EMPLOYMENT AGREEMENT

     This Employment  Agreement (this  "Agreement"),  dated as of May ___, 2001,
and  effective as of June 15 2001 (the  "Effective  Date"),  is made and entered
into  by  and  between  Helix  BioMedix,  Inc.,  a  Delaware  corporation,  (the
"Company"), and Tim Falla (the "Executive").

     The Company and Executive hereby agree as follows:

1.   EMPLOYMENT

The Company will employ  Executive and Executive  will accept  employment by the
Company as Chief Scientific Officer.  During Executive's  employment,  Executive
shall  serve the Company  faithfully  and to the best of his  ability,  devoting
substantially  all his working  time,  attention and energies to the business of
the Company,  unless otherwise  approved in writing by the Board of Directors of
the Company (the "Board"). Subject to the direction of the Board, Executive will
have such  reasonable  duties,  responsibilities,  powers and  authority  as are
prescribed by the Board or the bylaws of the Company. Executive shall not engage
in any other business  activity  (except the management of personal  investments
and charitable and civic  activities that in the aggregate do not interfere with
the  performance  of  Executive's  duties)  without first  obtaining the written
consent of the Board, and such consent shall not unreasonably be withheld.

2.   TERM OF AGREEMENT

The term of this  Agreement  ("Term")  shall  commence on June 15, 2001 and will
continue in effect until June 14, 2003, unless otherwise terminated as set forth
herein.

3.   COMPENSATION

     (a) Base  Salary.  Company  shall pay  Executive a base salary at an annual
rate  of One  Hundred  Seventy  Five  Thousand  Dollars  ($175,000)  payable  in
accordance with Company's regular pay schedule for senior management.  The Board
shall review Executive's salary and performance annually, and Executive shall be
eligible for an increase in his base salary based on such review.

     (b) Stock Options.  The Company shall issue options to Executive to acquire
shares of the Company's common stock  ("Shares"),  under the following terms and
conditions:

          (1) Pursuant to the Company's 2000 Stock Option Plan,  Executive shall
     be granted an option to purchase One Hundred  Thousand  (100,000) shares of
     company common stock at an exercise price of $1.50 per share. These options
     will vest in four  equal  installments  of Twenty  Five  Thousand  (25,000)
     shares on December 15, 2001, June 15, 2002, December 15, 2002, and June 15,
     2003. Any unexercised options issued pursuant to this Section 3(b)(1) shall
     expire on June 15, 2011.

          (2) Executive may, at his or the Company's option,  pay for all or any
     portion of the aggregate  exercise price by delivering a combination of any
     or all of the following:

<PAGE>
               (i) By delivering shares of the Company's common stock previously
          held by  Executive  which  have a fair  market  value  at the  date of
          exercise equal to the aggregate exercise price to be paid by Executive
          upon such exercise;

               (ii) By delivering a properly  executed  exercise notice together
          with  irrevocable  instructions to a broker to promptly deliver to the
          Company the amount of sale or loan proceeds to pay the exercise price;
          or

               (iii) By  delivering a full recourse  promissory  note for all or
          part of the  aggregate  exercise  price,  payable  on such  terms  and
          bearing such interest rate as determined by the Board (but in no event
          less than the  minimum  interest  rate  specified  under the  Internal
          Revenue Code at which no additional  interest  would be imputed and in
          no event more than the maximum  interest rate allowed under applicable
          usury laws),  which promissory note may be either secured or unsecured
          in  such  manner  as  the  Board  shall  approve  (including,  without
          limitation, by a security interest in shares of the Company's stock).

          (4)  The  Board  will  qualify  the  options  for  an  exemption  from
     registration   under  the  applicable  federal  and  any  applicable  state
     securities laws.

     (c) Incentive Compensation. Executive shall be entitled to participate in a
manner  consistent  with  all  other  senior  management  participation  in  any
incentive compensation plan which may be adopted by the Company.

     (d) Benefits.

          (1)  Executive  shall be entitled to receive three weeks paid vacation
     and all benefits  (such as medical,  dental,  sick leave,  disability,  and
     retirement  benefits)  as are  generally  available  from  time  to time to
     employed  senior  executives  of Company.  For  purposes  of this  section,
     benefits offered to employees leased to Company are not benefits under this
     section.

          (2) Company will  maintain a policy of insurance  for  directors'  and
     officers'  liability  with such coverage as may be determined by the Board.
     Executive  will be  included  within  that  policy  of  insurance  with the
     premiums paid by Company.

          (3) Company shall reimburse Executive for all reasonable expenses,  up
     to Twenty Five  Thousand  Dollars  ($25,000)  incurred in  connection  with
     Executive's relocation to Seattle, Washington.

4.   TERMINATION

Employment of Executive pursuant to this Agreement may be terminated as follows:

     (a) By Executive.  Executive may terminate his  employment at any time, for
any reason.

     (b) By the Company.  The Company may terminate the  employment of Executive
at any time, for any reason, with or without cause.

                                        2
<PAGE>

     (c) Automatic Termination.  This Agreement and Executive's employment shall
terminate  automatically  upon the death or total  disability of Executive.  The
term  "total  disability"  as used  in this  Agreement  shall  mean  Executive's
inability  to perform  the duties set forth in Section 1 for a period or periods
aggregating  one-hundred  twenty (120) calendar days in any 12-month period as a
result of physical or mental illness,  loss of legal capacity or any other cause
beyond  Executive's  control,  unless Executive is granted a leave of absence by
the Board.  Executive and the Company  acknowledge that  Executive's  ability to
perform the duties specified in Section 1 is of the essence of this Agreement.

5.   TERMINATION PAYMENTS

In the event of termination of the employment of Executive, all compensation and
benefits set forth in this Agreement  shall  terminate,  except as  specifically
provided in this Section 5. For purposes of this  Agreement,  the effective date
of  termination  shall be thirty  (30) days after the  Executive  or the Company
gives written notice of termination.

     (a) Termination by the Company With Cause.  Upon termination by the Company
with Cause (as defined below), the Company shall pay Executive any unpaid annual
base salary, earned but unused vacation,  and bonuses due (if any), for services
already  performed  (subject to normal  withholding and other deductions) to the
effective date of termination of employment.

     (b)  Termination  by the Company  Without  Cause.  Upon  termination by the
Company  without Cause (as defined  below),  the Company shall pay Executive any
unpaid  annual  base  salary,  any  amount  due but not paid  under any  Company
incentive compensation plan, earned but unused vacation and bonuses due (if any)
for  services  already  performed  (subject  to  normal  withholding  and  other
deductions) to the effective  date of  termination  of  employment;  and monthly
severance  payments  equivalent to three (3) months base salary.  These payments
will be made in accordance with the Company's customary payroll schedule,  minus
deductions  required by law.  The Company  will issue and file  appropriate  tax
documents  in   connection   with  any  severance   payments.   Payment  of  the
above-described  severance compensation and benefits is conditioned on Executive
executing a full mutual release of all claims related to his employment  with or
termination from Company in substantially the form attached hereto as Exhibit A.
Such a release will not include accrued and unpaid wages and benefits, claims to
industrial  insurance,   vested  pension  benefits  or  indemnification  rights.
Executive  will have the duty to mitigate the costs of Company by  attempting to
obtain other employment within a reasonable time after termination;  Executive's
compensation from such other employment will be credited against the amounts due
from  Company to the extent  the  combined  compensation  from  Executive's  new
position and Company's  payments under this Section 5(b) would otherwise  exceed
Executive's base salary with Company at the date of termination.

     (c)  Termination  by Executive  Without Good Reason.  Upon  termination  by
Executive  without Good Reason (as defined  below),  Executive shall be paid the
compensation as set forth in Section 5(a) and shall not be entitled to any other
benefits or payments.

     (d)  Termination  by  Executive  With  Good  Reason.  Upon  termination  by
Executive  with Good  Reason (as defined  below),  Executive  shall  receive the
compensation as set forth in Section 5(b) and shall not be entitled to any other
benefits or payments.

                                        3
<PAGE>

     (e) Termination as a Result of Death or Total  Disability.  In the event of
termination of Executive's employment pursuant to Section 4(c), Executive or his
estate shall be paid the compensation set forth in Section 5(a) and shall not be
entitled to any other benefits or payments.

     (f) Definition of "Cause."  "Cause" as used in this Agreement  shall mean a
determination by the Board that one or more of the following has occurred:

          willful  misconduct,  or dishonesty in the  performance of Executive's
          duties that results in a material adverse effect on the Company;

          conviction  of Executive of a felony  involving an act of  dishonesty,
          moral turpitude, deceit or fraud; or

          current use by the Executive of illegal substances.

     (g) Definition of "Good Reason." "Good reason" shall mean the occurrence of
any of the following events, without the consent of the Executive:

          a  demotion  or other  material  reduction  in the nature or status of
          Executive's responsibilities; or"

          a material  reduction in Executive's annual base salary or any failure
          by the  Company to satisfy its duty to  compensate  the  Executive  as
          required under this Agreement.

6.   INTELLECTUAL PROPERTY

Company  shall own all  right,  title and  interest  (including  patent  rights,
copyrights,  trade secret rights,  mask work rights, sui generis database rights
and all other intellectual  rights of any sort throughout the world) relating to
any and all inventions  (whether or not patentable),  works of authorship,  mask
works, designs,  know-how, ideas and information made or conceived or reduced to
practice,  in whole or in part,  by  Executive  during  the term of  Executive's
employment  with Company to and only to the fullest extent allowed by Washington
Revised  Code  Annotated  Section  49.44.140  (which is  attached  as Exhibit B)
(collectively  "Inventions") and Executive will promptly disclose all Inventions
to Company. Executive will also disclose anything Executive believes is excluded
by  Section  49.44.140  so that  Company  can  make an  independent  assessment.
Executive  hereby makes all  assignments  necessary to accomplish the foregoing.
Executive  shall  further  assist  Company,  at  Company's  expense,  to further
evidence, record and perfect such assignments, and to perfect, obtain, maintain,
enforce,  and defend any rights specified to be so owned or assigned.  Executive
hereby   irrevocably   designates  and  appoints   Company  as  its  agents  and
attorneys-in-fact  to act for and in Executive's  behalf to execute and file any
document and to do all other lawfully  permitted acts to further the purposes of
the foregoing  with the same legal force and effect as if executed by Executive.
If Executive  wishes to clarify  that  something  created by Executive  prior to
Executive's  employment that relates to Company's actual or proposed business is
not within the scope of this Agreement, Executive has listed it on Exhibit C. If
Executive  uses or  (except  where  disclosed  pursuant  to this  Section 6 as a
claimed exclusion to RCW 49.44.140 or in Exhibit C) discloses Executive's own or
any third party's confidential  information or intellectual property when acting
within the scope of  Executive's  employment  or otherwise on behalf of Company,

                                        4
<PAGE>

Company will have and Executive hereby grants Company a perpetual,  irrevocable,
worldwide  royalty-free,  non-exclusive,  sublicensable  right  and  license  to
exploit and exercise all such confidential information and intellectual property
rights.  To the  extent  allowed by law,  this  section  includes  all rights of
paternity, integrity, disclosure and withdrawal and any other rights that may be
known as or referred to as "moral rights,"  "artist's rights," "droit moral," or
the like (collectively "Moral Rights"). To the extent Executive retains any such
Moral Rights under applicable law, Executive hereby ratifies and consents to any
action that may be taken with respect to such Moral Rights by or  authorized  by
Company and agree not to assert any Moral Rights with respect thereto. Executive
will confirm any such  ratifications,  consents and agreements from time to time
as requested by Company.

7.   PRIVACY

Executive  recognizes  and agrees that  Executive has no  expectation of privacy
with  respect  to  Company's   telecommunications,   networking  or  information
processing systems (including,  without limitation, stored computer files, email
messages  and voice  messages)  and that  Executive's  activity and any files or
messages on or using any of those  systems may be  monitored at any time without
notice.

8.   RESTRICTIVE COVENANTS

Executive  acknowledges:   (i)  that  Executive  will  have  access  during  his
employment with Company to confidential information regarding all Inventions and
all other  business,  technical and financial  information  (including,  without
limitation,  the identity of and information relating to customers or employees)
Executive develops,  learns or obtains during the term of Executive's employment
that relates to Company or the business or demonstrably  anticipated business of
Company or that are received by or for Company in confidence,  and that all such
information  constitutes  "Proprietary   Information";   (ii)  that  information
regarding Proprietary  Information constitutes a valuable asset and trade secret
of Company;  and (iii) that it is reasonable  for Company to protect itself from
misappropriation  of Proprietary  Information  by Executive upon  termination of
employment or otherwise.  Accordingly, in consideration of employment hereunder,
and other good and valuable  consideration,  Executive  agrees to the  following
nondisclosure,  noninterference and noncompetition covenants during the Term and
for a period of twenty-four (24) months after the Term:

     (a)  Nondisclosure.  Executive  will not  copy,  remove,  or  disclose  any
Proprietary  Information,  except as may be  required by law or in the course of
performing  services  for Company,  Executive  will hold in  confidence  and not
disclose  or,  except  within  the  scope  of  Executive's  employment,  use any
Proprietary  Information at any time,  even after  Executive's  employment  with
Company  ends for whatever  reason.  However,  Executive  shall not be obligated
under this paragraph with respect to information Executive can document by clear
and  convincing  evidence  is or  becomes  readily  publicly  available  without
restriction  through no fault of  Executive.  Upon  termination  of  Executive's
employment or if sooner requested, Executive will promptly return to Company all
items containing or embodying  Proprietary  Information  (including all copies),
except that Executive may keep  Executive's  personal  copies of (i) Executive's
compensation records,  (ii) materials distributed to stockholders  generally and
(iii) this Agreement;

                                        5
<PAGE>

     (b) Noninterference.  Executive will not employ, solicit, or seek to employ
any person who is an employee of Company or its  subsidiaries (i) as of the date
hereof;   (ii)  during  the  Term,  or  (iii)  at  the  time  of  employment  or
solicitation; and

     (c)  Noncompetition  and  Nonsolicitation.  Executive will not, directly or
indirectly, as principal, agent, employee, officer,  shareholder,  consultant or
otherwise,  engage in any business that competes directly with Company, and will
not  solicit or aid in  soliciting,  endeavor to obtain as a customer or client,
accept sales,  marketing,  financial,  or consulting  business  from, or perform
sales,  marketing,   consulting  or  related  business  for  any  person,  firm,
corporation,  association or other entity: (i) that is or was a Company customer
for whom Executive  performed any services or with whom Executive had maintained
substantial  business  contacts  at any time  during  the  Term;  or (ii)  whose
business  Executive  solicited,  either alone or in conjunction with others,  on
behalf of Company or any of its subsidiaries during the Term.

     Executive  acknowledges  and  agrees:  (i)  that  a  breach  of  any of the
covenants  contained in this Section 8 would cause irreparable injury to Company
for which  monetary  damages alone would be inadequate to compensate and protect
Company;  (ii) that Company may therefore seek and obtain  injunctive  relief to
enjoin any  breach of such  restrictive  covenants  in  addition  to, and not in
limitation  of, any other legal or equitable  remedies  that are  available as a
matter, of law or equity; and (iii) that specific  enforcement of this Agreement
by way of an injunction  shall not prevent  Executive  from earning a reasonable
livelihood.  Executive further  acknowledges and agrees that the  nondisclosure,
noninterference,  noncompetition and nonsolicitation  covenants contained herein
are necessary for the protection of Company's  legitimate business interests and
are reasonable in duration, geographic scope, and other content. However, in the
event a court of competent  jurisdiction  should  decline to enforce any term of
the nondisclosure, noninterference, noncompetition or nonsolicitation covenants,
as written  herein,  such  covenant  shall be deemed to be  modified  to require
confidentiality   and  restrict   Executive's   interference,   competition  and
solicitation  with  Company  and  its  subsidiaries  to  the  maximum  duration,
geographic scope, and other content that the court shall find enforceable.

9.   ASSIGNMENT

Except as may be provided  under Section 3(b) above,  this Agreement is personal
to Executive and shall not be assignable by Executive. If the Company changes it
name or changes to another  corporate form, this Agreement will remain in effect
between the Executive and the Company's successor.  All the terms and provisions
of this  Agreement  shall be binding on and shall inure to the benefit of and be
enforceable  by the  parties  and  their  respective  successors  and  permitted
assigns.

10.  WAIVERS

No delay or failure by any party to this Agreement in exercising,  protecting or
enforcing any of its rights,  titles,  interests or remedies  hereunder,  and no
course of dealing or  performance  with  respect  thereto,  shall  constitute  a
waiver. The express waiver by a party of any right, title, interest or remedy in
a particular instance or circumstance shall not constitute a waiver in any other
instance or  circumstance.  All rights and remedies  shall be cumulative and not
exclusive of any other rights or remedies.

                                        6
<PAGE>

11.  ARBITRATION

Any  controversies  or claims arising 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 Employment  Arbitration 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.

12.  AMENDMENTS IN WRITING

No amendment, modification, waiver, termination or discharge of any provision of
this  Employment  Agreement,  nor consent to any departure from any provision of
this Agreement by either party,  shall in any event be effective unless the same
shall be in writing,  specifically  identifying this Agreement and the provision
intended to be amended, modified, waived, terminated or discharged and signed by
the  Company  and  Executive,  and each such  amendment,  modification,  waiver,
termination or discharge  shall be effective  only in the specific  instance and
for the specific  purpose for which given.  No provision of this Agreement shall
be varied, contradicted or explained by any oral agreement, course of dealing or
performance  or any other  matter not set forth in an  agreement  in writing and
signed by the Company and Executive.

13.  APPLICABLE LAW

This  Agreement  shall in all respects,  including all matters of  construction,
validity  and  performance,  be  governed  by, and  construed  and  enforced  in
accordance  with,  the laws of the state of  Washington,  without  regard to any
rules governing conflicts of laws.

14.  SEVERABILITY

If  any  provision  of  this  Agreement  shall  be  held  invalid,   illegal  or
unenforceable  in  any  jurisdiction,   for  any  reason,   including,   without
limitation, the duration of such provision, its geographical scope or the extent
of the  activities  prohibited  or  required  by it,  then,  to the full  extent
permitted by law (a) all other  provisions shall remain in full force and effect
in such jurisdiction and shall be liberally  construed in order to carry out the
intent  of the  parties  as  nearly  as may be  possible,  (b) such  invalidity,
illegality  or  unenforceability  shall not affect  the  validity,  legality  or
enforceability  of any other provision,  and (c) any court or arbitrator  having
jurisdiction  shall  have the  power to  reform  such  provision  to the  extent
necessary for such provision to be enforceable under applicable law.

                                        7
<PAGE>

15.  HEADINGS

All headings used in this  Agreement are for  convenience  only and shall not in
any  way  affect  the  construction  of,  or  be  taken  into  consideration  in
interpreting, this Agreement.

16.  COUNTERPARTS

This  Agreement,  and any  amendment or  modification  entered into  pursuant to
Section  12,  may be  executed  in any  number  of  counterparts,  each of which
counterparts,  when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute one and the same
instrument.

17.  ENTIRE AGREEMENT

This  Agreement  and the  Indemnification  Agreement  between  Executive and the
Company  (and  any  addenda,  amendments  or  extensions  to  those  agreements)
constitute the entire  agreement  between the Company and Executive with respect
to the subject matters of this Agreement and the Indemnification Agreement.

HELIX BIOMEDIX, INC.                                         EXECUTIVE:

/s/ R. Stephen Beatty                             /s/ Tim Falla
-------------------------------------             ------------------------------
R. Stephen Beatty                                 Tim Falla
President and Chief Executive Officer

                                        8
<PAGE>


                                    EXHIBIT A

WAIVER AND RELEASE

For and in consideration  of the severance  payments and benefits set out in the
Employment  Agreement attached hereto,  Executive,  on behalf of himself and his
agents,  heirs,  successors  and assigns,  expressly  waives any claims  against
Company and releases Company (including its officers,  directors,  stockholders,
managers,  agents  and  representatives)  from  any  and  all  claims,  demands,
liabilities,  damages,  obligations,  actions  or  causes of action of any kind,
known or unknown, past or present, arising out of, relating to, or in connection
with Executive's  employment,  termination of employment,  or the holding of any
office  with  Company  or any other  related  entity.  The  claims  released  by
Executive  include,  but are not  limited  to,  claims  for  defamation,  libel,
invasion of privacy,  intentional or negligent infliction of emotional distress,
wrongful termination,  constructive discharge, breach of contract, breach of the
covenant of good faith and fair dealing, breach of fiduciary duty, fraud, or for
violation  of any federal,  state or other  governmental  statute or  ordinance,
including,  without  limitation,  Title VII of the Civil Rights Act of 1964, the
federal Age  Discrimination  in Employment Act, the Americans with  Disabilities
Act, the Family and Medical Leave Act, the Employment Retirement Income Security
Program or any other legal limitation on the employment relationship.

This waiver and release  shall not waive or release  claims (1) where the events
in dispute  first  arise  after  execution  of this  Release;  (2) for rights or
benefits due under the Employment  Agreement attached hereto; or (3) relating to
Executive's rights to indemnity as a corporate officer of Company.

Executive  agrees he has been provided the  opportunity  to consider  whether to
enter into this  Release,  and has  voluntarily  chosen to enter into it on this
date. This Release shall be effective when signed.  Executive  acknowledges that
she is voluntarily executing this Release, that she has carefully read and fully
understands all aspects of this Release and the attached  Employment  Agreement,
that she has not relied upon any  representations  or  statements  not set forth
herein or made by Company's agents or representatives, that she has been advised
to consult with an attorney  prior to executing the Release,  and that, in fact,
she has  consulted  with an attorney of his choice as to the subject  matter and
effect of this Release.



------------------                                ------------------------------
Date                                                       Executive

<PAGE>

                                    EXHIBIT B

               Washington Revised Code Annotated Section 49.44.140

     Washington Revised Code Annotated Section 49.44.140 provides as follows:

          A provision in an employment  agreement that provides that an employee
          shall  assign or offer to assign  any of the  employee's  rights in an
          invention to the employer  does not apply to an invention for which no
          equipment,  supplies,  facilities,  or trade secret information of the
          employer was used and that was  developed  entirely on the  employee's
          own time, unless:

          (a)  the  invention  relates  (i)  directly  to  the  business  of the
          employer, or (ii) to the employer's actual or demonstrably anticipated
          research or development, or

          (b) the invention  results from any work performed by the employee for
          the employer.

          Any  provision  that purports to apply to such an invention is to that
          extent  against the public  policy of this state and is to that extent
          unenforceable.

          An employer shall not require a provision made void and  unenforceable
          by  subsection  (a) of this  section as a condition of  employment  or
          continuing employment.

<PAGE>

                                    EXHIBIT C


None.