EXHIBIT 10.3

                        SEPARATION AND RELEASE AGREEMENT
                        --------------------------------

     THIS  AGREEMENT  is  entered  into as of this 3rd day of June,  2002 by and
between  Elizabeth  Scheer  (hereinafter  referred to as  "Employee")  and Helix
BioMedix, Inc. (hereinafter referred to as "Employer").

                                    RECITALS
                                    --------

     WHEREAS, Employee has been employed by Employer; and

     WHEREAS, both parties to this Agreement wish to clearly set forth the terms
and conditions of Employee's separation from employment;

     NOW,  THEREFORE,  for  and in  consideration  of the  mutual  promises  and
covenants contained herein, and for good and valuable consideration, the receipt
and adequacy of which is acknowledged by each of the parties hereto, the parties
agree as follows:

                             EMPLOYER'S OBLIGATIONS
                             ----------------------

     1. Payment.
     -----------
     Employer agrees to pay Employee her base salary through the Separation Date
specified below, subject to applicable withholding.  To the extent that Employee
has accrued, unused vacation,  Employee agrees to use this time in June 2002. In
addition,  as consideration for and subject to Employee's agreement to the terms
set forth in this  Agreement,  Employer  will pay her a sum equal to six month's
base salary,  subject to applicable  withholding,  at regular payroll  intervals
beginning  on the first  payroll  date  following  Employee's  execution of this
Agreement  ("the  Separation  Payment"),  subject to  reduction  pursuant to the
provisions of Section 8 below.  Except as otherwise  provided in this Agreement,
Employee  agrees that  Employer  does not owe  Employee  for any other  payments
except that Employee will be reimbursed  for any  reasonable  business  expenses
Employee has incurred  prior to the Separation  Date for which Employee  submits
appropriate  documentation pursuant to Employer's  reimbursement policies within
30 days of the Effective Date of this Agreement.

     2. Medical Coverage.
     --------------------
     Employer  will pay the  premium for  Employee's  continued  coverage  under
Employer's health care plans through the Separation Date.  Thereafter,  Employee
may elect to continue  coverage  under  Employer's  health care plans at her own
expense pursuant to the provisions of COBRA.

     3. Stock Options.
     -----------------
     Employer  agrees to comply with its  obligations  regarding  stock  options
pursuant  to  Section  3(c)  of  Employee's  Employment  Agreement  ("Employment
Agreement")  and to  issue  appropriate  documentation  reflecting  all  options
granted.

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<PAGE>

     4. Car Expenses.
     ----------------
     Employer agrees to reimburse  Employee for reasonable  expenses,  up to one
thousand five hundred dollars  ($1,500),  for  transporting  Employee's car from
Washington State to Louisiana.  Employee agrees to submit  appropriate  receipts
and documentation to Employer within 30 days of transportation.

     5. Apartment Lease.
     -------------------
     Employer  agrees to buy out  Employee's  lease of an  apartment  located at
21433 16th Drive SE, #N304, Bothell, WA 98021.

     6. Letter Regarding Employment.
     -------------------------------
     Employer will provide a letter regarding Employee's employment upon request
by Employee as to a specific  prospective  employer on Helix  letterhead  in the
form attached hereto as Exhibit A.

                             EMPLOYEE'S OBLIGATIONS
                             ----------------------

     7. Separation Date.
     -------------------
     Employer and Employee agree that Employee's last date of employment is July
1, 2002 ("Separation  Date").  Until the Separation Date, Employee agrees to use
her best efforts in the  performance of her duties,  and to cooperate fully with
Employer in training and working with her replacement, and with other aspects of
her transition out of her position with Employer.

     8. Best Efforts to Obtain Other Employment.
     -------------------------------------------
     Employee agrees to use her best efforts to obtain other employment within a
reasonable  time after  separation.  Employee agrees to notify Employer when she
accepts other  employment.  In the event that Employee  obtains other employment
within six months of the Separation Date, the Separation  Payment  referenced in
Section 1 will be reduced by the amount of base salary  Employee  receives  from
her new employment.

     9. No Authority.
     ----------------
     Employee  understands and agrees that effective as of the Separation  Date,
she is no longer  authorized to incur any expenses or obligations or liabilities
on behalf of Employer nor represent herself as an employee of Employer.

     10. Personal Expense Budget.
     ----------------------------
     Employee understands and agrees that she is forfeiting any further right to
her personal expense budget with Employer. Any funds or amounts remaining in the
budget following the Separation Date will belong to Employer.

     11. Return of Property.
     -----------------------
     Employee  warrants and represents  that as of the Separation  Date, she has
returned to the Employer all  company-owned  property in Employee's  possession,
including,  but not limited to,  credit  cards,  access  cards,  keys to company
buildings or property, all company-owned equipment,  computers,  cell phones and
related  equipment,  and all  company  documents  and  papers,  customer  lists,
manuals,  files,  price lists,  and all other trade secrets and/or  confidential
company information, and all copies thereof, in paper, electronic or other form.

     12. Waiver and Release of Claims by Employee.
     ---------------------------------------------

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<PAGE>

          (a)  With  the  exception  of  the  obligations   arising  under  this
     Agreement, Employee knowingly and voluntarily, unconditionally and forever,
     waives  and  releases  any and all  claims,  damages,  causes of action and
     rights, whether known or unknown, contingent or noncontingent,  contractual
     or  otherwise  against  Employer  or  any  of its  related,  affiliated  or
     subsidiary  organizations,  and each of its and their respective directors,
     officers, agents, representatives and employees, past and present, and each
     of  their  successors  and  assigns  ("Releasees").   Employee  makes  this
     commitment  even though Employee  understands  that she may not, as of this
     date,  know all of the claims she may lawfully  have against the  Releasees
     and that she is  relinquishing  the right to pursue  any  claims  which she
     could have pursued before courts  without having the  opportunity to pursue
     those claims to a trial and have the damages, if any, set by a judge and/or
     jury.

          (b) Employee  acknowledges that among the claims that she is releasing
     are  any  claims  she may  have  for  compensation  or  benefits,  wrongful
     discharge,  negligent or  intentional  infliction  of  emotional  distress,
     personal injury,  defamation,  libel, invasion of privacy, fraud, breach of
     fiduciary  duty,  negligent  or  intentional  misrepresentation,  breach of
     contract,  promissory estoppel,  wage and hour violations including but not
     limited to violations of the Fair Labor Standards Act (FLSA) and Washington
     Minimum Wage Act (WMA);  discrimination  and/or  harassment in violation of
     any local,  state, or federal law such as Title VII of the Civil Rights Act
     of 1964,  the Equal Pay Act, the Americans with  Disabilities  Act, the Age
     Discrimination in Employment Act, the Older Workers Benefit Protection Act,
     the Civil Rights Act of 1991, Section 1981 of the Civil Rights Act of 1866,
     and the Washington Law Against Discrimination;  claims under the Family and
     Medical Leave Act, the Workers Adjustment and Retraining  Notification Act,
     and the Employment  Retirement Income Security Act (ERISA);  as well as any
     other local, state or federal statutes, administrative regulations or legal
     doctrines  governing claims arising out of or relating to employment or the
     separation thereof. This release includes any claims pursuant to statute or
     otherwise for attorneys' fees and costs,  and Employee agrees that she will
     bear her own attorneys' fees and costs

          (c) This  waiver and  release  shall not waive or  release  claims (i)
     where the events in dispute first arise after  execution of this waiver and
     release;  or (ii) relating to Employee's rights to indemnity as a corporate
     officer.

     13. Nondisclosure.
     ------------------
     Employee  agrees to comply  fully  with all  continuing  obligations  under
Section 8 of the  Employment  Agreement she signed upon hire, the terms of which
are incorporated by reference herein.

     14. Nondisparagement.
     ---------------------
     Employee agrees not to make any statements,  verbally or in writing,  about
the Employer and its  officers,  directors,  employees  and agents in any manner
that is  intended  to, or does,  call into  question  their  morality,  conduct,
business  ability,  or business  judgment;  provided  that Employee will respond
accurately and fully to any question,  inquiry or request for  information  when
required by legal process.

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<PAGE>

     15. Confidentiality.
     --------------------
     Employee agrees that from the date of this Agreement  forward she will keep
the terms of this Agreement confidential and will not disclose the fact or terms
to anyone  except  to  members  of  Employee's  immediate  family,  attorney  or
counselor,  and  persons  assisting  her in  financial  planning  or income  tax
preparation,   provided  that  these  people  agree  to  keep  such  information
confidential. Without limiting the foregoing, Employee agrees that it shall be a
breach of this  provision  for  Employee  to in any way  disclose,  discuss,  or
characterize the terms of the Agreement to third parties.

                                  MISCELLANEOUS
                                  -------------

     16. Free and Voluntary Act of Employee.
     ---------------------------------------
     Employee  agrees  that she is  entering  into  this  Agreement  freely  and
voluntarily  act and that she has been  given at least  twenty-one  (21) days to
decide whether to sign this  Agreement,  and signs it only after full reflection
and analysis.  Employee further acknowledges that she has been advised to obtain
an attorney's independent counsel and advice; that she has read it carefully and
fully  understands  all of its  provisions;  and that  neither  Employer nor its
agents or representatives  have made any  representations to Employee concerning
the terms or effects of this Agreement  other than those  contained  herein.  If
Employee  elects to sign this  Agreement  prior to the  expiration of the 21 day
period,  Employee  acknowledges  and agrees that  Employee had adequate time and
opportunity to fully consider her rights and this release of them.

     17. No Admission of Liability.
     ------------------------------
     This  Separation  and  Release  Agreement  shall  not  be  construed  as an
admission  by  Employer  or  Employee  of  any  wrongdoing,   improper  conduct,
liability, breach of any agreement between Employer or Employee, or violation by
Employer or Employee of any statute, law or regulation.  Both parties agree that
neither this  Agreement  nor any of its terms or  conditions  will be offered or
received in evidence in any  proceeding or used in any manner as an admission of
wrongdoing or liability on either party's part.

     18. Governing Law and Venue.
     ----------------------------
     Interpretation  and  enforcement of this Agreement shall be governed by the
substantive laws which exist in the State of Washington on the date of execution
of this Agreement.  In any dispute arising out of or relating to this Agreement,
the parties agree that venue shall be had in King County, Washington.

     19. Revocation.
     ---------------
     This  Agreement may be revoked by Employee by returning  written  notice of
revocation  to Steve Beatty at the  following  address  within seven (7) days of
Employee's execution of the Agreement:  Helix BioMedix,  Inc., 22122 20th Avenue
SE, Bothell WA 98021.  Unless  revoked in accordance  with this  paragraph,  the
Agreement will become final and irrevocable on the 8th day following  Employee's
execution of the Agreement.

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<PAGE>

     20. Changes to Agreement.
     -------------------------
     This Agreement may not be changed orally, but only in writing signed by all
parties.

     21. Entire Agreement.
     ---------------------
     This  Agreement  and  Sections  3(c)  and  8 of  the  Employment  Agreement
constitute  the entire  agreement  between the parties and it fully replaces and
supersedes  all prior  arrangements,  discussions,  negotiations  and  agreement
between the parties,  including but not limited to the  remaining  provisions of
the Employment Agreement.

     22. Enforcement.
     ----------------
     In any action to  enforce  any of the  provisions  of this  Agreement,  the
prevailing party shall be entitled to recover its reasonable attorney's fees and
costs,  in addition to any other  damages and  remedies  available  at law or in
equity

     23. Arbitration.
     ----------------
     Any  controversies  or claims out of or relating to this Agreement shall be
fully and finally  settled by arbitration in the City of Seattle,  Washington in
accordance with the rules of the American Arbitration Association then in effect
("the AAA Rules"),  conducted by one arbitrator  either  mutually agreed upon by
the Company and  Executive or chosen in  accordance  with the AAA Rules,  except
that the parties  shall have any right to discovery as would be permitted by the
Federal  Rules  of  Civil  Procedure  for a  period  of 90  days  following  the
commencement of such  arbitration,  and the arbitrator shall resolve any dispute
that arises in connection with such discovery.  Judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction.

     IN WITNESS WHEREOF,  the parties have entered into this Agreement as of the
date first set forth above.

EMPLOYER:                                   HELIX BIOMEDIX, INC.

                                            By: /s/ R. Stephen Beatty

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

                                            Its: President
                                                --------------------------------

                                            Date: 06/03/02
                                                 -------------------------------



EMPLOYEE:                                   Elizabeth Scheer





                                            Date: 06/03/02
                                                 -------------------------------

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<PAGE>

                                    EXHIBIT A

July 6, 2002

To Whom It May Concern:

I have known Mrs. Liz Scheer since 1997 when we met in an executive program for
MBAs. During our year and a half of classes together, I was very impressed with
Mrs. Scheer's leadership and management skills.

In 1999, I approached her to join me at Helix BioMedix, Inc., a public
biotechnology company, as one of four executives charged with re-inventing the
company over a two year period. Until Mrs. Scheer resigned in July 2002, she was
Vice President of the company responsible for most non-science operations. These
responsibilities included (1) managing and coordinating our regulatory reports
including our SEC reports and the various record keeping requirements of
successful private placements in 1999 and 2002; (2) developing and implementing
our corporate marketing plan; and (3) jointly coordinating the move of our
corporate headquarters from New Orleans, Louisiana, to Bothell, Washington.

During Mrs. Scheer's tenure at Helix BioMedix, the company grew from a single
employee company with a handful of patents to a company with eight employees
plus numerous consultants, and over 30 patents. In addition, the company has
negotiated one license, and is well on its way to negotiating additional
licenses that are projected to generate the first substantial revenue in the
history of the company.

As President and CEO of the company and the person to whom Mrs. Scheer reported
throughout her career at Helix BioMedix, I can state unequivocally that she made
major contributions to the success we have had over the past three years.




Sincerely,




/s/ R. Stephen Beatty
---------------------
R. Stephen Beatty
President & CEO

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