EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on September 5,
2000, by and between George  Baxter,  a resident of New Jersey  ("Baxter"),  and
VaxGen, Inc., a Delaware corporation (the "Company").

                              W I T N E S S E T H:

WHEREAS,  the Company desires to employ Baxter as General  Counsel,  Senior Vice
President, and Baxter desires to be so employed;

WHEREAS,  the  Company  and Baxter  desire to set forth in writing  the terms of
their agreement with respect to Baxter's employment with the Company;

NOW,  THEREFORE,  in  consideration  of the premises and of the mutual covenants
contained herein, the parties agree as follows:

1. Employment.  The Company hereby employs Baxter as its General Counsel, Senior
Vice  President,  and Baxter hereby accepts such  employment  upon the terms and
conditions set forth in this Agreement.

2. Term.  Baxter's employment will begin on September 5, 2000, and will continue
for an initial term of four years ending September 4, 2004. Thereafter, Baxter's
employment will be automatically  renewed for successive  one-year terms, unless
notice of termination is given by either party to the other at least thirty days
before the expiration of the then current term.

3.  Duties.  Baxter  will  perform  such  executive  and  administrative  duties
consistent  with his position as General  Counsel,  Senior Vice President of the
Company as are  reasonably  assigned  to him by the Board and will be given such
executive and administrative  powers and authority as may be needed to carry out
those  duties.  Baxter  shall report  directly to the  President of the Company.
Baxter will be responsible for managing and coordinating all legal activities of
the  Company,   work  with  the  CEO  to  coordinate  all  business  development
activities, and serve as a member of the executive management committee.  Baxter
will also serve as an Assistant  Corporate  Secretary to the board of directors.
The Company will  provide to Baxter an office and staff in  Brisbane,  CA as are
required for the performance of his duties.

4.  Compensation.  The Company will pay Baxter an annual base salary of $192,000
for the first year of employment. Baxter's annual base salary will be



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payable semi-monthly.  Baxter will have the opportunity for an annual cash bonus
of up to 20% of base salary and up to 10,000  options under the Company's  stock
option plan. The CEO and  Compensation  Committee of the Board of Directors will
consider Baxter's salary and bonuses annually for potential increase.

5.   Stock Options.

     (a)  Initial  Stock  Option  Grant:  Baxter  shall  receive  incentive  and
     non-qualified  options to purchase 105,000 shares of Common Stock of VaxGen
     at the fair  market  value  price on the  date of the  grant  (with as many
     shares  allocated to an  incentive  stock  option as is  permissible  under
     applicable  laws). The stock options will be administered  according to the
     VaxGen's 1996 Stock Option Plan.  The options  shall vest  according to the
     following  schedule:  (a)  The  first  25%  or  26,250  shares  shall  vest
     immediately upon the first date of full-time employment; and (b) the 75% or
     78,750  will  vest  at a rate  of 33% on  the  following  three  successive
     anniversary  dates of the stock grant. The options shall accelerate in full
     immediately upon occurrence of any of the following  events:  (i) Change of
     Control  (as  defined  below) of VaxGen,  or (ii)  termination  of Baxter's
     employment  without cause or by Baxter for Good Reason (as defined  below).
     Upon an occurrence of event described in (ii) above,  the right to exercise
     all nonqualified  stock options shall be extended to one year from the date
     of termination.

     (b)  Change of  Control.  In the event the  Company  undergoes  a change of
     control (a "Change of Control") by virtue of 50% or more of its outstanding
     equity and  underlying  options and warrants) in a transaction or series of
     transactions occurring in any 12 month period, and whereby Baxter loses his
     position or if a major change in senior  management of the Company  occurs,
     Baxter shall receive a one time bonus of 31,500 shares of common stock.

6.   Expenses.  The Company will reimburse Baxter for travel,  entertainment and
     other expenses reasonably incurred by him in connection with his employment
     under this Agreement upon presentation of appropriate vouchers or receipts.

     (a)  Relocation  Allowance.   The  Company  shall  provide  Baxter  with  a
     relocation  allowance of up to $35,000.  Baxter  shall  provide the Company
     with  valid  receipts  for  the  cost of his  relocation  and he  shall  be
     reimbursed within the company's normal  reimbursement  schedule.  If Baxter
     voluntarily  terminates his employment  with the Company within one year of
     his date of hire, he will be required  reimburse the Company for 50% of the
     total relocation costs. If the Company terminates his employment



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     without  cause or for good reason within one year of Baxter's date of hire,
     no reimbursement of relocation expenses will be required.

7.   Benefits.  Baxter shall have the right,  on the same basis as other members
     of senior management of Company,  to participate in and to receive benefits
     under any of Company's employee benefit plans, in effect from time to time.
     In addition,  Baxter  shall be entitled to the  benefits  afforded to other
     members of senior  management  under  Company's paid time off,  holiday and
     business expense reimbursement policies.

     (a)  Housing Loan. The Company shall provide  Baxter with an  interest-free
          loan of up to $75,000 to assist  him in  purchasing  a home in the Bay
          Area.  However,  the Company  will be  required to impute  interest by
          using a fair  market  value rate and  recording  the free  interest as
          income on Baxter's  annual W-2  statement  of  earnings.  Baxter shall
          execute a promissory note with the Company upon receiving the borrowed
          funds.  The loan shall be  collateralized  by  Baxter's  vested  stock
          options.  Any net  proceeds  due to Baxter's  exercising  of his stock
          options shall be first used to repay the  obligation  set forth in the
          promissory note.

8.   Early  Termination  of  Employment.  Employment  under this  Agreement will
     terminate prior to expiration of the term upon any of the following:

     (b)  Death. Baxter's employment hereunder shall terminate upon his death.

     (c)  Disability. The Company may terminate Baxter's employment hereunder if
          he has been unable to perform his duties hereunder for a period of six
          consecutive  months and if he has not resumed on a full-time basis the
          performance  of such duties within  thirty days after  written  notice
          from the  Company of its intent to  terminate  his  employment  due to
          disability.

     (d)  Cause.  The Company may terminate  Baxter's  employment  hereunder for
          Cause.  For purposes of this  Agreement,  the term  "Cause"  means (i)
          willful and repeated failure by Baxter to perform his duties hereunder
          which is not remedied within thirty days after written notice from the
          Company,  (ii)  conviction of Baxter for a felony,  or (iii)  Baxter's
          dishonesty  that  is  demonstrably  and  materially  injurious  to the
          Company.

     (e)  Termination by Baxter.  Baxter may terminate his employment  hereunder
          for Good Reason. For purposes of this Agreement, the term



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          "Good  Reason"  shall  mean  (i) the  Company  substantially  reducing
          Baxter's duties,  position,  authority or responsibility hereunder and
          not  reinstating the same within thirty days after written notice from
          Baxter,  or  (ii)  breach  by  the  Company  of its  obligations  this
          Agreement if not remedied within thirty days after written notice from
          Baxter.

9.   Benefits Upon Termination.

     (b)  Voluntary  Termination,  Termination  for  Cause  for Due to  Death or
          Disability.   In  the  event  Baxter's   voluntary   termination  from
          employment  with Company or  termination  of Baxter's  employment as a
          result  of his  death or  disability  or for  Cause,  Baxter  shall be
          entitled to no  compensation or benefits from Company other than those
          earned under  paragraph 7 above through the date of his termination or
          in the  case of any  stock  options,  vested  through  the date of his
          termination.

     (c)  Termination  Without Cause or for Good Reason. If Baxter's  employment
          is  terminated  by Company  for any reason  other than for cause or by
          Baxter for Good  Reason,  Baxter  shall be entitled  to the  following
          separation benefits:

          (ii)  all accrued  compensation (including pro-rated target bonus) and
                benefits through the date of termination;

          (iii) continued payment of Baxter's  salary at his Base  Salary  rate,
                less  applicable  withholding, for  twelve (12) months following
                his termination; and

          (iv)  acceleration of vesting of his options as provided in paragraphs
                4 and 5 above.

10.  Restrictive Covenants.

     (b)  Confidential Information.  Baxter acknowledges that, during the course
          of  his  employment   with  the  Company,   he  will  have  access  to
          confidential  information and biological materials not generally known
          outside the  Company  (whether  conceived  or  developed  by Baxter or
          others)  and   confidential   information  and  biological   materials
          entrusted  to  the  Company  by  third  parties,  including,   without
          limitation, trade secrets, techniques, formulae, biological materials,
          marketing and other  business  plans,  data,  strategies and forecasts
          (collectively,    "Confidential   Information").    Any   Confidential
          Information conceived or developed by Baxter during employment will be
          the exclusive



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          property of the Company. Except as may be necessary in connection with
          the  Company's  business,   Baxter  will  not  (during  or  after  his
          employment with the Company) disclose Confidential  Information to any
          third person,  firm or entity or use Confidential  Information for his
          own purposes or for the benefit or any third  person,  firm or entity.
          In his work for the Company, Baxter will refrain from unauthorized use
          or disclosure of information and biological  materials owned by former
          employers or other third parties.

     (c)  Inventions.   Baxter  will  promptly   disclose  to  the  Company  any
          discoveries,  inventions,  formulae  and  techniques,  whether  or not
          patentable,  made,  conceived  or first  reduced to  practice  by him,
          either alone or together with others,  during his employment  with the
          Company (collectively, the "Inventions"). Baxter hereby assigns to the
          Company all of his right, title and interest in and to any Inventions.
          Baxter will execute such  documents and take such other actions as may
          be reasonably  requested by the Company (at the Company's  expense) to
          enable the Company to apply for, obtain,  maintain and enforce patents
          on any of the  Inventions or to facilitate  the transfer or assignment
          of any of the  Company's  rights with  respect to the  Inventions  and
          patents.

     (d)  Company Documents. Upon the termination of his employment, Baxter will
          deliver to the  Company  all  documents  and other  tangible  property
          containing Confidential Information,  which are then in his possession
          or control.

     (e)  Covenant Not to Compete. Baxter acknowledges that his duties hereunder
          and the  services  he will  provide to the  Company  are of a special,
          unique,  unusual  and  extraordinary   character,   which  gives  this
          Agreement  particular  value  to the  Company,  and  that it  would be
          difficult to employ any individual or individuals to replace Baxter in
          the  performance  of  such  duties  and  services.  Therefore,  during
          employment  and for a period of one year after the  termination of his
          employment with the Company,  Baxter will not, directly or indirectly,
          enter into, organize,  control,  engage in, be employed by, serve as a
          consultant  to, be an  officer  or  director  of or have any direct or
          indirect investment in any business, person, partnership, association,
          firm or corporation engaged in any business activity  (including,  but
          not  limited  to,  research,  development,   manufacturing,   selling,
          leasing,  licensing or providing  services) which is competitive  with
          the  business  and/or  scientific   activities  that  the  Company  is
          developing or exploiting during Baxter's  employment with the Company.
          Nothing  contained  in this  Agreement  shall be  construed to prevent
          Baxter from



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          owning at any time, directly or indirectly, as much as 5% of any class
          of equity  securities  issued by any corporation or other entity which
          are publicly  traded and registered  under the Securities and Exchange
          Act of 1934, as amended.

11.  Indemnification.  The Company will  indemnify  Baxter to the fullest extent
permitted by law and will hold harmless from and against any claim, liability or
expense  (including  reasonable  attorneys'  fees) made  against or  incurred by
Baxter in connection  with his  relationship  with the Company.  This obligation
will include, without limitation, prompt payment in advance of any and all costs
of defending the same, including attorney fees.

12. No Impediment to Agreement.  Except as otherwise  disclosed  herein,  Baxter
hereby represents to the Company that he is not, as of the date hereof, and will
not be, during  employment with the Company,  employed under  contract,  oral or
written, by any other person, firm or entity and is not and will not be bound by
the provisions of any restrictive  covenant or  confidentiality  agreement which
would  constitute an impediment  to, or  restriction  upon, his ability to enter
into this Agreement and to perform the duties of his employment.



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13.  Notices.  Any notice  under this  Agreement  must be in writing and will be
deemed to have been given when personally  delivered or mailed by first-class or
express mail to the recipient at the following address (or such other address as
shall be specified by prior written notice):

To the Company:                       VaxGen, Inc.
                                      1000 Marina Blvd., Suite 200
                                      Brisbane, CA  94005

Copy to:                              Ben Stephens, Esq.
                                      Riddell Williams, P.S.
                                      Fourth Avenue Plaza
                                      Suite 4500
                                      Seattle, WA 98154

To George Baxter:                     George Baxter

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

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

17.  Severability.  Whenever possible,  each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law. If
any provision of this Agreement is held to be invalid,  illegal or unenforceable
in any respect under any applicable law in any  jurisdiction,  such  invalidity,
illegality  or  unenforceability  will not  affect  any other  provision  or the
interpretation of this Agreement in any other jurisdiction.

18.  Governing  Law.  This  Agreement  shall be  governed  by and  construed  in
accordance with the laws of the State of Delaware,  without regard to the law of
conflicts.

19.  Successors  and Assigns.  The services and duties to be performed by Baxter
hereunder are personal and may not be assigned.  This Agreement shall be binding
upon and inure to the benefit of the Company,  its successors  and assigns,  and
Baxter, his heirs and representatives.

20. Complete Agreement.  This Agreement constitutes the entire agreement between
the  parties  concerning  the subject  matter  hereof and  supersedes  all prior
agreements between the parties concerning the subject matter hereof.

21. Waiver.  Failure by either party to insist upon strict  adherence to any one
or more of the provisions of this  Agreement on one or more occasions  shall not
be



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construed  as a waiver,  nor shall it deprive that party of the right to require
strict compliance thereafter.

22.  Survival.   The  obligations  set  forth  in  paragraph  13  shall  survive
termination of this Agreement.

23.  Amendments.  No amendment  hereto, or waivers or releases of obligations or
liabilities  hereunder,  shall be effective  unless  agreed to in writing by the
parties hereto.

24.  Withholding.  The Company may deduct and  withhold  from the payments to be
made to Baxter hereunder any amounts required to be deducted and withheld by the
Company under the provisions of any statute, law, regulation or ordinance now or
hereafter enacted.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.

VaxGen, Inc.


By:
      -------------------------------------

Its:
      -------------------------------------




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


George Baxter



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Source: OneCLE Business Contracts.