Document:

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                                                                    EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT

         This Employment Agreement ("Agreement") dated as of February 28, 2003
and effective as of January 1, 2003 (the "Effective Date"), is made and entered
into between Helix BioMedix, Inc., a Delaware corporation ("the Company") and
Kerry Palmer ("the Executive").

         WHEREAS, the Company wishes to enter into an agreement with the
Executive governing the terms and conditions of his employment, and the
Executive is willing to be employed on the terms and conditions set forth in
this Agreement;

         NOW THEREFORE, in consideration of the promises and the mutual
covenants hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:

         1.       EMPLOYMENT. The Company shall employ the Executive, and the
Executive shall serve in the full-time employ of the Company, on the terms and
subject to the conditions set forth in this Agreement. The Executive shall serve
in the position of Chief Financial Officer with duties and responsibilities
customary for that position plus any additional duties and responsibilities
which may be assigned to the Executive from time to time by the Board of
Directors or the Chief Executive Officer of the Company. Executive's duties will
include, but are not limited to, preparing regulatory reports, handling
accounting functions and preparing financial projections. The Executive shall
devote his best efforts and all of his business time and attention to the
business 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 or
Directors, and such consent shall not unreasonably be withheld. Executive
further agrees to abide by all by-laws, policies, practices, procedures, or
rules of the Company. The Executive shall perform his duties and
responsibilities under the direction and supervision of, and shall report
directly to, the Chief Executive Officer of the Company or such other officer as
the Chief Executive Officer determines.

         2.       TERM. The term of this Agreement shall be continuous from and
after the Effective Date for a period of two (2) years, unless extended in
writing by both the Company and the Executive or earlier terminated in
accordance with Section 4 ("the Term").

         3.       COMPENSATION. During the Term of this Agreement, the Executive
shall be compensated by the Company as follows:

                  (a)      Annual Base Salary. The Company shall pay Executive
an annual base salary for the Executive's actual period of employment at a rate
of Eighty Thousand Dollars ($80,000) per year commencing from and after the
Effective Date. Executive's annual base salary shall increase to a rate of
Ninety Thousand Dollars ($90,000) per year commencing on June 1, 2003. The
Executive's base salary shall be paid in accordance with the Company's normal
payroll policies for senior management as are from time to time in effect. The
Company agrees to reconsider compensation upon receipt of licensing revenues.

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Employment Agreement
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                  (b)      Vacation and Fringe Benefits. During the Executive's
actual period of employment, the Executive shall be eligible for three (3)
weeks' paid vacation per year. In addition, the Executive shall be entitled to
participate in any and all group medical, dental, vision, retirement, or
disability benefit plans which are from time to time maintained by the Company
for its senior executive employees, in accordance with the terms and conditions
of such plans or programs as they may be amended from time to time. Nothing
herein contained shall be construed as requiring the Company to establish or
continue any particular benefit plan in discharge of its obligations under this
Agreement.

                  (c)      Stock Options. The Company and the Executive shall
enter into a Stock Option Agreement granting Executive options to purchase
common stock subject to the terms and conditions of the Company's Amended Stock
Option Plan. The Stock Option Agreement shall be dated February 28, 2003. The
Stock Option Agreement shall grant Executive 90,000 options to purchase common
stock at $1.00 per share. Fifteen thousand (15,000) options shall vest upon
signing this Employment Agreement. The remaining 75,000 options shall vest
pursuant to the Company's Amended Stock Option Plan.

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

                  (e)      Business Expenses. The Executive shall be reimbursed,
in a manner consistent with the policies of the Company, for all reasonable
business expenses incurred in the performance of his duties pursuant to this
Agreement, to the extent such expenses are substantiated in writing, and are
consistent with the general policies of the Company relating to the
reimbursement of expenses of executive-level employees of the Company. Expenses
for items that are reasonably deemed to be personal by the Company shall not be
reimbursed by the Company and are the sole responsibility of the Executive.

                  (f)      Insurance. The 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 the Company.

                  (g)      Deduction and Withholding. All compensation and other
benefits to or on behalf of the Executive pursuant to this Agreement shall be
subject to such deductions and withholding as may be agreed to by the Executive
or required by applicable law, rule or regulation.

         4.       TERMINATION.

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                  (a)      Termination by Executive. The Executive may terminate
his employment with the Company at any time, for any reason, with or without
cause.

                  (b)      Termination by the Company. The Company shall have
the right to terminate the Executive's employment at any time, for any reason,
without or without cause.

                  (c)      Termination due to Death or Disability. The
Executive's employment pursuant to this Agreement shall terminate automatically
on the date of the Executive's death or disability. For purposes of this
Agreement, the Executive shall be deemed to be disabled (as determined in good
faith by the Board), if for a period of at least four (4) consecutive months he
is unable to substantially perform the essential functions of his position with
the Company with or without reasonable accommodation. The Executive and the
Company acknowledge that Executive's ability to perform the duties specified in
Section 1 is of the essence of this Agreement. If the Executive's employment
terminates by reason of his disability, his employment termination date shall be
deemed to be the last day of the four (4) month period described in the
immediately preceding paragraph.

         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.

                  (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
incentive compensation due (if any), for services already performed to the
effective date of termination of employment, subject to normal withholding or
other deductions.

                  (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, earned but unused vacation, and
incentive compensation due (if any) for services already performed to the
effective date of termination of employment, subject to normal withholding or
other deductions. In addition, the Company shall pay Executive his base salary
for a period of six (6) months in accordance with the Company's regular payroll
practices then in effect, subject to normal withholding and other deductions.
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 relating to his employment with or termination from the Company in a form
provided by the Company. Executive will have the duty to use reasonable effects
to mitigate the costs to the 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 the Company to

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Employment Agreement
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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 the Company at the effective date of termination. Executive has a duty to
notify the Company when he obtains new employment.

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

                  (e)      Termination as a Result of Death or 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 compensation, benefits or payments.

                  (f)      Definition of "Cause". "Cause" as used in this
Agreement shall mean a determination by the Board of Directors that one or more
of the following has occurred: (i) willful misconduct, or dishonesty in the
performance of Executive's duties that results in a material adverse effect on
the Company; (ii) conviction of Executive of a felony involving an act of
dishonesty, moral turpitude, deceit or fraud; or (iii) current use by the
Executive of illegal substances.

                  (g)      Definition of "Good Reason". "Good Reason" as used in
this Agreement shall mean the occurrence of any of the following events, without
the consent of the Executive: (i) a demotion or other material reduction in the
nature and status of Executive's responsibilities; or (ii) 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. The 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 patented or patentable), discoveries, 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 (collectively
"Inventions") to and only to the fullest extent allowed by RCW 49.44.140, which
provides that this Agreement does not apply to any such inventions, discoveries
and any patent, patent application, copyright or other intellectual property
right for which no equipment, supplies, facility or trade secret information of
the Company was used and that was

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developed entirely on the Executive's own time, unless (a) the inventions,
discoveries and any patent, patent application, copyright or other intellectual
property right relates (i) directly to the business of the Company; or (ii) to
the Company's actual or demonstrably anticipated research or development; or (b)
such inventions, discoveries and any patent, patent application, copyright or
other intellectual property right results from any work performed by the
Executive for the Company. Executive will disclose all Inventions to the Company
so the Company can make an independent assessment about the application of RCW
49.44.140. Executive shall assist the Company, at the Company's expense, to
executive such documents and perform such other acts as the Company deems
necessary or appropriate for the Company to obtain patents or copyrights on such
Inventions and to assign to the Company or its designee such Inventions and any
patent and copyright applications and patents and copyrights relating thereto.
Executive agrees to disclose any Inventions created by the Executive prior to
Executive's employment with the Company. If Executive uses or discloses
Executive's own (except where excluded pursuant to this Section) or any third
party's Inventions when acting within the scope of Executive's employment, the
Company will have, and Executive grants the Company, a perpetual, irrevocable,
worldwide, royalty-free, non-exclusive, sublicensable right and license to
exploit and exercise all such Inventions rights. To the extent allowed by law,
this Section includes all "moral rights" "artist's rights" or the like. To the
extent that Executive retains any such moral or artist's rights Executive hereby
ratifies and consents to any action that may be taken with respect to such
rights by or authorized by the Company and agrees not to asserts any such rights
with respect thereto. Executive will confirm any such ratifications and consents
from time to time as requested by the Company.

         7.       PRIVACY. Executive recognizes and agrees that Executive has no
expectation of privacy with respect to the Company's telecommunications,
networking or information processing systems (including, but not limited to,
stored computer files, email messages and voice mail) and that Executive's
activity and any files or messages on or using any of these Company-owned
systems may be monitored and/or copied at any time without notice.

         8.       CONFIDENTIALITY OF INFORMATION.

                  (a)      Scope. During the term of his employment with the
Company and thereafter the Executive shall not at any time, whether during or
after his employment by the Company, take or use, or otherwise disclose to
anyone, any Confidential Information, except as necessary to perform his duties
hereunder, as permitted by the Chief Executive Officer of the Company, or as
required by any court or governmental agency.

                  (b)      Definition. "Confidential Information" shall mean any
and all trade secrets, ideas, suggestions, innovations, conceptions,
discoveries, strategies, improvements, technological developments, methods,
processes, specifications,

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Employment Agreement
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formulae, compositions, techniques, systems, computer software and programs,
notes, memoranda, work sheets, lists of actual or potential customers and
suppliers, pricing information and policies, works of authorship, products,
data, and information in any form, which concern or relate to any aspect of the
actual or contemplated business of the Company and which are stamped
"confidential" or are otherwise treated as confidential by the Company, except
for such items as the Executive can prove through clear and convincing evidence
were in the public domain, being publicly and openly known, prior to the date of
commencement of the Executive's employment by the Company or, subsequent to such
date, became part of the public domain, being publicly and openly known, through
lawful and proper means.

                  (c)      Restrictions. The Executive agrees that the
restrictions set forth in this paragraph are reasonable and necessary to protect
the Company.

         9.       NONCOMPETITION AND NONSOLICITATION.

                  (a)      Scope. During the Term and for a period of two (2)
years from the effective date of termination of employment, the Executive shall
not, directly or indirectly, as principal, agent, employee, officer,
shareholder, consultant or otherwise, engage in any business that competes
directly with the 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 for
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 the Company or any of its subsidiaries
during the Term.

                  (b)      Consideration. Executive acknowledges that his
employment with the Company, his receipt of Confidential Information and
information about Inventions from the Company and his training with the Company
all constitute consideration for the agreements in this Section.

                  (c)      Reform. If a court of competent jurisdiction should
declare any or all of this Agreement unenforceable because of any unreasonable
restriction of duration and/or geographical area in subparagraph 9(a), then such
court shall have the express authority to reform subparagraph 9(a) to provide
for reasonable restrictions and/or to grant the Company such other relief, at
law or in equity, as are reasonably necessary to protect the interests of the
Company.

         10.      NONSOLICITATION OF EMPLOYEES. During the Term and for a period
of two (2) years from the effective date of termination of employment, the
Executive shall not, directly or indirectly, employ, solicit or induce or
attempt to influence any employee of the Company or any affiliate of the Company
to terminate his or her employment with

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Employment Agreement
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Page 7

the Company or any affiliate of the Company or to work for the Executive or any
other person or entity.

         11.      RESPONSIBILITIES UPON TERMINATION. Upon the termination of his
employment by the Company for whatever reason and irrespective of whether or not
such termination is voluntary on his part:, the Executive shall promptly deliver
to the Company all of its data, designs, drawings, plans, manuals, notes,
memoranda, work sheets, specifications, customer lists, supplier lists, pricing
information, computer programs, and all other materials which are or have become
the property of the Company and all copies or reproductions of any such.

         12.      SEPARATE AGREEMENTS. The covenants of the Executive contained
in paragraphs 6, 8, 9, 10 and 11 of this Agreement shall be construed as
separate agreements independent of any other agreement, claim or cause of action
of the Executive against the Company, whether predicated on this Agreement or
otherwise, and no other agreement, claim or cause of action asserted by the
Executive shall constitute a defense to the enforcement by the Company of these
covenants. The covenants contained in this Agreement are necessary to protect
the legitimate business interests of the Company. Damages for the violation of
any such covenants will not give full and sufficient relief to the Company. In
the event of any violation of any such covenants, the Company shall be entitled
(i) to injunctive relief against the continued violation thereof, and (ii) to
its actual damages. In any dispute concerning whether or not the Executive has
violated any of such covenants, the prevailing party shall be entitled to
payment from the other party for any and all expenses, including attorneys' fees
and expenses, incurred by the prevailing party in connection with such dispute.

         13.      GENERAL.

                  (a)      Survival. The covenants of the Executive contained in
paragraphs 6, 8, 9, 10 and 11 of the Agreement, shall survive the term of the
Executive's employment under this Agreement.

                  (b)      Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which, taken together, shall constitute one instrument.

                  (c)      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 interpreting this Agreement.

                  (d)      Notices. All notices, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed to have been given at the time the same is delivered in person or is
mailed by registered or certified mail addressed as follows:

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Employment Agreement
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                  To the Company:     Steve Beatty, President and CEO
                                      ------------------------------------------
                                      Helix BioMedix, Inc., 22122 20th Ave. SE,
                                      Bothell, WA 98021

                  To the Executive:   Kerry Palmer
                                      ------------------------------------------
                                      17126 N.E. 163rd Place
                                      Woodinville, WA 98072

Either party wishing to change the address to which notices, requests, demands
and other communications under this Agreement shall be sent shall give written
notice of such change to the other party.

                  (e)      Dispute Resolution. 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. In any such
dispute, the prevailing party shall be entitled to its or his attorneys' fees
and costs, in addition to any other relief that may be awarded.

                  (f)      Governing Law. This Agreement shall be governed by
the laws of the State of Washington without regard to any rules governing
conflicts of laws.

                  (g)      Waiver. The waiver or failure of either party to
insist in any one or more instances upon performance of any term, covenant or
condition of this Agreement shall not be construed as a waiver of future
performance of any such term, covenant or condition, but the obligations of
either party with respect to such term, covenant or condition shall continue in
full force and effect. No course of dealing shall be implied or arise from any
waiver or series of waivers of any right or remedy hereunder.

                  (h)      Severability. Each provision of this Agreement shall
be interpreted where possible in a manner necessary to sustain its legality and
enforceability. If any provision of this Agreement shall be unenforceable or
invalid under applicable law, such provision shall be limited to the minimum
extent necessary to render the same enforceable or valid. The unenforceability
of any provision of this Agreement in a specific situation, or the
unenforceability of any portion of any provision of this Agreement in a specific
situation, shall not affect the enforceability of (i) that provision or

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portion of provision in another situation or (ii) the other provisions or
portions of provisions of this Agreement if such other provisions or the
remaining portions could then continue to conform with the purposes of this
Agreement and the terms and requirements of applicable law.

                  (i)      Assignment. Except as may be provided under Section 3
above, this Agreement is personal to Executive and shall not be assignable by
Executive. If the Company changes its 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 insure to the benefit of and be enforceable by the parties and their
respective successors and permitted assigns.

                  (j)      Amendments. This Agreement shall not be amended
orally, but only by a written instrument executed by each party to this
Agreement.

                  (k)      Entire Agreement. This Agreement, including documents
referenced herein, and any amendments or extensions to those agreements embodies
the entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior oral and written agreements and
understandings between the Company and the Executive with respect to the subject
matter hereof.

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

                                     HELIX BIOMEDIX, INC.

                                     By:
                                          /s/___________________________________
                                      R. Stephen Beatty
                                      President and CEO

                                     EXECUTIVE

                                     /s/ _______________________________________
                                     KERRY PALMER<PAGE>

                                                                    EXHIBIT 10.8

                              EMPLOYMENT AGREEMENT

         This Employment Agreement (this "Agreement"), dated as of September 24,
2003, and effective as of July 1 2003 (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 July 1, 2003 and will
continue in effect until June 30, 2006, unless otherwise terminated as set forth
herein.

3.       COMPENSATION

         (a)      BASE SALARY. Company shall pay Executive a base salary at an
annual rate of Two Hundred Fifteen Thousand Dollars ($215,000) 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 Eighty Thousand
(180,000) shares of the Company's common stock at an exercise price of $1.00 per
share, which is $0.07 above the reported closing per share price on the
Effective Date. These options will vest in six equal installments of Thirty
Thousand (30,000) shares on January 1, 2004, July 1, 2004, January 1, 2005, July
1, 2005, January 1 2006 and July 1, 2006. Any unexercised options issued
pursuant to this Section 3(b)(1) shall expire on June 30, 2013.

                  (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:

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                           (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 will reimburse Executive for all reasonable
fees, up to $10,000 per year, directly associate with maintaining his visa
status in a condition that allows him to maintain his employment hereunder.

         (e)      AWARD WARRANT. As of the Effective Date of this Agreement, the
Company shall issue to Executive a warrant that provides Executive with the
right, for a ten-year term, to purchase up to 50,000 shares of the Company's
common stock at a purchase price of $0.25 per share. Such warrant shall be
exercisable in full on October 31, 2003 as long as Executive is still an
employee of the Company on such date.

4.       TERMINATION

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

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         (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.

         (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. In addition, any options to purchase capital stock
of the Company held by Executive on the date of such termination shall
automatically be deemed to be fully vested and exercisable. 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.

                                       3
<PAGE>

         (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.

         (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

                                       4
<PAGE>

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, 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

                                       5
<PAGE>

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;

         (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.

                                       6
<PAGE>

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.

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

                                       7
<PAGE>

jurisdiction shall have the power to reform such provision to the extent
necessary for such provision to be enforceable under applicable law.

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.

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