EXHIBIT 10.1

               SEPARATION AGREEMENT AND FULL RELEASE OF ALL CLAIMS


         THIS SEPARATION  AGREEMENT AND FULL RELEASE OF ALL CLAIMS  (hereinafter
the  "Agreement") is entered into by and among MICROTEK MEDICAL  HOLDINGS,  INC.
(the "Company") and BARBARA J. OSBORNE ("Employee").

                                   WITNESSETH

     A.  The  Company  and  Employee  are  parties  to that  certain  Employment
Agreement (the "Employment Agreement") dated as of June 14, 2004.

     B. The Company and the  Employee  have  mutually  agreed to  terminate  the
employment  of the Employee  with the Company.

     C. Employee and the Company are terminating  their employment  relationship
effective  March 3, 2005, and desire to settle fully and finally all differences
between them that may arise out of or relate to Employee's  employment  with the
Company  and all  other  claims  Employee  has or may have  through  the date of
execution of this Agreement.

     NOW,  THEREFORE,  in consideration of the recitals,  the mutual  agreements
contained  herein  and  other  good and  valuable  consideration,  the  receipt,
adequacy and  sufficiency of which is hereby  acknowledged,  the parties to this
Agreement  hereby agree,  promise and covenant as to each of the  following:

     1.   Capacity to Execute.

          Each of the parties  represents  and warrants that he or it is legally
viable and  competent to enter into this  Agreement,  is relying on  independent
judgment and the advice of legal counsel and has not been influenced,  pressured
or  coerced  to  any  extent   whatsoever  in  making  this   Agreement  by  any
representations  or statements  made by the Company and/or any person or persons
representing the Company,  and that the individuals  executing this Agreement on
his or its
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behalf are  authorized  to do so. Each of the  parties  further  represents  and
warrants  that  he or it  has  not  sold,  assigned,  transferred,  conveyed  or
otherwise disposed of all or any part of the claims released hereunder,  whether
known or unknown.

     2.   Specific Consideration Provided to Employee.

          In exchange for the covenants of Employee hereunder and other good and
valuable consideration, and in addition to the benefits to Employee set forth in
the Employment  Agreement (including those benefits set forth in Section 8(c) of
the Employment Agreement) which shall remain in full force and effect subject to
the terms and conditions thereof,  Employee shall receive the following forms of
compensation as severance from the Company:

          (a) Provided  Employee  shall not have  breached any of the  covenants
contained in this Agreement or the Employment Agreement, Employee shall receive:

          A lump sum payment in the amount of $157,500  payable  within five (5)
days  after the  Effective  Date (as  defined in  Section  10(e)  below) of this
Agreement, less any legally required deductions and withholdings

          (b) Bonus for the fourth  quarter in the amount of $21,656.25  payable
within  five (5) days after the  Effective  Date (as  defined  in Section  10(e)
below) of this Agreement,  less any legally required deductions and withholdings

          (c) The  benefits  set forth in  Section  8(c)(ii)  of the  Employment
Agreement  which  provide for twelve  months of COBRA  coverage for Employee and
Employee's  dependents  who are currently  included in such coverage  subject to
COBRA to the extent such benefits otherwise are in effect for Employee under the
Employment  Agreement,  understanding  however that Employee is responsible  for
complying with all terms and  conditions of any employee  benefit plan to obtain
such benefits.

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          (d)  Executive  outplacement  services as shall be  designated  by the
Company  for a period  of six (6)  months  from and  after  March 3,  2005.

          The  severance  obligations  set  forth in  paragraph  2 herein  shall
constitute  the total payment and severance  obligations  under this  Agreement,
which represent  payments and  obligations  that Employee would not otherwise be
entitled to receive  from the Company.  Accordingly,  Employee  understands  and
warrants  that no  amount  other  than as set  forth  in this  Section  2 (which
includes  amounts set forth in the  Employment  Agreement) is or shall be due or
claimed  to be due from the  Company  and/or  from any  other  person  or entity
released in  paragraph 3 below with  respect to any claim or claims  released in
paragraph  3 below,  including,  but not  limited  to,  any and all  claims  for
attorneys'  fees and the costs of litigation that he may have under any federal,
state or local law,  common law or in equity.

     3.   Full Release of all Claims by Employee.

          In  consideration of the payment provided for in paragraph 2 above and
other good and valuable consideration, the receipt, adequacy, and sufficiency of
which is hereby acknowledged, Employee and his heirs, executors, administrators,
agents,  assigns,   receivers,   attorneys,   servants,  legal  representatives,
predecessors  and  successors  in  interest,  regardless  of form,  trustees  in
bankruptcy or otherwise, wards, and any other representative or entity acting on
his or their behalf,  pursuant to, or by virtue of the rights of any of them, do
hereby  now and  forever  unconditionally  release,  discharge,  acquit and hold
harmless the Company and any parent,  subsidiary or related  companies,  and any
and  all  of  their  employees,  agents,  administrators,   assigns,  receivers,
attorneys, servants, legal representatives,  affiliates,  insurers, predecessors
and  successors  in interest,  regardless  of form,  trustees in  bankruptcy  or
otherwise,  insurance  benefit  plans,  and any other  representative  or entity
acting on its or their behalf (collectively,  the "Released Parties"),  from

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any and all claims, rights, demands,  actions, suits, damages, losses, expenses,
liabilities, indebtedness, and causes of action, of whatever kind or nature that
existed  from  the  beginning  of time  through  the date of  execution  of this
Agreement,  regardless  of whether known or unknown,  and  regardless of whether
asserted by Employee to date,  including,  but not limited to, all claims for or
relating to assault, battery, negligence, negligent hiring, negligent retention,
negligent supervision,  negligent training,  negligent or intentional infliction
of  emotional  distress,  false  imprisonment,   defamation  (whether  libel  or
slander), personal injury, bodily injury, bad faith, pain and suffering, medical
expenses,  wage and hour, lost income and earnings  (including,  but not limited
to, back pay, front pay and any other form of present or future income, benefits
and/or  earnings),  equitable  reinstatement,  breach of any  express or implied
contract,  breach  of the  covenant  of good  faith and fair  dealing,  workers'
compensation,  wrongful  termination,  wrongful  demotion,  wrongful  failure to
promote, wrongful deprivation of a career opportunity, discrimination (including
disparate  treatment and disparate impact),  hostile work environment,  quid pro
quo sexual harassment, retaliation, any request to submit to a drug or polygraph
test, and/or whistleblowing, whether said claim(s) are brought pursuant to Title
VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, 42 U.S.C. ss.
1981,  the  Employee  Retirement  Income  Security  Act,  the Equal Pay Act, the
Pregnancy   Discrimination   Act,  the  Fair  Labor   Standards   Act,  the  Age
Discrimination  in Employment  Act, the  Americans  with  Disabilities  Act, the
Family and Medical Leave Act or any other constitutional,  federal,  regulatory,
state or local  law,  or under the common  law or in  equity.

          Employee  further  understands  and warrants that this Agreement shall
operate  as a fully  binding  and  complete  resolution  of all claims as to the
parties to this  Agreement and all parties  represented  by or claiming  through
such  parties,  and that he shall not be able to seek any  monies for

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any claim,  whether  known or  unknown,  against  any of the persons or entities
released  hereunder  other than as provided in  paragraph 2 above.

     4.   Covenant Not-to-Sue.

          Employee  covenants  and  agrees  not to file or  initiate  a  lawsuit
against any of the Released Parties in regard to any claims,  demands, causes of
action, suits, damages,  losses and expenses,  arising from acts or omissions of
the Company occurring on or before the date of execution of this Agreement,  and
Employee  will ask no other  person or entity to initiate  such a lawsuit on his
behalf.  If  Employee  breaches  this  covenant  and  agreement,  Employee  must
immediately repay and refund to the Company all payments he received pursuant to
paragraph 2 above,  and  Employee  shall also  indemnify  and hold  harmless the
Company,  any of the  Released  Parties,  and  any of  their  officers,  owners,
directors,  employees and agents from any and all costs  incurred by any and all
of them,  including their reasonable  attorneys' fees, in defending  against any
such lawsuit.

     5.   No Proceedings Initiated.

          Employee  represents and warrants that neither he nor anyone acting on
his behalf has filed or initiated any charge or claim against the Company in any
administrative or judicial  proceeding.

     6.   Covenants of Employee.

          (a)  Employee  ratifies  and  confirms  each and  every  covenant  and
agreement  of  Employee   contained  in  the  Employment   Agreement.   Employee
acknowledges   that  certain  of  such  covenants  and  agreement   survive  the
termination  of employment of Employee with the Company and remain in full force
and effect in accordance with their terms.

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          (b)  Employee  agrees  that he shall  not  disparage  the  Company  or
otherwise seek to reduce the goodwill of the Company.  The Company agrees not to
disparage Employee or to act in any way to diminish Employee's reputation.

     7.   No Voluntary Assistance.

          Employee  hereby  covenants  and agrees thats he will not  voluntarily
assist, support, or cooperate with, directly or indirectly, any entity or person
alleging  or  pursuing  any  claim,  administrative  charge,  or cause of action
against the Company,  including without  limitation,  by providing  testimony or
other  information,  audio or  video  recordings,  or  documents,  except  under
compulsion of law. If compelled to testify,  nothing  contained  herein shall in
any way  inhibit  or  interfere  with  Employee  providing  completely  truthful
testimony.  Nor shall anything herein prevent  Employee's full  cooperation with
any   investigation  or  other  proceeding  by  any  federal,   state  or  local
governmental  agency.

     8.   No Admission of Liability.

          The parties agree and  acknowledge  that this  Agreement is a full and
complete  compromise of the matters  released herein between the parties hereto;
that  neither the  releases  nor the  negotiations  for this  Agreement  and the
settlement  embodied herein,  including all statements or communications made to
date,  shall be considered  admissions by them.

     9.   Intentionally Omitted.

     10.  OWBPA Rights.

          (a) Employee is advised to seek legal  counsel  regarding the terms of
this Agreement.  Employee  acknowledges that she has either sought legal counsel
or has consciously decided not to seek legal counsel,  contrary to the Company's
advice,  regarding  the  terms  and  effect  of  this  Agreement.

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          (b) Employee  acknowledges  that this  Agreement  releases  only those
claims which exist as of the date of Employee's execution of this Agreement.

          (c) Employee acknowledges that he may take a period of twenty-one (21)
days from the date of receipt of this Agreement  (April 1, 2005) within which to
consider and sign this Agreement.

          (d) Employee  acknowledges  that she will have seven (7) days from the
date of  signing  this  Agreement  to revoke  the  Agreement  in  writing in its
entirety  ("Revocation  Period").  Employee acknowledges that the Agreement will
not become effective or enforceable until the Revocation Period has expired.  In
the event the Employee  chooses to revoke this Agreement,  within the Revocation
Period, she will:

               1. Revoke the entire Agreement in a signed writing,  delivered to
the  following  person on or before the seventh  (7th) day after he executed the
Agreement:

                    Mr. Jeff Stearns
                    Microtek Medical Holdings, Inc.
                    13000 Deerfield Parkway, Suite 300
                    Alpharetta, Georgia 30004

               2. Forfeit all severance and other consideration from the Company
that are  contemplated  by this  Agreement;  and

               3. Return the full amount of consideration  received,  if any, to
the  Company  along  with the signed  writing.

          (e) The Effective Date of this Agreement shall be the eighth (8th) day
after the date  Employee  signs the  Agreement,  assuming  the  Employee has not
revoked the  Agreement in writing  within the  Revocation  Period.

          (f) Employee  expressly  acknowledges  that the payments and the other
consideration  that he is receiving  under this  Agreement  constitute  material
consideration  for his

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execution of this Agreement,  and represent  valuable  consideration to which he
would not otherwise be entitled.

     11.  Jurisdiction/Choice of Forum.

          The laws of the State of Georgia shall govern this  Agreement,  unless
pre-empted  by any  applicable  federal  law  controlling  the  review  of  this
Agreement. The parties further stipulate and agree that any litigation regarding
this Agreement  shall be brought in the state or federal courts for the Northern
District of Georgia and neither  party will object to personal  jurisdiction  or
venue in any of these courts.

     12.  Advice of Attorneys.

          The  parties  acknowledge  that they have fully read,  understood  and
unconditionally accepted this Agreement after consulting with their attorneys or
having the opportunity to consult with an attorney,  and  acknowledge  that this
Agreement is mutual and binding upon all parties hereto regardless of the extent
of damages allegedly  suffered by any of the parties hereto.

     13.  Counterparts.

          This  Agreement may be signed in  counterpart  originals with the same
force and effect as if signed in a single original document.

     14.  Cooperation of the Parties.

          The parties to this Agreement  agree to cooperate fully and to execute
any and all supplementary  documents and to take all additional actions that may
be necessary or appropriate to give full force and effect to the basic terms and
intent of this Agreement and the settlement  embodied  herein.  Employee further
agrees  to fully  cooperate  with  the  Company  in any and all  investigations,
inquiries or  litigation  whether in any  judicial,  administrative,  or public,
quasi-public or private forum, in which the Company is involved,  whether or not
Employee  is a  defendant  in

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such  investigations,  inquiries,  proceedings  or  litigation.  Employee  shall
provide  truthful  and accurate  testimony,  background  information,  and other
support and cooperation as the Company may reasonably request.  The Company will
compensate  Employee for all travel  expenses,  attorney's fees, and preparation
expenses and lost wages  associated with pursuit of actions  necessary to comply
with Section 14.

     15.  Modification in Writing Only.

          Neither this  Agreement  nor any  provision of this  Agreement  may be
modified or waived in any way except by an agreement  in writing  signed by each
of  the  parties  hereto  consenting  to  such   modification  or  waiver.

     16.  Construction of this Agreement.

          The parties agree that they each have  participated in the drafting of
this Agreement,  and that, as a result, this Agreement shall not be construed in
favor  of  or  against   any  party   hereto.

     17.  No False Statements or Misrepresentation.

          The Company and Employee hereby warrants and represents that they have
not made any false  statements or  misrepresentations  in  connection  with this
Agreement.

     18.  Headings and Captions; Pronouns.

          The headings and captions used in the Agreement are for convenience of
reference only, and shall in no way define,  limit,  expand, or otherwise affect
the meaning or construction  of any provision of this Agreement.  The use of any
word in any gender  shall be deemed to include  any other  gender and the use of
any word in the singular shall be deemed to include the plural where the context
requires.

     19.  Entire Agreement.

          This Agreement contains the entire agreement of the parties concerning
the  subject

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matter  hereof,  and  is  intended  and  shall  be  construed  as an  integrated
Agreement.  Each  party  understands,  acknowledges  and hereby  represents  and
warrants that this  Agreement  supersedes  any and all prior or  contemporaneous
understandings,  agreements,  representations  and/or promises,  whether oral or
written,  which are not expressly  set forth herein or expressly  referred to in
this  Agreement,  and no  understanding,  agreement,  representation,  warranty,
promise  or  inducement  has been made  concerning  the  subject  matter of this
Agreement other than as set forth in this Agreement,  and that each party enters
into this  Agreement  without any reliance  whatsoever  upon any  understanding,
agreement,  representation,  warranty  or  promise  not set forth  herein.

          This  Agreement  shall be binding upon and inure to the benefit of the
parties hereto,  jointly and severally,  and the past, present and future heirs,
executors,  administrators,  agents, employees, servants, attorneys,  affiliated
persons and  entities,  predecessors  and  successors  in interest  and assigns,
regardless  of  form,  trustees  in  bankruptcy  or  otherwise,  and  any  other
representative  or entity acting on behalf of,  pursuant to, or by virtue of the
rights of each.

                   [Remainder of page let blank intentionally;
                     Signatures contained on following page]

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     IN WITNESS WHEREOF, the undersigned have executed this Separation Agreement
and Full Release of All Claims.

                              EMPLOYEE:


                              --------------------------------------------------
                              Barbara J. Osborne


                              Date:
                                   ---------------------------------------------


                              MICROTEK MEDICAL HOLDINGS, INC.:


                              By:
                                 -----------------------------------------------

                              Its:
                                  ----------------------------------------------

                              Date:
                                   ---------------------------------------------


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