<PAGE>   1
                                                                    EXHIBIT 10.1


                         SEVERANCE AGREEMENT AND RELEASE

        The employment of Peter Nickerson ("Executive") with N2H2, Inc.
("Employer"), is being terminated. Executive and Employer desire to settle and
resolve all possible disputes between them growing out of Executive's employment
or termination of employment, and it is therefore agreed as follows:

        1. CONFIDENTIALITY OF AGREEMENT; AGREEMENT NOT ADMISSION. Executive and
Employer agree to keep this Severance Agreement and Release ("Agreement")
confidential, except insofar as disclosure may be required for legal or business
reasons. This Agreement is not an admission by Employer that it (or any of its
employees) has violated any law or failed to fulfill any duty to Executive. This
Agreement is not an admission by Executive that he has violated any law or
failed to fulfill any duty to Employer.

        2. TERMINATION OF EMPLOYMENT. Employer and Executive agree that
Executive's employment is terminated, without cause, and further agree to
discontinue the employment relationship, effective May 18, 2001. ("Effective
Date").

        3. RESIGNATIONS. On the Effective Date, Executive will be deemed to have
resigned as the Chief Executive Officer and President of Employer.

        4. SEVERANCE. In full consideration and in return for Executive's
release herein, Employer agrees to pay Executive severance equal to twelve (12)
months' base salary, subject to lawful deductions, payable in equal installments
on the fifteenth (15th) and last day of each month (the Company's regular
scheduled pay periods) commencing on the Effective Date.

        5. EXPENSES. As part of the severance package and in return for
Executive's release herein, Employer agrees to reimburse Executive in accordance
with the policies and procedures of Employer, for travel, entertainment and
other expenses reasonably incurred by him in connection with his employment,
upon presentation of appropriate vouchers or receipts through the Effective
Date.

        6. COMPANY PROPERTY. As part of the severance package and in return for
Executive's release herein, Employer agrees to convey to Executive the title to
the Employer-owned vehicle that was assigned to Executive. Executive shall also
be entitled to retain any of the office furniture that was located in his office
while employed by Employer. Notwithstanding the foregoing, in the event that
Employer does not merge with or otherwise acquire or be acquired by another
entity on or before November 18, 2001, Executive will reimburse Employer
$15,000, solely by Employer withholding such amount from severance payments made
pursuant to Section 4, for such furniture and vehicle.

        7. BONUS. Employer agrees to pay any bonus Executive may be entitled to
pursuant to Executive's Addendum to Executive Employment Agreement effective
October 1, 2000 and dated by Executive March 22, 2001 ("Employment Agreement").

<PAGE>   2

        8. EXECUTIVE'S WAGES. Executive acknowledges that he has received his
regularly scheduled base salary through the Effective Date, subject to lawful
deductions. Executive acknowledges that no additional wages are due from
Employer.

        9. RETURN OF RECORDS, CONFIDENTIAL INFORMATION AND PROPERTY. Except as
otherwise provided in Section 6 above, Executive agrees that within one month of
the Effective Date, Executive will return to Employer all property and equipment
furnished to or prepared by Executive in the course of or incident to
Executive's employment by Employer. Executive also agrees to return all Records
and Confidential Information pursuant to Section 8 of the Employment Agreement.

        10. MUTUAL RELEASE. Executive accepts Employer's undertakings in this
Agreement as full settlement of any and all claims, known or unknown, arising
out of or related to Executive's employment with Employer, or its termination.
Employer accepts Executive's undertakings in this Agreement as full settlement
of any and all claims, known or unknown, arising out of or related to his
employment with Employer. The release by Executive includes, but is not limited
to, any claims for damages or attorneys' fees, lost salary, lost benefits or
stock options, and specifically includes, but is not limited to, claims under
the Age Discrimination in Employment Act ("ADEA"). These claims are examples,
not a complete list, of the released claims, as it is the parties' intent that
Executive release any and all claims, of whatever kind or nature, in exchange
for the severance arrangements set forth in Sections 4 through 8 above.
Executive realizes this constitutes a full and final settlement of any and all
such claims, and except for obligations arising under this Agreement, this
Agreement releases Employer and any related companies (and their owners,
officers, employees, successors, assigns, and anyone else against whom Executive
could assert a claim based on Executive's experiences as an employee of Employer
or Executive's termination as an employee) from any further liability to
Executive (or to anyone else Executive has power to bind in this settlement) in
connection with such claims.

        11. NON-DISPARAGEMENT. Executive agrees that neither he, nor anyone
acting on his behalf, will make any negative, derogatory, or disparaging
statements, whether oral or written, regarding Employer. Employer agrees that
neither it, nor anyone acting on its behalf, will make any negative, derogatory,
or disparaging statements, whether oral or written, regarding Executive.

        12. SURVIVAL. Notwithstanding any other provision of this Agreement,
Executive acknowledges and agrees that termination of his employment with
Employer will not terminate or otherwise affect his obligations under: (i)
Section 8 of the Employment Agreement; and (ii) the restrictive covenants set
forth in Section 10 of the Employment Agreement.

        13. GENERAL. This Agreement (i) contains the entire understanding of the
parties with respect to the subject matter covered, except for Executive's
obligations under Sections 8 and 10 of his Employment Agreement; (ii) supersedes
all prior or contemporaneous understandings, except for Executive's obligations
under Sections 8 and 10 of his Employment Agreement; (iii) may only be amended
in a written instrument signed by both parties; and (iv) shall be governed by
the laws of the State of Washington. Each party warrants that they are the true
parties in interest, and fully authorized to execute this Agreement.


                                       2
<PAGE>   3

        14. KNOWING AND VOLUNTARY WAIVER. Executive acknowledges that he has
been advised to consult with an attorney, and has had the opportunity to do so,
before signing this Agreement, which Executive has been given twenty-one (21)
days to consider, and which Executive may revoke within seven (7) days after
signing.

June 27, 2001                                 /s/ Peter Nickerson
----------------------                        ----------------------------------
Date                                          Peter Nickerson


                                              N2H2, Inc.

June 27, 2001                                 By /s/ Howard Philip Welt
----------------------                        ----------------------------------
Date                                          Philip Welt, President and CEO

                                       3