VaxGen Issues Rebuttal to MedCap Letter(AINST themerger proposal . VaxGen has...)

VaxGen has reviewed the ISS report carefully, and finds it in general to be balanced and factually accurate. It is, however, very limited in scope and we believe does not fully consider certain unique aspects of the biotechnology sector. VaxGen therefore respectfully disagrees with ISS' recommendation on the merger proposal. Specifically, VaxGen has the following comments:

1. The report contains no analysis of the terms of the transaction.

Although the report acknowledges that VaxGen was willing to

terminate discussions with Raven over the economic terms, it is

disappointing that ISS made no effort to establish any kind of

valuation for Raven, notwithstanding ISS' statement that this is one

of the six criteria it uses to assess mergers.

2. It appears that the single factor that most heavily influenced ISS'

recommendation was the drop in VaxGen stock price following the

merger announcement. This drop was and remains very disappointing.

VaxGen believes it is largely attributable to a mismatch between the

expectations of certain stockholders related to asset value and

transaction type, and transactions that were actually available to

the Company. ISS acknowledges this point in its report: "While the

company's arguments regarding share price reaction seems plausible,

it is very difficult for ISS to ascertain the impact of a change in

shareholder base on the stock price." Based on the stock price

reaction, ISS notes that the market does not seem to be supportive

of the proposed merger. A further significant factor in explaining

the current stock price, in the opinion of the Company, is that the

vocal opposition of certain stockholders to the transaction has

deterred share purchases b
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