, patent or other such item or matter. No
rights are hereby  conveyed by Panek to VaxGen with  respect to  inventions,  if
any, made by Panek prior to employment by VaxGen, which inventions are listed in
Schedule A, attached hereto.

SUBSEQUENT  INVENTION  DISCLOSURE.  Panek hereby agrees to promptly  disclose to
VaxGen  any  and  all  inventions  that  he  develops  during  the  term  of his
employment.  Panek will also disclose to the CEO all inventions made, conceived,
reduced to practice,  or developed by Panek within six months of the termination
of his  employment  with VaxGen that  resulted  from his prior work with VaxGen.
Such disclosures shall be received by VaxGen in confidence and do not extend the
assignment of inventions disclosed beyond that required by law.

ASSIGNMENT OF INVENTIONS. Panek hereby assigns and agrees to assign to VaxGen or
its designee, Panek's entire right, title and interest in and to all inventions,
works of authorship,  developments, concepts, discoveries, ideas, trademarks and
trade secrets, whether or not patentable or registrable under copyright or other
intellectual  property  laws  ("Inventions")  which  Panek may solely or jointly
develop, conceive or reduce to practice, during the period of employment, except
as provided in paragraph 10 below. Panek agrees that all such Inventions are the
sole  property  of  VaxGen.  Panek  further  agrees  that all  such  Inventions,
including  works of  authorship,  are "works for hire" for  purposes of VaxGen's
rights under  copyright  laws.  Panek  agrees to keep and maintain  adequate and
current  written  records of all Inventions  made by him (solely or jointly with
others)  during the term of his employment  with VaxGen.  The records will be in
the  form of  notes,  sketches,  drawings,  and any  other  format  that  may be
specified  by  VaxGen.  The  records  will be  available  to and remain the sole
property of VaxGen at all times.  Panek understands and agrees that the decision
whether or not to commercialize or market any Invention  developed by him solely
or jointly with others is within  VaxGen's sole discretion and for VaxGen's sole
benefit and that no royalty  will be due to him as a result of VaxGen's  efforts
to commercialize or market any such Invention.  Panek further agrees to perform,
during and after employment with VaxGen,  all acts deemed necessary or desirable
by VaxGen to permit and assist  VaxGen,  at VaxGen's  expense,  in obtaining and
enforcing the full benefits,  enjoyment, rights and title, throughout the world,
of and to the Inventions hereby assigned by Panek to VaxGen as set forth above.

PATENT  AND  COPYRIGHT  REGISTRATIONS.  Panek  agrees to assist  VaxGen,  or its
designee,  at VaxGen's expense, in every proper way to secure VaxGen's rights in
the Inventions and any copyrights,  patents, trademarks, and trade secret rights
or other intellectual  property rights in connection with any such Inventions in
any and all  countries,  including  the  disclosure  to VaxGen of all  pertinent
information and data with respect thereto, the execution of all


applications,  specifications,  oaths,  assignments and all other instruments or
papers which  VaxGen shall deem  necessary in order to apply for and obtain such
rights and in order to assign and convey to VaxGen, its successors, assigns, and
nominees  the sole and  exclusive  rights,  title  and  interest  in and to such
Inventions,  and any  copyrights,  patents,  trademark  and  other  intellectual
property  rights relating  thereto.  Panek further agrees that his obligation to
execute  or cause to be  executed,  when it is in his  power to do so,  any such
instrument or papers shall continue after the termination of this Agreement.  If
VaxGen is unable,  because of Panek's  mental or physical  incapacity or for any
other reason,  to secure his signature to apply for or to pursue any application
for any United  States or foreign  patents or copyright  registrations  covering
Inventions  or original  works of authorship  assigned to VaxGen as above,  then
Panek hereby irrevocably  designates and appoints VaxGen and its duly authorized
officers  and  agents as his agent  and  attorney  in fact to act for and in his
behalf and stead to execute and file any such  applications  and to do all other
lawfully  permitted  acts to further  the  prosecution  and  issuance of letters
patent or copyright  registrations  thereon with the same legal force and effect
as if executed by Panek.

INVENTIONS  NOT ASSIGNED.  The parties  agree that the  assignment of inventions
under this Agreement does not apply to an invention  which  qualifies  fully for
protection  under Section 2870 of the California  Labor Code,  which states that
"Any provision in an employment  agreement which provides that an employee shall
assign,  or offer to assign,  any of his or her rights in an invention to his or
her  employer  shall  not  apply to an  invention  that the  employee  developed
entirely  on his  or her  own  time  without  using  the  employer's  equipment,
supplies,  facilities or trade secret  information  except for those  inventions
that either:  (1) Relate at the time of  conception  or reduction to practice of
the invention to the employer's business, or actual or demonstrably  anticipated
research or development  of the employer;  or (2) Result from any work performed
by the employee for the employer[.]"

employment,  will come into possession of or acquire  knowledge of confidential,
proprietary and trade secret  information of VaxGen.  Panek hereby covenants and
agrees that he will not, either during his employment or at any time thereafter,
disclose any such  confidential,  proprietary or trade secret information to any
person, firm, corporation,  association, partnership or other entity (other than
those  in  VaxGen's  organization  qualified  and  authorized  to  receive  such
information)  for any  purpose  or  reason  whatsoever.  Such  confidential  and
proprietary  information  shall be deemed to  include,  but not be  limited  to,
manuals,  discs,  tapes,  and  summaries or originals of any papers,  documents,
plans,   specifications,   client  lists,   contracts,   licenses  or  licensing
agreements,  data  bases,  or  portions  thereof,  related to the  research  and
development, products or operations of VaxGen, provided that such information is
confidential,  proprietary  or falls within the  definition of a "trade  secret"
under the Uniform Trade Secrets Act. Panek specifically  agrees that he will not
make  use of any  such  confidential  or  proprietary  information  for  his own
purpose,  or for the benefit of any person,  firm,  corporation  or other entity
except  VaxGen.  Panek  will  abide by  VaxGen's  policies  and  procedures,  as
established  from  time to time for the  protection  of its  trade  secrets  and
confidential information.

RETURN OF PROPERTY. All confidential,  proprietary and trade secret information,
and all other  documents,  records,  apparatus,  equipment  and  other  physical
property  which is furnished to or obtained by Panek in the course of employment
with VaxGen, shall be and remain the sole


property of VaxGen.  Panek agrees that upon request by VaxGen or the termination
of Panek's  employment  (whichever  occurs  first),  Panek shall return all such
property, and agrees not to make or retain copies, reproductions or summaries of
any such property without the express written consent of VaxGen.

NON-SOLICITATION,  ANTI-RAIDING.  For a  period  of  one  (1)  year  immediately
following  the  termination  of his  employment,  Panek agrees that he will not,
either directly or indirectly,  (a) attempt to recruit, solicit or take away any
of the  employees of VaxGen who worked for VaxGen at any time during the term of
this  Agreement;  make known to any  person,  firm or  corporation  the names or
addresses of, or any information  pertaining to, any current or former employees
of VaxGen;  (b) use any  confidential  or proprietary  information to attempt to
call on,  solicit  or take away any  clients  of  VaxGen  or any other  persons,
entities, or corporations with which VaxGen has had or contemplated any business
transaction or relationship  during Panek's  employment with VaxGen,  including,
but not limited to, investments,  licenses,  joint ventures,  and agreements for

EQUITABLE  RELIEF.  Panek and VaxGen each agree that in the event of a breach or
threatened  breach of paragraphs 7 through 13 of this  Agreement each party will
not have an  adequate  remedy  at law.  Thus,  in the  event of such a breach or
threatened  breach  by one  party,  the other  party  will be  entitled  to such
equitable and injunctive relief in a court of law as may be available to prevent
and  restrain  a breach of the  provisions  of  paragraphs  7 through  13.  Said
availability  to obtain  injunctive  relief will not prevent  either  party from
pursuing any other equitable or legal relief,  including the recovery of damages
from such breach or threatened breach.

AT-WILL  EMPLOYMENT.  Panek  understands and agrees that employment at VaxGen is
at-will. This means that, for any reason or no reason, Panek's employment may be
terminated,  with or without  cause,  at any time by either  Panek or by VaxGen,
subject to the  severance and notice  provisions  contained in Section 16 below.
Nothing in this or any other  document  or  statement  shall  limit the right of
VaxGen to terminate Panek's employment at-will. Only the Board has the authority
to amend this Agreement on behalf of VaxGen,  and then only in a writing that is
signed by both Panek and VaxGen pursuant to authority  expressly  granted by the


Subject to the survivability  provisions of Section 18 below, Panek's employment
under this Agreement and all compensation and benefits provided for herein shall
terminate upon the occurrence of any of the following events.

Death: In the event of Panek's death,  the  termination  shall be effective upon
the date thereof.

Disability:  In the event  that  Panek  should  become  "disabled,"  VaxGen  may
terminate  Panek's  employment  under  this  Agreement.  For  purposes  of  this
paragraph, "disabled"


shall mean Panek's inability,  despite reasonable accommodation,  to perform the
essential  duties of his position for a period of five (5)  consecutive  months,
and failure to resume the performance of such duties on a full-time basis within
thirty (30) days of notice from VaxGen of intent to terminate  this Agreement on
such grounds.  The  termination  shall be effective  upon the date  specified in
VaxGen's  notice to Panek as  provided  for herein.  Any base salary  payable to
Panek by VaxGen may be offset by any benefits paid to Panek under any applicable
short-term or long-term disability plan.

Cause:  VaxGen may terminate  Panek's  employment  under this Agreement upon the
occurrence of "cause" for termination as herein defined.  "Cause" shall mean (A)
Panek's fraud,  misappropriation,  embezzlement or other willful commission of a
dishonest or unlawful act that has the effect of materially  injuring  VaxGen or
its reputation, (B) Panek's conviction of a crime involving moral turpitude or a
felony,  (C) Panek's willful or reckless  violation of VaxGen's written policies
or procedures  that has the effect of  materially  injuring  VaxGen,  or Panek's
breach of the confidential  information and invention  assignment  provisions of
this  Agreement,  and,  if any such  violation  or  breach  under  this  Section
16(a)(iii)(C)  is  curable,  Panek's  failure to cure such  violation  or breach
within 15 business days of receiving notice of such violation or breach from the
Board, or (D) Panek's habitual failure to perform his job duties,  as determined
by the Board in its  reasonable  judgment,  and after notice of such failure has
been  given to Panek by the Board and  Panek  has had a 15  business-day  period
within which to cure such failure. The Parties acknowledge that the reference to
a  "for  Cause"  termination  herein  does  not  alter  the  employment  at-will
relationship,  but merely sets forth  circumstances  under  which  VaxGen has no
obligation to pay severance to Panek.  The  termination  shall be effective upon
the date specified in VaxGen's notice to Panek.

Without Cause:  Either VaxGen or Panek may terminate  Panek's  employment  under
this Agreement without Cause at any time upon thirty (30) days written notice to
the other party.  The termination  shall be effective upon the date specified in
the notice given pursuant hereto.

By Panek  with Good  Reason:  Panek may  terminate  his  employment  under  this
Agreement  for Good  Reason (A) in the event  VaxGen  breaches  a material  term
hereof and, after  receiving  written  notice from Panek  detailing the specific
provision  allegedly  breached,  does not remedy said breach  within thirty (30)
days of receiving notice,  (B) there is a demotion of Panek from the position of
Senior Vice President,  Manufacturing Operations or the assignment of job duties
or responsibilities materially inconsistent with such position, (C) VaxGen moves
Panek's  principal  place of  business  more than  thirty-five  (35)  miles from
VaxGen's  current  principal  place of business at 1000 Marina  Blvd,  Brisbane,
California,  (D) there is a reduction in Panek's then-current base salary and/or
performance  bonus  opportunity,  or (E)  there is a  material  and  substantial
reduction in the aggregate of Panek's employee  benefits.  The termination shall
be effective on the date  specified  in the notice given  hereunder,  which date
shall not be earlier  than the date such notice is given,  nor more than 30 days
after the date such notice is given.


In the event that  Panek's  employment  under this  Agreement is  terminated  by
VaxGen under  paragraphs  16(a)(i),  16(a)(ii) or 16(a)(iii)  above, or by Panek
under paragraph 16(a)(iv) above, no severance pay will be due to Panek;  however
Panek shall be entitled to payment for any earned but unpaid base salary through
the date of termination  as well as payment for any accrued but unused  vacation
time and any accrued employee  benefits,  subject to the terms of the applicable
employee benefit plans.

In the event that  Panek's  employment  under this  Agreement is  terminated  by
VaxGen under  paragraph  16(a)(iv)  above or by Panek under  paragraph  16(a)(v)
above,  Panek shall be entitled to receive:  (i)  severance pay in the amount of
six (6) months of his then-existing annual base salary plus one additional month
of base  salary for each full year of  employment  with VaxGen  (such  severance
being  limited  strictly  to annual  base salary and will not include any amount
paid or  payable  as a bonus or stock  option  grant) up to a maximum  severance
payment of twelve (12) months annual base salary,  less required and  authorized
deductions,  payable on VaxGen's  ordinary  payroll cycles until fully paid out;
and (ii)  accelerated  vesting  of all his  outstanding  stock  options to fully
vested status as of the date of termination.

Panek shall be entitled to the  severance  benefits  provided for in 16(c) above
if, within twelve (12) months  following a Change in Control (as defined below),
VaxGen or its successor in interest terminates Panek's employment for any reason
other than for Cause (as defined  above) or Panek  terminates  his employment on
account of any of the  following:  (i) in the event  VaxGen  breaches a material
term  hereof and,  after  receiving  written  notice  from Panek  detailing  the
specific provision allegedly breached, does not remedy said breach within thirty
(30) days of receiving notice; or (ii) there is a material  reduction in Panek's
job duties or responsibilities, including, without limitation, demotion from the
position of Senior Vice President;  or (iii) VaxGen or its successor in interest
moves Panek's  principal place of business more than thirty-five (35) miles from
VaxGen's  current  principal  place of business at 1000 Marina  Blvd,  Brisbane,
California;  or (iv) there is a reduction  in Panek's  then-current  base salary
and/or performance bonus opportunity; or (v) there is a material and substantial
reduction in the aggregate of Panek's employee benefits.

For purposes of this  Agreement,  a "Change in Control"  shall be deemed to have
occurred  if: (i) there is an  acquisition  by any  individual,  entity or group
(within the meaning of Section  13(d)(3) or 14(d)(2) of the Securities  Exchange
Act of 1934, as amended (the "Exchange Act")) (for the purposes of this Section,
a  "Person")  of  beneficial   ownership  (within  the  meaning  of  Rule  13d-3
promulgated  under the  Exchange  Act) of 50% or more of the voting power of the
then outstanding  voting  securities of VaxGen entitled to vote generally in the
election of directors (the "Outstanding Company Voting  Securities");  provided,
however,  that for purposes of this  subsection  16(e),  any  acquisition by any
employee  benefit plan (or related  trust)  sponsored or maintained by VaxGen or
any  corporation  controlled by VaxGen shall not constitute a Change in Control;
or (ii)  individuals  who,  as of the date  hereof,  constitute  the Board  (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board;  provided,  however,  that any individual (other than an individual whose
initial  assumption  of office  occurs  as a result  of an actual or  threatened
solicitation  of proxies or consents by or on behalf of a Person  other than the
Board) who becomes a director  subsequent  to the date hereof whose  election or
nomination  for election by VaxGen's  shareholders  was approved by a vote of at
least a majority of the directors then  comprising the Incumbent  Board shall be
considered as though such


individual  were  a  member  of  the  Incumbent  Board;  or  (iii)  there  is  a
consummation  of a  reorganization,  merger  or  consolidation  or sale or other
disposition  of all or  substantially  all of the assets of VaxGen (a  "Business
Combination") unless,  following such Business Combination,  (A) individuals and
entities  who were the  beneficial  owners  of the  Outstanding  Company  Voting
Securities  immediately  prior to such Business  Combination  beneficially  own,
directly  or  indirectly,  more  than  50%  of the  voting  power  of  the  then
Outstanding  Company Voting  Securities of the  corporation  resulting from such
Business Combination  (including,  without limitation,  a corporation which as a
result of such transaction  owns VaxGen or all or substantially  all of VaxGen's
assets either directly or through one or more  subsidiaries)  and (B) at least a
majority of the members of the board of directors of the  corporation  resulting
from such Business  Combination  were members of the Incumbent Board at the time
of the  execution  of the  initial  agreement,  or of the  action of the  Board,
providing for such Business Combination; or (iv) approval by the shareholders of
VaxGen of a complete liquidation or dissolution of VaxGen.

INDEMNIFICATION.  VaxGen shall maintain,  for the benefit of Panek, director and
officer  liability  insurance  in form at least as  comprehensive  as, and in an
amount that is at least equal to, that  maintained by VaxGen as of the Effective
Date of this Agreement for its other officers and directors. In addition, VaxGen
shall indemnify Panek against  liability as an officer and director of VaxGen or
any  subsidiary  or  affiliate  of VaxGen to the  maximum  extent  permitted  by
applicable law. Panek's rights under this Paragraph 17 shall continue so long as
he may be subject to such  liability,  whether  or not his  employment  may have
terminated prior thereto.

SURVIVABILITY.  The respective rights and obligations of the Parties  hereunder,
including, without limitation,  Sections 7, 8, 9, 10, 11, 12, 13, 14, 16(c), 17,
19 and 28 of  this  Agreement,  shall,  to the  extent  necessary,  survive  any
termination of Panek's employment or this Agreement.

GOVERNING LAW. This Agreement shall be construed in accordance with and governed
by the laws of the State of  California  without  regard to its  conflict of law
rules.  This Agreement shall be interpreted in accordance with the plain meaning
of its terms and not strictly for or against either party.

ENTIRE   AGREEMENT.   This  Agreement   embodies  the  complete   agreement  and
understanding   of  the  parties  related  to  Panek's   employment  by  VaxGen,
superseding  any  and  all  other  prior  or  contemporaneous  oral  or  written
agreements between the parties hereto with respect to the employment of Panek by
VaxGen,  and contains all of the covenants and agreements of any kind whatsoever
between the parties with  respect to such  employment.  Each party  acknowledges
that no representations,  inducements,  promises or agreements,  whether oral or
written,  express or implied, have been made by either party or anyone acting on
behalf of a party,  that are not  incorporated  herein and that no  agreement or
promise not contained herein shall be valid or binding.

WAIVER.  The failure of either  party to insist,  in any one or more  instances,
upon  performance  of the terms or  conditions  of this  Agreement  shall not be
construed  as a waiver or a  relinquishment  of any  right  granted  under  this
Agreement or of the future performance of any such term, covenant or condition.


INVALIDITY. Should any provision, portion or part of this Agreement be held by a
court of  competent  jurisdiction  to be  invalid,  void or  unenforceable,  the
remaining  provisions,  portions or parts shall be unaffected and shall continue
in full force and effect, and said invalid, void or unenforceable  provision(s),
portion(s) or part(s) shall be deemed not to be part of this Agreement.

NO THIRD PARTY BENEFICIARIES.  This Agreement is not intended by either party to
create  any  third-party  beneficiaries,  and shall not be so  construed  in any
proceeding.  The sole parties to this Agreement are Panek and VaxGen,  and it is
their  mutual  intent  that they  alone  shall  have  standing  to  enforce  the
provisions of this Agreement, subject to the provisions of Section 26 below.

VOLUNTARY AGREEMENT. Panek and VaxGen represent and agree that each has reviewed
all aspects of this  Agreement,  has carefully  read and fully  understands  all
provisions of this Agreement,  and is voluntarily  entering into this Agreement.
Each party  represents  and agrees  that such party has had the  opportunity  to
review  any and all  aspects  of this  Agreement  with the  legal,  tax or other
advisor or advisors of such party's choice before executing this Agreement.

CAPTIONS.  The captions of the various  paragraphs of this  Agreement are placed
herein for the  convenience  of the parties and the reader,  do not constitute a
substantive term or terms of this Agreement,  and shall not be considered in any
issue involving the interpretation or application of this Agreement.

SUCCESSORS AND ASSIGNS.  This  Agreement  shall be binding upon and inure to the
benefit of and shall be enforceable by and against Panek's heirs,  beneficiaries
and legal representatives. It is agreed that the rights and obligations of Panek
may not be  delegated  or  assigned  except  as  specifically  set forth in this
Agreement.  In the event of a Change in Control (as defined  above),  VaxGen may
assign   its   rights   and   obligations    under   this   Agreement   to   its
successor-in-interest,  and in that  event such  successor-in-interest  shall be
deemed to have acquired all rights and assumed all  obligations  of VaxGen under
this Agreement.

NOTICES. Notices given under the terms of this Agreement shall be in writing and
shall be deemed  delivered when  personally  delivered to the person  identified
below, or three (3) days after deposited, proper first class postage prepaid, in
the U. S. Mail and  addressed  as set  forth  below,  or one day after  properly
consigned to a recognized  national  next-day  delivery  service (e.g.,  Federal
Express)  prepaid  and  addressed  as set forth  below,  or faxed to the  number
provided  below  and  confirmed  by a  delivery  report  from  the  sending  fax
transmitter.  The officer,  addresses and facsimile numbers below may be changed
by written notice given pursuant to this paragraph. Notices shall be given:

         If to VaxGen:              Chief Executive Officer of VaxGen, Inc.
                                            1000 Marina Blvd., Suite 200
                                            Brisbane, California 94005
                                            Fax number:  650-624-1001

         If to Panek:                       James P. Panek
                                            120 Valdeflores Drive
                                            Burlingame, CA  94010


ALTERNATIVE DISPUTE RESOLUTION PROGRAM.  Except as to efforts to seek injunctive
relief as  specifically  addressed  in  paragraphs  7 through  14,  the  parties
understand  and agree that any  dispute  arising  out of Panek's  employment  by
VaxGen,  the  termination of that  employment,  or arising out of or relating to
this Agreement shall be submitted to binding  arbitration in accordance with the
terms of the  Alternative  Dispute  Agreement  set forth in  Appendix  B to this
Agreement and incorporated herein.

Dated:_________________               ________________________________
                                      James P. Panek

Dated:_________________               VaxGen, Inc.

                                      Lance Gordon, Ph.D.
                                      Chief Executive Officer


                                   APPENDIX A

Inventions.  Except as set forth below, I hereby acknowledge that at this time I
have no right,  title or other interest in any invention,  patent,  copyright or
other such material other than the following (if none, so state):







Dated:___________________________       ________________________________________
                                        James P. Panek


                                   APPENDIX B



      In the event that any  employment  dispute  arises  between  VaxGen,  Inc.
("VaxGen") and James Panek ("Panek"), the parties involved will make all efforts
to resolve any such dispute through  informal means.  However,  if within thirty
(30) days of the event giving rise to the dispute,  these  informal  attempts at
resolution  fail and if the  dispute  arises  out of or is  related  to  Panek's
Employment Agreement,  Panek's employment, the termination of Panek's employment
or alleged unlawful discrimination, including but not limited to sexual or other
unlawful harassment (an "Arbitrable Dispute"),  VaxGen and Panek will submit the
dispute to final and binding arbitration, except as set forth in Paragraphs 7-14
of the Employment Agreement.

      The  parties  expressly  understand  and  agree  that  arbitration  is the
exclusive  remedy  for  all  such  Arbitrable  Disputes;  with  respect  to such
disputes,  no other  action may be brought in court or any other  forum  (except
actions  to compel  arbitration  or  enforce an award  issued  hereunder).  THIS

      Arbitrable  Disputes  arising  out of or  related  to  employment,  or the
termination of such  employment or alleged  unlawful  discrimination,  including
retaliation or sexual or other unlawful  harassment,  shall include,  but not be
limited to, the  following:  alleged  violations of federal,  state and/or local
constitutions,  statutes or regulations; claims based on any purported breach of
contractual obligation,  including breach of the covenant of good faith and fair
dealing;  and  claims  based on any  purported  breach of duty  arising in tort,
including violations of public policy.

      The  following  types of  employment  disputes are not subject to this ADR
Agreement:  (1)  disputes  related to  workers'  compensation  and  unemployment
insurance;  (2) claims for  benefits  covered  by a separate  benefit  plan that
provides for arbitration; and (3) claims subject to Sections 7 through 14 of the
Employment  Agreement.  Also, nothing in the Employment  Agreement or in the ADR
Agreement  shall be construed as precluding  Panek from filing a charge with the
Equal Employment  Opportunity  Commission ("EEOC"), the National Labor Relations
Board ("NLRB") or other federal, state or local agencies, seeking administrative
assistance  in  resolving  claims.  However,  any claim that  cannot be resolved
administratively  through  such an agency  shall be  subject  to the  Employment
Agreement and the ADR Agreement.



Attempt At Informal Resolution Of Disputes

      Prior to the submission of any Arbitrable  Dispute to  arbitration,  Panek
and VaxGen shall attempt to resolve the dispute informally as set forth below.

      Panek and  VaxGen  will  select a  mediator  from a list  provided  by the
Federal  Mediation and  Conciliation  Service or other  similar  agency who will
assist the parties in  attempting  to reach a  settlement  of the  dispute.  The
mediator may make  settlement  suggestions to the Parties but shall not have the
power to impose a settlement upon them. If the dispute is resolved in mediation,
the matter shall be deemed  closed.  If the dispute is not resolved in mediation
and goes to the next step (binding  arbitration),  any proposals or  compromises
suggested by either of the parties or the  mediator  shall not be referred to in
or have any bearing on the arbitration procedure. The mediator cannot also serve
as the  arbitrator in the  subsequent  proceeding  unless all parties  expressly
agree in writing.

Arbitration Procedures

      The party  desiring  arbitration,  whether Panek or VaxGen,  must submit a
"Request For  Arbitration"  in writing to the other party within the time period
required by the law that  applies to the claim under the  applicable  statute of
limitations.  If the "Request for  Arbitration"  is not  submitted in accordance
with the aforementioned time limitations, the party failing to do so will not be
able to bring his claims to this or any other forum.  The  requesting  party may
use  a  "Request  for  Arbitration"   form  supplied  by  VaxGen  (Appendix  C).
Alternatively,  the requesting party may create a "Request For Arbitration" form
that, unless otherwise required by law, clearly states "Request For Arbitration"
at the beginning of the first page and includes the following information:

      1. A factual description of the dispute in sufficient detail to advise the
other party of the nature of the dispute;

      2. The date when the dispute first arose;

      3. The names,  work  locations and telephone  numbers of any  individuals,
including employees or supervisors, with knowledge of the dispute; and

      4. The relief requested by requesting party.

      The  responding  party  may  submit  counterclaim(s)  in  accordance  with
applicable law. Any dispute as to the sufficiency of the foregoing  notice shall
be  submitted  to the  Arbitrator  for  resolution  and shall not be a basis for
avoiding arbitration.

Selection Of The Arbitrator

      All disputes will be resolved by a single Arbitrator,  the Arbitrator will
be mutually  selected by VaxGen and Panek.  If the  parties  cannot  agree on an
Arbitrator,  then a list of seven (7)  arbitrators,  experienced  in  employment
matters, shall be provided by the Judicial


Arbitration  Mediation  Services  ("JAMS/Endispute").  The  Arbitrator  will  be
selected by the parties who will  alternately  strike  names from the list.  The
last name remaining on the list will be the  Arbitrator  selected to resolve the
dispute. Upon selection,  the Arbitrator shall set an appropriate time, date and
place for the arbitration, after conferring with the parties to the dispute.

The Arbitrator's Authority

      The Arbitrator shall have the powers enumerated below:

      1. Ruling on motions  regarding  discovery,  and ruling on procedural  and
evidentiary issues arising during the arbitration.

      2.  Ruling on motions to  dismiss  and/or  motions  for  summary  judgment
applying the standards  governing  such motions under the Federal Rules of Civil

      3.  Issuing  protective  orders on the motion of any party or third  party
witness. Such protective orders may include, but are not limited to, sealing the
record of the arbitration,  in whole or in part (including discovery proceedings
and motions, transcripts, and the decision and award), to protect the privacy or
other constitutional or statutory rights of parties and/or witnesses.

      4. Determining only the issue(s)  submitted to him/her.  The issue(s) must
be identifiable in the "Request For Arbitration" or  counterclaim(s).  Except as
required by law, any issue(s) not identifiable in those documents is outside the
scope of the  Arbitrator's  jurisdiction  and any award involving such issue(s),
upon motion by a party, shall be vacated.


      The  discovery  process  shall proceed and be governed by the standards of
the California  Code of Civil  Procedure and the Federal  Arbitration  Act. Each
party may obtain discovery  necessary to adequately  explore and arbitrate their
respective   claims.  The  Arbitrator  shall  have  the  power  to  enforce  the
aforementioned  discovery  rights and  obligations by the imposition of the same
terms, conditions, consequences,  liabilities, sanctions and penalties as can or
may be imposed in like circumstances in a civil action under the California Code
of Civil  Procedure,  except the power to order the arrest or  imprisonment of a

Hearing Procedure

      The  hearing  shall  be held at a  location  mutually  agreed  upon by the
parties, or as determined by the Arbitrator in the absence of an agreement,  and
shall  proceed  according  to the current  version of the  American  Arbitration
Association's  "National  Rules for the Resolution of Employment  Disputes" (the
"Rules") with the following amendments:

      1.  The  Arbitrator  shall  rule  at  the  outset  of the  arbitration  on
procedural issues that bear on whether the arbitration is allowed to proceed.


      2. Each  party has the  burden of  proving  each  element of its claims or
counterclaims,  and each party has the burden of proving any of its  affirmative

      3. In addition to, or in lieu of closing argument, either party shall have
the right to present a post-hearing  brief,  and the due date for exchanging any
post-hearing  briefs  shall  be  mutually  agreed  on by  the  parties  and  the
Arbitrator, or determined by the Arbitrator in the absence of agreement.

      4. The Rules shall  otherwise  be modified to the extent  necessary  to be
consistent with applicable law.

Substantive Law

      1. The  parties  agree that they will be  afforded  the  identical  legal,
equitable,  and statutory  remedies as would be afforded them were they to bring
an action in a court of competent jurisdiction.

      2.  The  applicable  substantive  law  shall  be the law of the  State  of
California  and/or federal law.  Choice of substantive law in no way affects the
procedural  aspects of the  arbitration,  which are exclusively  governed by the
provisions of this ADR Agreement.

Opinion And Award

          The Arbitrator shall issue a written opinion and award, in conformance
with the following requirements:

      1. The opinion and award must be signed and dated by the Arbitrator.

      2. The Arbitrator's opinion and award shall decide all issues submitted.

      3. The Arbitrator's opinion and award shall set forth the findings of fact
and conclusions of law supporting each part of the opinion.

      4. The Arbitrator shall have the same authority to award remedies, damages
and costs as provided to a judge and/or jury under parallel circumstances.

Enforcement Of Arbitrator's Award

      Following  the  issuance  of the  Arbitrator's  decision,  any  party  may
petition a court to confirm, enforce, correct or vacate the Arbitrator's opinion
and award under the Federal Arbitration Act, and/or applicable State law.

Fees And Costs

      Unless otherwise required by law, fees and costs shall be allocated in the
following manner:

      1. Each party shall be responsible for its own attorneys' fees,  except as
otherwise provided by law for the particular claim(s) at issue.


      2. VaxGen  shall pay the entire  cost of the  arbitrator's  services,  the
facility in which the  arbitration  is to be held,  and any  similar  costs that
Panek would not have  otherwise  incurred if the dispute were  adjudicated  in a
court of law rather than through arbitration.

      3. VaxGen shall pay the entire cost of a court  reporter to transcribe the
arbitration  proceedings.  Each party shall  advance  the cost for said  party's
transcript  of the  proceedings.  Each  party  shall  advance  its own costs for
witness fees, service and subpoena charges,  copying,  or other incidental costs
that each party would bear during the course of a civil lawsuit.

      4.  Each  party  shall  be  responsible  for  its  costs  associated  with
discovery, except as required by law or court order.


      Each term,  clause and  provision  of this ADR  Agreement  is separate and
independent,  and should any term,  clause or provision of this ADR Agreement be
found to be invalid or  unenforceable,  the  validity  of the  remaining  terms,
clauses,  and provisions shall not be affected.  As to those terms,  clauses and
provisions  found to be invalid or  unenforceable,  they shall be replaced  with
valid and  enforceable  terms,  clauses or provisions  or shall be modified,  in
order to achieve,  to the fullest extent  possible,  the economic,  business and
other purposes of the invalid or unenforceable terms, clauses or provisions.

Dated:_________________               ________________________________
                                      James P. Panek

Dated:_________________               VaxGen, Inc.

                                      Lance Gordon, Ph.D.
                                      Chief Executive Officer


                                   APPENDIX C




Submission          This  form (or,  alternatively,  a form  that  includes  the
Requirement         information  below)  must  be  submitted  by the  individual
                    claimant to the CEO within the time  period  required by the
                    law  that   applies  to  the  claim.   If  VaxGen   requests
                    arbitration,  the form must also be served on the individual
                    within the appropriate time period.


State the nature of the claim in detail:





(Continue on reverse and add pages if necessary)


Enter the date of termination or date(s) of alleged  incident(s)  (e.g., date of
last instance of unlawful discrimination,  sexual or other unlawful harassment):

                                                  Month         Day        Year

Provide the names and work locations of any individuals,  including employees or
supervisors, with knowledge of the dispute:

Name                              Job Title                       Work Location






Describe the relief requested (i.e., what you want done):





(Please attach any documents relevant to the dispute.)

Signature of Party Requesting Arbitration:

Dated:_________________               ________________________________
                                      James P. Panek

Dated:_________________               VaxGen, Inc.

                                      Lance Gordon, Ph.D.
                                      Chief Executive Officer