VaxGen Issues Rebuttal to MedCap Letter(ion process. 4. In terms of headco...)

4. In terms of headcount, VaxGen aggressively restructured starting in

January 2007, and continued in phases as milestones were achieved or

liabilities successfully resolved. These reductions in force (RIFs)

have included executive officers, as appropriate. As of today's

date, VaxGen has 23 employees, consistent with the needs of a

combined VaxGen-Raven. Starting from our headcount prior to the

first RIF, VaxGen has terminated or otherwise separated 193 staff or

89% of our total employees.

VaxGen believes a thoughtful examination of the record using accurate and appropriate data would lead to a different conclusion as to the quality of the Board and management's stewardship during this difficult period.

MedCap's liquidation analysis shows a profound misunderstanding of the liquidation process, and fails to distinguish between the radically different outcomes for debt versus equity holders in a liquidation.

MedCap alleges in its letter that the Company is seeking to mislead stockholders by painting a "worse picture of liquidation value" by using the face value of the convertible debt, notwithstanding that the Company was recently able to purchase a small portion of that debt at 50% of face value. MedCap's proposed debt repurchase scenario is completely unrealistic in the context of a liquidation. In a liquidation, the assets of a company would be distributed to those with a claim on them. Common stockholders rank last in this process. Since VaxGen has more cash than liabilities, holders of the Company's notes could expect to receive the full face value of their holding plus any accrued interest. Put another way, we believe if the merger is not approved and the Company decides to liquidate, it is unreasonable to believe that any holder of the notes would sell the debt at a substantial discount. That some are willing to do so today reflects
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