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                                                                    Exhibit 10.1

                         SEVERANCE AGREEMENT AND RELEASE


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

        1. CONFIDENTIALITY OF AGREEMENT; AGREEMENT NOT ADMISSION. Mr. O'Halloran
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. O'Halloran.

        2. TERMINATION OF EMPLOYMENT. N2H2 and Mr. O'Halloran agree to
discontinue Mr. O'Halloran's employment relationship, effective February 13,
2001 ("Effective Date").

        3. SEVERANCE PAYMENTS. N2H2 agrees to pay Mr. O'Halloran severance equal
to twelve (12) months of Mr. O'Halloran's base compensation and bonus
("Severance Period"), 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. O'Halloran and
delivered to N2H2.

        4. VACATION. As part of the severance package and in return for Mr.
O'Halloran's release herein, N2H2 agrees to pay Mr. O'Halloran'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. O'Halloran and delivered to N2H2.

        5. STOCK OPTION VESTING. In accordance with the Executive Employment
Agreement signed and dated on June 18, 1999, "Those unvested stock options which
are scheduled to vest between the date of termination and the end of the
Severance Period shall be deemed to vest immediately." The shares will be deemed
vested and become exercisable upon the Effective Date pursuant to the terms of
the individual Stock Option Agreements. 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. O'Halloran's stock option benefits, except those specifically
required by law.

        6. RELEASE. Mr. O'Halloran 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. O'Halloran'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.
O'Halloran 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. O'Halloran 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.
O'Halloran could assert a claim based on Mr. O'Halloran's experiences as an
employee of N2H2 or Mr. O'Halloran's termination as an employee) from any
further liability to Mr. O'Halloran (or to anyone else Mr. O'Halloran 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. O'Halloran's Termination Obligations under his Executive Employment
Agreement entered into with N2H2 on June 18, 1999 (the "Employment Agreement")
and Mr. O'Halloran's obligations under his Employee Intellectual Property
Agreement entered into with N2H2 on June 18, 1999 (the "IP Agreement"); (ii)
supersedes all prior or contemporaneous understandings, except for Mr.
O'Halloran's Termination Obligations under his Employment Agreement and Mr.
O'Halloran'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. O'Halloran acknowledges that Mr.
O'Halloran has been advised to consult with an attorney, and has had the
opportunity to do so, before signing this Agreement, which Mr. O'Halloran has
been given twenty-one (21) days to consider, and which Mr. O'Halloran 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.



15 Feb 2001                       /s/ JAMES O'HALLORAN
-----------                     -------------------------
Date                                James O'Halloran


                                    N2H2, INC.


    2/15/01                         By  /s/  J. PAUL QUINN
----------------                      ----------------------------
Date                                Printed Name:  J. Paul Quinn
                                                 -----------------
                                    Title:  CFO
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