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                                                                    EXHIBIT 10.1

                                   N2H2, INC.

                     HOWARD PHILIP WELT EMPLOYMENT AGREEMENT


         This Agreement is made by and between N2H2, Inc. (the "Company"), and
Howard Philip Welt ("Executive") as of May 18, 2003 (the "Effective Date").

1.       DUTIES AND SCOPE OF EMPLOYMENT.

         a.       POSITIONS AND DUTIES. Executive will continue to serve as
                  President and Chief Executive Officer of the Company.
                  Executive will render such business and professional services
                  in the performance of his duties, consistent with Executive's
                  position within the Company, as shall reasonably be assigned
                  to him by the Company's Board of Directors (the "Board").
                  Executive will report to the Board and all other Company
                  employees will report to Executive.

         b.       BOARD MEMBERSHIP. Executive will continue to serve as a member
                  of the Board, subject to any required Board and/or stockholder
                  approval.

         c.       OBLIGATIONS. During the Employment Term (as defined below),
                  Executive will devote his full business efforts and time to
                  the Company. For the duration of the Employment Term,
                  Executive agrees not to actively engage in any other
                  employment, occupation or consulting activity for any direct
                  or indirect remuneration without the prior approval of the
                  Board (which approval will not be unreasonably withheld);
                  provided, however, that Executive may, without the approval of
                  the Board, serve in any capacity with any civic, educational
                  or charitable organization, or as a member of corporate Boards
                  of Directors (but in all cases subject to Section 11).

2.       TERM.

         a.       Executive and the Company agree that Executive's employment
                  with the Company under this Agreement shall be for a period of
                  twelve (12) months commencing on the Effective Date, unless
                  earlier terminated in accordance with this Agreement or
                  extended by mutual written agreement of the Company and
                  Executive (the "Employment Term") (it being understood that
                  nothing in the paragraph shall obligate the Company or
                  Executive to continue the Employment Term beyond twelve (12)
                  months). Executive and the Company acknowledge that this
                  employment relationship may be terminated at any time, upon
                  sixty (60) days advance written notice to the other party,
                  with or without good cause or for any or no cause, at the
                  option of either the Company or Executive.

3.       EXECUTIVE BENEFITS.

         a.       During the Employment Term, Executive will be eligible to
                  participate in accordance with the terms of all Company
                  employee benefit plans that are applicable to other senior
                  executives of the Company, as such plans and terms may exist
                  from time to time.


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         b.       Executive shall, during the Employment Term, accrue five weeks
                  of vacation leave per year, commencing on the effective date
                  of this Agreement.

         c.       Company shall, during the Employment Term, pay for Executive's
                  parking and health club membership.

4.       COMPENSATION.

         a.       BASE SALARY. During the Employment Term, the Company shall pay
                  Executive a base salary at the annual rate of $175,000.
                  Executive's salary shall be paid in bi-monthly installments,
                  consistent with the Company's customary payroll practices. The
                  Compensation Committee of the Board (the "Committee") will
                  reevaluate compensation arrangements from time to time and may
                  adjust the Base Salary in accordance with its normal
                  practices.

         b.       BONUS. If Executive is employed by the Company on September
                  30, 2003, Executive shall be eligible to receive a cash bonus
                  (the "2003 Bonus") of not more than $87,500 (such maximum, the
                  "2003 Bonus Target"), pursuant to the Company's existing
                  company-wide bonus program, [a copy of which is attached
                  hereto as Exhibit A], with the amount of such bonus to be
                  determined by the Committee in its sole discretion based on
                  the Company's attainment of performance criteria for the
                  Company determined by the Committee, including without
                  limitation, whether the Company achieves its fiscal 2003
                  cashflow targets. The 2003 Bonus shall be paid within 60 days
                  after September 30, 2003.

                  If Executive is employed by the Company on September 30, 2004
                  (whether as a result of the extension of the Employment Term
                  under this Agreement or otherwise), Executive shall be
                  eligible to receive a cash bonus (the "2004 Bonus") of up to
                  $75,000 (such amount, the "2004 Bonus Target"). The 2004 Bonus
                  shall be paid within 60 days after September 30, 2004. The
                  Committee shall determine in its sole discretion the actual
                  amount of the 2004 Bonus, substantially in accordance with the
                  following standards:

                  (1)      Executive shall be eligible to receive up to 80% of
                           the 2004 Bonus Target based on the Company's
                           attainment of performance criteria for the Company,
                           with such criteria to be mutually agreed upon by the
                           Committee and the Executive on or before September
                           30, 2003; and

                  (2)      Executive shall be eligible to receive up to the
                           remaining 20% of the 2004 Bonus Target based on
                           Executive's attainment of individual performance
                           criteria to be mutually agreed upon by the Committee
                           and the Executive on or before September 30, 2003.

                  If Executive's employment with the Company is not extended by
                  mutual written agreement of the Company and Executive beyond
                  the expiration of the

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                  Employment Term, then Executive will be eligible to receive a
                  prorated portion of the 2004 Bonus Target equal to the amount
                  determined by multiplying (y) the quotient obtained by
                  dividing the number of calendar days in the period from the
                  first day of the 2004 fiscal year to the end of the Employment
                  Term, May 17, 2004, by 365, by (z), the 2004 Bonus Target. The
                  prorated 2004 Bonus Target will be paid to the extent
                  Executive has achieved mutually agreed upon Company and
                  individual performance criteria as measured through the end of
                  the Employment Term. The Committee shall determine in its sole
                  discretion the actual amount of the pro-rated 2004 Bonus, in
                  accordance with the standards set forth in section b(1) and
                  b(2). The prorated 2004 Bonus shall be paid within 60 days
                  after end of Employment Term.

         c.       STOCK OPTION. On May 18, 2003, subject to execution by
                  Executive of the SOLA (as defined below), the Company will
                  grant Executive an option (the "Option") to purchase up to
                  25,000 shares of the Company's common stock ("Shares") at an
                  exercise price equal to Fair Market Value (as defined below)
                  on the date of grant. The Option shall vest and become
                  exercisable 8.333% per month beginning on June 18, 2003, with
                  the result that 100% of the Shares subject to the Option shall
                  be vested and exercisable on May 18, 2004. Executive and the
                  Company shall enter into a stock option letter agreement,
                  substantially in the form of the Company's standard form of
                  such agreement (the "SOLA"), reflecting the terms of the
                  Option described herein. For purposes of this Section 4(b),
                  "Fair Market Value" shall mean the average of the high and low
                  sales prices of the Company's common stock on the
                  Over-the-Counter Bulletin Board.

5.       EXPENSES. The Executive is authorized to incur reasonable expenses on
         behalf of the Company in the performance of his duties under this
         Agreement on a basis consistent with the Company's policies from time
         to time, including expenses for travel, business entertainment and
         other business activities. The Executive shall submit all claims for
         reimbursement of such expenses directly to the Company and the Company
         shall ensure that such expenses are reimbursed to the Executive within
         a reasonable time after submission by the Executive of an itemized
         account of such expenses, together with such vouchers or receipts for
         individual expense items as the Company may reasonably require.

6.       SEVERANCE.

         a.       UNPAID SALARY AND BENEFITS. If Executive's employment with the
                  Company is terminated for any reason (including the expiration
                  of the Employment Term), Executive shall be entitled to
                  receive unpaid annual base salary and benefits that have
                  accrued but have not yet been paid for services already
                  performed as of the date of termination.


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         b.       TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Company
                  terminates Executive's employment with the Company without
                  "Cause" (as defined below) prior to the expiration of the
                  Employment Term, or if Executive terminates his employment for
                  Good Reason (as defined below) prior to the expiration of the
                  Employment Term, then subject to Section 6(c), promptly
                  following such termination of employment, Executive will be
                  entitled to receive as severance: (i) the monthly salary and
                  benefits set forth in Section 4(a) for a period of six months
                  after such termination, and (ii) a cash bonus equal to the
                  amount determined by multiplying (y) the quotient obtained by
                  dividing the number of calendar days in the period from the
                  first day of the fiscal year in which such termination occurs
                  to the date of such termination, by 365, by (z) in the case of
                  a termination prior to September 30, 2003 (a "2003
                  Termination"), the 2003 Bonus Target and, in the case of a
                  termination after September 30, 2003 and before September 30,
                  2004 (a "2004 Termination"), the 2004 Bonus Target; provided,
                  however, that such severance payments will be subject to all
                  customary payroll deductions and shall be paid to Executive in
                  accordance with the Company's usual payroll practices, as in
                  effect at the time of termination. In addition, if the Company
                  terminates Executive's employment with the Company without
                  Cause prior to the expiration of the Employment Term, or if
                  Executive terminates his employment for Good Reason prior to
                  the expiration of the Employment Term, 100% of the remaining
                  unvested Shares subject to the Option, shall immediately vest
                  and become exerciseable.

         c.       TERMINATION FOLLOWING CHANGE OF CONTROL. If Executive's
                  employment is terminated for any reason other than for Cause,
                  death or Disability (including by Executive, for any reason
                  and including by reason of the expiration of the Employment
                  Term) within twelve (12) months after a "Change of Control"
                  (as defined below) that occurs during the Employment Term,
                  then notwithstanding Section 6(b) and in lieu of the payments
                  and benefits described in any section above, Executive shall
                  be paid a cash severance payment of $250,000, in twelve
                  monthly installments beginning on the first day of the month
                  immediately following termination. In addition, if within
                  twelve (12) months after a Change of Control that occurs
                  during the Employment Term, the Company terminates Executive's
                  employment with the Company without Cause, or if Executive
                  terminates his employment for Good Reason, then 100% of the
                  Shares subject to the Option shall immediately vest and become
                  exercisable.

         d.       TERMINATION AS A RESULT OF DEATH OR DISABILITY. If Executive's
                  employment with the Company is terminated as a result of his
                  death or Disability during the Employment Term, Executive (or
                  his personal representative) shall be entitled to receive all
                  of the payments and benefits described in Sections 6(a) and
                  6(b).



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         e.       TERMINATION FOR CAUSE. For the avoidance of doubt, if at any
                  time during the Employment Term or otherwise, the Company
                  terminates Executive's employment with the Company for Cause,
                  then Executive shall be entitled to receive the payments
                  described in Section 6(a), but shall not be entitled to any
                  other compensation or benefits from the Company, except to the
                  extent provided under the applicable stock option agreement(s)
                  between the Company and Executive, or as may be required by
                  law.

         f.       NO OTHER COMPENSATION OR SEVERANCE. Except as otherwise
                  provided in this Section 6 or under any applicable stock
                  option agreement(s) between the Company and Executive,
                  Executive shall not be entitled to receive any payments or
                  benefits under this Agreement in the event of termination of
                  Executive's employment, whether such termination occurs before
                  or after the expiration of the Employment Term.

         g.       OTHER STOCK OPTION AGREEMENTS. Nothing in this Agreement shall
                  be construed to amend or modify the terms of any applicable
                  stock option agreement between the Company and the Executive
                  entered into between the Company and Executive prior to the
                  Effective Date.

         h.       DEFINITIONS.  For purposes of this Agreement:

                  "Cause" means a termination of Executive's employment by the
                  Company due to (i) Executive's failure or refusal to perform
                  his duties, responsibilities or obligations hereunder after at
                  least twenty-one (21) days' prior written notice regarding any
                  such failure or refusal; (ii) Executive's breach of any
                  non-competition or confidentiality agreement with the Company;
                  (iii) the willful misappropriation of funds or property of the
                  Company; (iv) use of alcohol or drugs which interferes with
                  performance of Executive's obligations under this Agreement,
                  continuing after thirty (30) days' prior written notice; (v)
                  conviction of a felony or of any crime involving moral
                  turpitude, fraud or misrepresentation; or (vi) the commission
                  by Executive of any willful or intentional act in disregard of
                  the interests of the Company which could be reasonably
                  expected to materially injure the reputation, business or
                  business relationships of the Company, provided, however, that
                  a good faith mistake in the normal course of business shall
                  not be considered "Cause" under this Section 6(g).

                  "Disability" or "Disabled" means Executive being unable to
                  perform the principal functions of his duties due to a
                  physical or mental impairment, but only if such inability has
                  lasted or is reasonably expected to last for at least six (6)
                  months. Whether Executive is Disabled shall be determined by
                  the Committee based on evidence provided by one or more
                  medical experts selected by the Committee. Executive agrees to
                  be seen by or consult with medical experts of the Committee's
                  choosing;



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                  "Good Reason" means (i) a material reduction (without
                  Executive's consent) in his title, authority, status, or
                  responsibilities, or (ii) a material breach by the Company of
                  its obligations under this Agreement;

                  "Change of Control" means a merger, consolidation or other
                  reorganization in which the Company is not the surviving
                  corporation, or in which the Company becomes a subsidiary of
                  another corporation, or the sale, lease or exchange of all or
                  substantially all of the Company's assets to any other
                  corporation or entity (except a subsidiary or parent
                  corporation).

7.       INDEMNIFICATION. The Company shall (and is hereby obligated to)
         indemnify (including advance payment of expenses, which such expenses
         shall include, without limitation, attorneys' fees) the Executive for
         all actions taken by Executive as an officer of Company or the failure
         of Executive to take any action in each and every situation where the
         Company is obligated to make such indemnification pursuant to
         applicable law and the relevant portions of the Company's Articles of
         Incorporation and Bylaws. During the Employment Term, the Company, at
         its sole expense, shall maintain in effect director and officer
         liability insurance containing a liability coverage endorsement
         covering the Company's indemnification duty. Upon request, the Company
         shall furnish to the Executive a certificate of such insurance that
         shall bear an endorsement that the same shall not be canceled,
         non-renewed or materially reduced in coverage or limits by the Company,
         without thirty (30) days prior written notice to the Executive.

8.       ASSIGNMENT. This Agreement will be binding upon and inure to the
         benefit of (a) the heirs, executors and legal representatives of
         Executive upon Executive's death and (b) any successor of the Company.
         Any such successor of the Company will be deemed substituted for the
         Company under the terms of this Agreement for all purposes. For this
         purpose, "successor" means any person, firm, corporation or other
         business entity which at any time, whether by purchase, merger or
         otherwise, directly or indirectly acquires all or substantially all of
         the assets or business of the Company. None of the rights of Executive
         to receive any form of compensation payable pursuant to this Agreement
         may be assigned or transferred except by will or the laws of descent
         and distribution. Any other attempted assignment, transfer, conveyance
         or other disposition of Executive's right to compensation or other
         benefits will be null and void.

9.       NOTICES. All notices, requests, demands and other communications called
         for hereunder shall be in writing and shall be deemed given (i) on the
         date of delivery if delivered personally, (ii) one (1) day after being
         sent by a well established commercial overnight service, or (iii) four
         (4) days after being mailed by registered or certified mail, return
         receipt requested, prepaid and addressed to the parties or their
         successors at the following addresses, or at such other addresses as
         the parties may later designate in writing:

         If to the Company:



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         N2H2, Inc
         900 Fourth Avenue, Suite 3600
         Seattle, WA  98164
         ATTN: Peter Nickerson, Chairman of the Board

         If to Executive:

         at the last residential address known by the Company.

10.      SEVERABILITY AND MODIFICATION OF ANY UNENFORCEABLE COVENANT. It is the
         parties' intent that each of the covenants be read and interpreted with
         every reasonable inference given to its enforceability. However, it is
         also the parties' intent that if any term, provision or condition of
         the covenants is held by a court of competent jurisdiction to be
         invalid, void or unenforceable, the remainder of the provisions thereof
         shall remain in full force and effect and shall in no way be affected,
         impaired or invalidated. Finally, it is also the parties' intent that
         if a court should determine any of the covenants are unenforceable
         because of over breadth, then the court shall modify said covenant so
         as to make it reasonable and enforceable under the prevailing
         circumstances.

11.      NON-COMPETITION AND NON-SOLICITATION. For a period beginning on the
         Effective Date (defined below) and ending twelve (12) months from the
         date when Executive ceases to be employed by the Company for any reason
         whatsoever, Executive, directly or indirectly, whether as employee,
         owner, sole proprietor, partner, director, member, consultant, agent,
         founder, co-venturer or otherwise, will:

         a.       Not engage, participate or invest in any business activity
                  anywhere in the world which develops, manufactures or markets
                  products or performs services which are competitive with the
                  products or services of the Company at the time of Executive's
                  termination, or products or services which the Company has
                  under development or which are the subject of active planning
                  at the time of Executive's termination; PROVIDED, HOWEVER,
                  that Executive, may own as a passive investor, securities of
                  any corporation which competes with the business of the
                  Company so long as such securities do not, in the aggregate,
                  constitute more than 2% of any class of outstanding securities
                  of such corporations;

         b.       Not attempt to employ, recruit or otherwise solicit, induce or
                  influence any person to leave employment with the Company or
                  its resellers or distributors; and

         c.       Not directly or indirectly solicit business from any of the
                  Company's customers and users on behalf of any business that
                  competes with the Company.

Notwithstanding the foregoing, this Section 11 shall not apply if this Agreement
is breached by the Company.


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12.      NON-DISPARAGEMENT. Executive and the Company mutually covenant and
         agree that, during the Employment Term and for a period of twelve (12)
         months after the date of termination of Executive's employment with the
         Company, neither shall, directly or indirectly, disparage the other.

13.      ENTIRE AGREEMENT. This Agreement, the stock option agreements entered
         into by the Company and Executive prior to the date hereof, and the
         SOLA, represent the entire agreement and understanding between the
         Company and Executive concerning Executive's employment relationship
         with the Company, and supersedes and replaces any and all prior
         agreements and understandings concerning Executive's employment
         relationship with the Company.

14.      ARBITRATION. In the event of any dispute arising out of or relating to
         this Agreement, the parties undertake to make every effort to reach an
         amicable settlement of their differences (including mediation if
         requested by a party). Failing such settlement, the dispute shall be
         referred to final and binding arbitration. It is understood and agreed
         between the parties hereto that any claim of any nature whatsoever
         arising out of or connected with Executive's employment with the
         Company, including but not limited to wrongful termination, breach of
         contract, defamation, and claims of discrimination (including age,
         disability, sex, religion, race, national origin, color, etc.) or
         harassment, whether under federal, state or local laws, common law or
         in equity, shall be decided by submission to final and binding
         arbitration. The arbitrator shall be a retired or former superior court
         or appellate court judge. This arbitration provision shall be governed
         by the Federal Arbitration Act. Any arbitration hereunder shall be
         conducted in Seattle, Washington in accordance with the Employment
         Arbitration Rules of the American Arbitration Association. Judgment
         shall be final upon the award rendered by the arbitrator and may be
         entered in any court having jurisdiction thereof. It is further
         understood and agreed between the parties hereto that actions seeking
         temporary injunctions are hereby excluded from arbitration and,
         therefore, may be sought in a court of appropriate jurisdiction without
         resort to arbitration, even though resolution of the underlying claim
         must be submitted to arbitration. Provided: This Section shall not
         govern any matter arising out of Executive's violation of the covenants
         contained in Section 11 of this Agreement, in which event the Company
         shall be entitled to seek injunctive or other equitable relief in any
         state or federal court located in King County, Washington, and the
         parties agree to submit to the jurisdiction of such court.

15.      ATTORNEYS FEES. In the event of any dispute arising out of or involving
         this Agreement, the prevailing party shall be entitled to recover its
         reasonable attorneys' fees, experts' fees, and costs, including those
         for pretrial, trial, on appeal, in arbitration and in bankruptcy and
         all other costs and expenses associated with any such action in
         addition to any other relief to which such party may be entitled.

16.      NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement may be
         changed or terminated only in writing (signed by Executive and the
         Company).



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17.      WITHHOLDING. The Company is authorized to withhold, or cause to be
         withheld, from any payment or benefit under this Agreement the full
         amount of any applicable withholding taxes.

18.      GOVERNING LAW. This Agreement will be governed by the laws of the State
         of Washington (with the exception of its conflict of laws provisions).

19.      ACKNOWLEDGMENT. Executive acknowledges that he has had the opportunity
         to discuss this matter with and obtain advice from his private
         attorney, has had sufficient time to, and has carefully read and fully
         understands all the provisions of this Agreement, and is knowingly and
         voluntarily entering into this Agreement.



IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:

EXECUTIVE:


/s/ Howard Philip Welt                                        Date:    5/16/03
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Howard Philip Welt


COMPANY:

N2H2, INC.


By: /s/ Mark Segale                                           Date:    5/15/03
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Name:   Mark A. Segale
        -------------------------------

Title:  Compensation Committee Chair
        -------------------------------