<PAGE>
                                                                    EXHIBIT 10.1



                                   N2H2, INC.
                            1999 NONEMPLOYEE DIRECTOR
                                STOCK OPTION PLAN

     1.   Purpose of the Plan. The purposes of this 1999 Nonemployee Director
Stock Option Plan (the "Plan") are to promote the long-term success of N2H2,
Inc. (the "Company") by creating a long-term mutuality of interests between the
Nonemployee directors and shareholders of the Company, to provide an additional
inducement for such directors to remain with the Company, and to provide a means
through which the Company may attract able persons to serve as directors of the
Company.

     2.   Administration.

          a.   The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). A majority
of the Committee shall constitute a quorum at any meeting, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by all the members of the Committee, shall be the acts
of the Committee.

          b.   The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operations of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan. All questions of interpretation and
application of the Plan, or as to stock options granted under the Plan, shall be
subject to the determination of the Committee, which shall be final and binding.

          c.   Notwithstanding the above, the selection of the directors to whom
stock options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the periods
during which any stock option may be exercised and the term of any stock option
shall be as hereinafter provided, and the Committee shall have no discretion as
to such matter.

     3.   Shares Available Under the Plan. The aggregate number of shares which
may be issued and as to which grants of stock options may be made under the Plan
is 487,500 shares of the common stock of the Company (without taking into effect
any split of such shares), having no par value (the "Common Stock"), subject to
adjustment and substitution as set forth in Section 6. If any stock option
granted under the Plan is canceled by mutual consent or terminates or expires
for any reason without having been exercised in full, the number of shares
subject to such option shall again be available for purposes of the Plan.

     4.   Grant of Stock Options. Each person upon becoming a member of the
Board who is not then an employee of the Company or any of its subsidiaries and
is not then an independent consultant (other than in his or her capacity as a
member of the Board) to the Company or any of its subsidiaries (collectively a
"Nonemployee Director") shall be granted, automatically and without further
action by the Board or the Committee, a "nonstatutory stock option" (i.e., a
stock option which does not qualify under Section 422 or 423 of the Internal
Revenue Code of 1986 (the "Code")) to purchase 20,000 shares of Common Stock,
subject to adjustment and substitution as set forth in Section 6. In addition,
on July 30th of each year, each Nonemployee Director ") shall be granted,
automatically and without further action by the Board or the Committee, a
nonstatutory stock option to purchase 10,000 shares of Common Stock, subject to
adjustment and substitution as set forth in Section 6. If the number of shares
then remaining available for the grant of stock options under the Plan at any
time is not sufficient for each Nonemployee Director then eligible to be granted
an option for 10,000 shares (or the number of adjusted or substituted shares
pursuant to Section 6), then each such Nonemployee Director shall be granted an
option for a number of whole shares equal to the number of shares then remaining
available divided by the number of Nonemployee Directors then eligible for grant
of an option in accordance with this Section 4, disregarding any fractions of a
share.

     5.   Terms and Conditions of Stock Options. Stock options granted under the
Plan shall be subject to the following terms and conditions:

<PAGE>

          a.   The purchase price at which each stock option may be exercised
(the "Option Price") shall be one hundred percent (100%) of the fair market
value of the shares of Common Stock covered by the stock option on the date of
grant, determined as provided in Section 5.g.

          b.   The Option Price shall be paid in full upon exercise, in cash in
United States dollars (including check, bank draft or money order); provided,
however, that in lieu of such cash the person exercising the stock option may
pay the Option Price in whole or in part by delivering to the Company shares of
the Common Stock having a fair market value on the date of exercise of the stock
option, determined as provided in Section 5.g, equal to the Option Price for the
shares being purchased; except that (i) any portion of the Option Price
representing a fraction of a share shall in any event be paid in cash, and (ii)
no shares of the Common Stock which have been held for less than six months may
be delivered in payment of the Option Price of a stock option. Delivery of
shares may also be accomplished through the effective transfer to the Company of
shares held by a broker or other agent. The Company will also cooperate with any
person exercising a stock option who participates in a cashless exercise program
of a broker or other agent under which all or part of the shares received upon
exercise of the stock option are sold through the broker or other agent or under
which the broker or other agent make a loan to such person. Notwithstanding the
foregoing, the exercise of the stock option shall not be deemed to occur and no
shares of Common Stock will be issued by the Company upon exercise of the stock
option until the Company has received payment of the Option Price in full. The
date of exercise of a stock option shall be determined under procedures
established by the Committee, and as of the date of exercise, the person
exercising the stock option shall be considered for all purposes to be the owner
of the shares of Common Stock with respect to which the stock option has been
exercised. Payment of the Option Price with shares shall not increase the number
of shares of the Common Stock which may be issued under the Plan as provided in
Section 3.

          c.   No stock option shall be exercisable during the first six months
of its term except in case of death as provided in Section 5.e. Subject to the
preceding sentence and subject to Section 5.e, which provides for earlier
termination of a stock option under certain circumstances, each stock option
shall be exercisable for ten years from the date of grant and not thereafter. A
stock option to the extent exercisable at any time may be exercised in whole or
in part.

          d.   No stock option shall be transferable by the grantee otherwise
than by will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death. All
stock options shall be exercisable during the lifetime of the grantee only by
the grantee or the grantee's guardian or legal representative.

          e.   If a grantee ceases to be a director of the Company for any
reason, any outstanding stock options held by the grantee shall be exercisable
according to the following provisions:

               (i)  If a grantee ceases to be a director of the Company for any
     reason other than death, any outstanding stock option held by such grantee
     shall be exercisable by the grantee (but only if exercisable by the grantee
     immediately prior to ceasing to be director) at any time prior to the
     expiration date of such stock option or within three months after the date
     the grantee ceases to be a director, whichever is the shorter period; and

               (ii) Following the death of a grantee during his or service as a
     director of the Company, any outstanding stock option held by the grantee
     at the time of death (whether or not exercisable by the grantee immediately
     prior to death) shall be exercisable by the person entitled to do so under
     the will of the grantee, or, if the grantee shall fail to make testamentary
     disposition of the stock option or shall die intestate, by the legal
     representative of the grantee at any time prior to the expiration date of
     such stock option or within three years after the date of death of the
     grantee, whichever is the shorter period.

     A stock option held by a grantee who has ceased to be a director of the
Company shall terminate upon the expiration of the applicable exercise period,
if any, specified in this Section 5.e.

          f.   All stock options shall be confirmed by an agreement, or an
amendment thereto, which shall be executed on behalf of the Company by the Chief
Executive Officer (if other than the President), the President or any Vice
President and by the grantee.

<PAGE>

          g.   Fair market value of the Common Stock shall be the mean between
the following prices, as applicable, for the date as of which fair market value
is to be determined, as quoted in The Wall Street Journal (or in such other
reliable publication as the Committee, in its discretion, may determine to rely
upon): (i) if the Common Stock is listed on the New York Stock Exchange, the
highest and lowest sales prices per share of the Common Stock as quoted in the
NYSE-Composite Transactions listing for such date, (ii) if the Common Stock is
not listed on such exchange, the highest and lowest sales prices per share of
the Common Stock for such date on (or on any composite index including) the
principal United States securities exchange registered under the 1934 Act on
which the Common Stock is listed, or (iii) if the Common Stock is not listed on
any such exchange, the highest and lowest sales prices per share of the Common
Stock for such date on the National Association of Securities Dealers Automated
Quotations System or any successor system then in use ("NASDAQ"). If there are
no such sale price quotations for the date as of which fair market value is to
be determined but there are such sale price quotations within a reasonable
period both before and after such date, then fair market value shall be
determined by taking a weighted average of the means between the highest and
lowest sales prices per share of the Common Stock as so quoted on the nearest
date before and the nearest date after the date as of which fair market value is
to be determined. The average should be weighted inversely by the respective
numbers of trading days between the selling dates and the date as of which fair
market value is to be determined. If there are no such sale price quotations on
or within a reasonable period both before and after the date as of which fair
market value is to be determined, then fair market value of the Common Stock
shall be the mean between the bona fide bid and asked prices per share of Common
Stock as so quoted for such date on NASDAQ, or if none, the weighted average of
the means between such bona fide bid and asked prices on the nearest trading
date before and the nearest trading date after the date as of which fair market
value is to be determined, if both such dates are within a reasonable period.
The average is to be determined in the manner described above in this Section
5.g. If the fair market value of the Common Stock cannot be determined on the
basis previously set forth in this Section 5.g for the date as of which fair
market value is to be determined, the Committee shall in good faith determine
the fair market value of the Common Stock on such date. Fair market value shall
be determined without regard to any restriction other than a restriction which,
by its terms, will never lapse.

          h.   The obligation of the Company to issue shares of the Common Stock
under the Plan shall be subject to (i) the effectiveness of a registration
statement under the Securities Act of 1933, as amended, with respect to such
shares, if deemed necessary or appropriate by counsel for the Company, (ii) the
condition that the shares shall have been listed (or authorized for listing upon
official notice of issuance) upon each stock exchange, if any, on which the
Common Stock may then be listed and (iii) all other applicable laws,
regulations, rules and orders which may then be in effect.

     Subject to the foregoing provision of this Section 5 and the other
provisions of the Plan, any stock option granted under the Plan shall be subject
to such restrictions and other terms and conditions, if any, as shall be
determined, in its discretion, by the Committee and set forth in the agreement
referred to in Section 5.f, or an amendment thereto.

     6.   Adjustment and Substitution of Shares. If a dividend or other
distribution shall be declared upon the Common Stock payable in shares of the
Common Stock, then (i) the number of shares of the Common Stock set forth in
Section 4, (ii) the number of shares of the Common Stock then subject to any
outstanding stock options, and (iii) the number of shares of the Common Stock
which may be issued under the Plan but are not then subject to outstanding stock
options on the date fixed for determining the shareholders entitled to receive
such stock dividend or distribution, shall be adjusted by adding thereto the
number of shares of the Common Stock which would have been distributable thereon
if such shares had been outstanding on such date.

     If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Company or another Company, whether through reorganization,
reclassification, recapitalization, stock split up, combination of shares,
merger or consolidation, then there shall be substituted for each share of the
Common Stock set forth in Section 4, for each share of the Common Stock subject
to any then outstanding stock option and for each share of the Common Stock
which may be issued under the Plan but which is not then subject to any
outstanding stock option, the number and kind of shares of stock or other
securities into which each outstanding share of the Common Stock shall be so
changed or for which each such share shall be exchangeable.

<PAGE>

     In case of any adjustment or substitution as provided for in the first two
paragraphs of this Section 6, the aggregate Option Price for all shares subject
to each then outstanding stock option prior to such adjustment or substitution
shall be the aggregate Option Price for all shares of stock or other securities
(including any fraction) to which such shares shall have been adjusted or which
shall have been substituted for such shares. Any new Option Price per share
shall be carried to at least three decimal places with the last decimal place
rounded upwards to the nearest whole number.

     If the outstanding of the Common Stock shall be changed in value by reason
of any spinoff, split off or split up, or dividend in partial liquidation,
dividend in property other than cash or extraordinary distribution to holders of
the Common Stock, the Committee shall make any adjustments to any then
outstanding stock option which it determines are equitably required to prevent
dilution or enlargement of the rights of grantees which would otherwise result
from any such transaction.

     No adjustment or substitution provided for in this Section 6 shall require
the Company to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.

     Except as provided in this Section 6, a grantee shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.

     7.   Effect of the Plan on the Rights of Company and Shareholders. Nothing
in the Plan, in any stock option granted under the Plan, or in any stock option
agreement shall confer any right to any person to continue as a director of the
Company or interfere in any way with the rights of the shareholders of the
Company or the Board to elect and remove directors.

     8.   Amendment and Termination. The right to amend or to terminate the Plan
at any time are hereby specifically reserved to the Board; provided always that
no such termination shall terminate any outstanding stock options granted under
the Plan; and provided further that no amendment of the Plan shall (i) be made
without stockholder approval if stockholder approval of the amendment is at the
time required for stock options by the rules of any stock exchange on which the
Common Stock may then be listed, or (ii) amend more than once every six months
the provision of the Plan relating to the selection of the directors to whom
stock options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the periods
during which any stock option may be exercised and the term of any stock option
other than to comport with changes in the Internal Revenue Code of 1986, as
amended (the "Code") or the rules and regulations thereunder. No amendment or
termination of the Plan shall, without the written consent of the holder of a
stock option theretofore awarded under the Plan, adversely affect the rights of
such holder with respect thereto.

     9.   Effective Date and Duration of Plan. The Plan shall become effective
upon the closing of a firm commitment underwritten public offering of the
Company's equity securities pursuant to an effective registration statement
under the Securities Act of 1933, as amended. The Plan shall remain effective
until the earlier of: (i) 10 years from the effective date of the Plan, or (ii)
the date options to purchase all of the shares reserved for issuance under the
Plan shall have been granted.