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                         SEVERANCE AGREEMENT AND RELEASE


        The employment of Richard Giacchetti (hereinafter "Mr. Giacchetti") with
N2H2, Inc. (hereinafter "N2H2") is being terminated. Mr. Giacchetti and N2H2
desire to settle and resolve all possible disputes between them growing out of
Mr. Giacchetti's employment or his separation with N2H2, and it is therefore
agreed as follows:

        1. CONFIDENTIALITY OF AGREEMENT; AGREEMENT NOT ADMISSION. Mr. Giacchetti
agrees to keep this Agreement confidential, except insofar as disclosure may be
required for legal or business reasons. This Agreement is not an admission by
N2H2 that it (or any of its Employees) has violated any law or failed to fulfill
any duty to Mr. Giacchetti.

        2. TERMINATION OF EMPLOYMENT. N2H2 and Mr. Giacchetti agree to
discontinue Mr. Giacchetti's employment relationship, effective January 10, 2001
("Effective Date").

        3. SEVERANCE PAYMENTS. N2H2 agrees to pay Mr. Giacchetti severance equal
to twelve (12) months of Mr. Giacchetti's base compensation and bonus, subject
to lawful deductions, payable in accordance with N2H2's regular payroll
practice. This severance is subject to the passage of seven days after this
Agreement and Release is signed by Mr. Giacchetti and delivered to N2H2.

        4. VACATION. As part of the severance package and in return for Mr.
Giacchetti's release herein, N2H2 agrees to pay Mr. Giacchetti's accrued and
unused vacation through the Effective Date, subject to lawful deductions,
payable after the passage of seven days after this Agreement and Release is
signed by Mr. Giacchetti and delivered to N2H2.

        5. STOCK OPTION VESTING. N2H2 and Employee agree that there are 37,500
already vested shares effective November 11, 2000 (according to 1999 Officer's
Stock Plan). In addition, N2H2 agrees to accelerate the vesting schedule by
Eighteen (18) Months for a total of 6,300 shares of N2H2's common stock granted
to Mr. Giacchetti in N2H2's 2000 Plan (the "Stock Option Agreement"), dated and
signed by Mr. Giacchetti on August 2, 1999 and a total of 37,500 shares of
N2H2's common stock granted to Mr. Giacchetti in N2H2's 1999 Officer's Stock
Plan, dated and signed by Mr. Giacchetti on November 11, 1999. These shares will
be deemed vested and become exercisable upon the Effective Date pursuant to the
terms of the Stock Option Agreement. Nothing in this paragraph is intended to or
does create any other rights or obligations of any kind on the part of N2H2 with
regard to Mr. Giacchetti's stock option benefits, except those specifically
required by law.

        6. RELEASE. Mr. Giacchetti accepts N2H2's undertakings in this Agreement
as full settlement of any and all claims, known or unknown, arising out of or
related to Mr. Giacchetti's employment with N2H2, or its termination, including
but not limited to any claims of lost salary or other benefits, lost 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 Mr.
Giacchetti release any and all claims, of whatever kind or nature, in exchange
for the severance arrangements set forth in




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paragraphs 3, 4 and 5 above. Mr. Giacchetti realizes this constitutes a full and
final settlement of any and all such claims, and except for obligations arising
under this Agreement, this settlement releases N2H2 and any related companies
(and their owners, officers, employees, and anyone else against whom Mr.
Giacchetti could assert a claim based on Mr. Giacchetti's experiences as an
employee of N2H2 or Mr. Giacchetti's termination as an employee) from any
further liability to Mr. Giacchetti (or to anyone else Mr. Giacchetti has power
to bind in this settlement) in connection with such claims.

        7. EFFECTIVENESS OF AGREEMENT. This Agreement (i) contains the entire
understanding of the parties with respect to the subject matter covered, except
for Mr. Giacchetti's Termination Obligations under his Executive Employment
Agreement entered into with N2H2 on November 11, 1999 (the "Employment
Agreement") and Mr. Giacchetti's obligations under his Employee Intellectual
Property Agreement entered into with N2H2 on November 11, 1999 (the "IP
Agreement"); (ii) supersedes all prior or contemporaneous understandings, except
for Mr. Giacchetti's Termination Obligations under his Employment Agreement and
Mr. Giacchetti's obligations under his IP Agreement; and (iii) may only be
amended in a written instrument signed by both parties.

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


PLEASE READ CAREFULLY. THIS IS A VOLUNTARY AGREEMENT THAT INCLUDES A RELEASE OF
ALL KNOWN AND UNKNOWN CLAIMS.


01-04-2001                          /s/ Richard Giacchetti
--------------------                --------------------------------------
Date                                Richard Giacchetti







                                    N2H2, INC.



01-04-2001                          By: /s/ Peter Nickerson
--------------------                   -----------------------------------
Date                                Printed Name: Peter Nickerson
                                                 -------------------------
                                    Title: President/CEO
                                          --------------------------------




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