EMPLOYMENT AGREEMENT


THIS EMPLOYMENT  AGREEMENT  ("Agreement") is made and entered into on January 3,
2000,  by  and  between  William  L.  Heyward,   M.D.,  a  resident  of  Georgia
("Heyward"), and VaxGen, Inc., a Delaware corporation (the "Company").

                              W I T N E S S E T H:

     WHEREAS,   the  Company  desires  to  employ  Heyward  as  Vice  President,
International Clinical Research, and Heyward desires to be so employed;

     WHEREAS,  the Company and Heyward  desire to set forth in writing the terms
of their agreement with respect to Heyward'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  Heyward  as its Vice  President,
International Clinical Research, and Heyward hereby accepts such employment upon
the terms and conditions set forth in this Agreement.

2. Term.  Heyward's  employment will begin on January 3, 2000, and will continue
for an  initial  term  of four  years  ending  December  31,  2003.  Thereafter,
Heyward'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.  Heyward  will  perform such  executive  and  administrative  duties
consistent with his position as Vice President, International Clinical Research,
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.  Heyward shall report directly to John G. Curd,  M.D.,  Senior
Vice President, Medical Affairs and Regulatory. Heyward will be responsible for:
the medical and scientific  supervision of the Thailand  vaccine studies working
in  partnership  with the VaxGen  clinical  operations  personnel in Thailand to
influence  and/or  supervise  personnel  as needed;  establishing  collaborative
relationships  with appropriate  researchers and institutions to conduct vaccine
studies in other  developing  countries  according the Company's  business plan;
maintaining  communication  with appropriate  national and international  public
health  organizations,   which  will  include  arranging  appropriate  meetings,
presenting at appropriate national and international symposia, and participating
in  international  meetings  where AIDS vaccines will be discussed;  and working
closely with the Company in  estimating  market size,  and  developing  delivery
strategies and funding mechanisms for HIV vaccines for the less developed world.
The Company will make reasonable  accommodation to provide Heyward the



                                      110
<PAGE>

necessary equipment to support a home office in his Georgia home as are required
for the performance of these duties.

4. Compensation.  The Company will pay Heyward an annual base salary of $175,000
for the first year of employment.  Heyward's  annual base salary will be payable
semi-monthly. Heyward will have the opportunity for an annual bonus of up to 20%
of annual salary,  such bonus to be determined solely by the Board of Directors.
Heyward's salary and bonus will be considered annually for potential increase by
the Compensation  Committee of the Board of Directors.  As further compensation,
the Company  will pay Heyward a signing  bonus of $15,000  upon the first day of
his employment.

5.   Stock Options.

     (a) Initial  Stock  Option  Grant:  Heyward  shall  receive  incentive  and
     non-qualified  options to purchase a total of 50,000 shares of Common Stock
     of VaxGen (with as many shares allocated to an incentive stock option as is
     permissible  under applicable  laws). The exercise price will be determined
     at the first Board of Directors meeting in the year 2000. The stock options
     will be  administered  according  to the VaxGen Stock Option Plan and shall
     vest over time as  indicated  in the Stock  Option  Plan.  Heyward  will be
     eligible to receive an option to purchase an  additional  25,000  shares of
     Common  Stock of VaxGen  upon  completion  of the  enrollment  phase in the
     Thailand  study  program  (VAX003).  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  Heyward's
     employment  without cause or by Heyward 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 (a) its sale or  exchange of
     stock  (resulting in a shareholder of the Company  holding less than 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/or (b) Genentech increases its holding in the Company to a level of 50%
     or  more  of the  Company's  outstanding  equity,  underlying  options  and
     warrants in a transaction or series of transactions,  Heyward shall receive
     a one time bonus of 12,500 shares of common stock.

6. Expenses.  The Company will reimburse  Heyward 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.

7. Benefits. Heyward 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


                                      111
<PAGE>


Company's  employee  benefit  plans,  in effect from time to time.  In addition,
Heyward  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.

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

     (a)  Death.  Heyward's employment hereunder shall terminate upon his death.

     (b)  Disability.  The Company may terminate Heyward'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.

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

     (d)  Termination by Heyward. Heyward may terminate his employment hereunder
          for Good  Reason.  For  purposes  of this  Agreement,  the term  "Good
          Reason" shall mean (i) the Company  substantially  reducing  Heyward's
          duties,  position,  authority  or  responsibility  hereunder  and  not
          reinstating  the same  within  thirty days after  written  notice from
          Heyward,  or  (ii)  breach  by the  Company  of its  obligations  this
          Agreement if not remedied within thirty days after written notice from
          Heyward.

9.   Benefits Upon Termination.

     (a)  Voluntary  Termination,  Termination  for  Cause  for Due to  Death or
          Disability.   In  the  event  Heyward's  voluntary   termination  from
          employment  with Company or termination  of Heyward's  employment as a
          result of his  death or  disability  or for  Cause,  Heyward  shall be
          entitled to no  compensation or benefits from Company other than those
          earned under  paragraph 5 above through the date of his termination or
          in the  case of any  stock  options,  vested  through  the date of his
          termination.

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


                                      112
<PAGE>

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

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

         (iii) acceleration  of vesting of his options as provided in  paragraph
               5 above.

10.  Restrictive Covenants.

     (a)  Confidential Information. Heyward 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 Heyward 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 Heyward during  employment will
          be the exclusive  property of the Company.  Except as may be necessary
          in connection with the Company's business, Heyward 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,  Heyward  will
          refrain  from  unauthorized  use  or  disclosure  of  information  and
          biological materials owned by former employers or other third parties.

     (b)  Inventions.   Heyward  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").  Heyward hereby assigns to
          the  Company  all of  his  right,  title  and  interest  in and to any
          Inventions.  Heyward 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.

     (c)  Company  Documents.  Upon the termination of his  employment,  Heyward
          will deliver to the Company all documents and other tangible  property




                                      113
<PAGE>

          containing  Confidential  Information which are then in his possession
          or control.

     (d)  Covenant  Not  to  Compete.   Heyward  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  Heyward
          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, Heyward 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 Heyward's employment with the Company.
          Nothing  contained  in this  Agreement  shall be  construed to prevent
          Heyward from 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  Heyward 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
Heyward 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,  Heyward
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.

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):



                                      114
<PAGE>

         To the Company:                Donald P. Francis, M.D., D.Sc.
                                        President
                                        VaxGen, Inc.
                                        1000 Marina Blvd., Suite 200
                                        Brisbane, CA  94005

         Copy to:                       Ralph Pais, Esq.
                                        Fenwick & West LLP
                                        Two Palo Alto Square
                                        Palo Alto, CA 94306

         To  Heyward:                   William L. Heyward, M.D.
                                        2347 Ridge Road
                                        Darien, GA  31305


14.  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.

15.  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.

16.  Successors and Assigns.  The services and duties to be performed by Heyward
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
Heyward, his heirs and representatives.

17. 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.

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

19.  Survival.   The  obligations  set  forth  in  paragraph  10  shall  survive
termination of this Agreement.

20.  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.



                                      115
<PAGE>


21.  Withholding.  The Company may deduct and  withhold  from the payments to be
made to Heyward  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.

22.  Pending  Agreement  from the  Centers  for  Disease  Control.  The  Company
understands   that  you  are  awaiting  a  formal  letter   outlining   detailed
restrictions  regarding your future employment that could  conceivably  conflict
with your prior  employment  with the Centers for  Disease  Control.  When those
restrictions  are received and appended to this agreement,  they will be honored
in full by VaxGen or your Employment Agreement will be amended.

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

For VaxGen, Inc.:


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

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


Heyward:
           --------------------------------------------
           William L. Heyward, M.D.



                                      116

Source: OneCLE Business Contracts.