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                                                                    EXHIBIT 10.1

                                SHOPNOW.COM INC.

                  AMENDED AND RESTATED 1999 NONOFFICER EMPLOYEE

                                STOCK OPTION PLAN

         1.       PURPOSES OF THE PLAN.  The purposes of this 1999 Nonofficer
Employee Stock Option Plan are:

                  -   to attract and retain the best available personnel for
                      positions of substantial responsibility,

                  -   to provide additional incentive to certain Employees and
                      Consultants, and

                  -   to promote the success of the Company's business.

                  Awards granted under the Plan may be Stock Awards and
Nonstatutory Stock Options only.

         2.       DEFINITIONS. As used herein, the following definitions shall
apply:

                  (a) "Administrator" means the Board or any of its Committees
as shall be administering the Plan or one or more senior executive officers
authorized by the Board to grant Awards, in accordance with Section 4 of the
Plan.

                  (b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Awards are, or will be, granted under
the Plan.

                  (c) "Award" means an award or grant made pursuant to the Plan,
including, without limitation, awards or grants of Stock Awards and Options, or
any combination of the foregoing.

                  (d) "Board" means the Board of Directors of the Company.

                  (e) "Code" means the Internal Revenue Code of 1986, as
amended.

                  (f) "Committee" means a committee of Directors appointed by
the Board in accordance with Section 4 of the Plan.

                  (g) "Common Stock" means the common stock of the Company.

                  (h) "Company" means ShopNow.com Inc., a Washington
corporation.

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                  (i) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.

                  (j) "Director" means a member of the Board.

                  (k) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.

                  (l) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

                  (m) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.

                  (n) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:

                           (i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;

                           (ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in THE WALL STREET JOURNAL or such
other source as the Administrator deems reliable; or

                           (iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

                  (o) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.

                  (p) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option.

                  (q) "NOTICE OF GRANT" means a written or electronic notice
evidencing certain terms and conditions of an individual Award grant. The Notice
of Grant is part of the Option or Stock Award Agreement.

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                  (r) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

                  (s) "OPTION" means a Nonstatutory Stock Option granted
pursuant to the Plan.

                  (t) "OPTION AGREEMENT" means an agreement between the Company
and a Participant evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.

                  (u) "OPTIONED STOCK" means the Common Stock subject to an
Option.

                  (v) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

                  (w) "PARTICIPANT" means the holder of an outstanding Award
granted under the Plan.

                  (x) "PLAN" means this 1999 Nonofficer Employee Stock Option
Plan.

                  (y) "SERVICE PROVIDER" means an Employee or Consultant.

                  (z) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.

                  (aa) "STOCK AWARD" means shares of Common Stock or units
denominated in Common Stock granted under Section 11, the rights of ownership of
which may be subject to restrictions prescribed by the Administrator.

                  (bb) "STOCK AWARD AGREEMENT" means an agreement between the
Company and a Participant evidencing the terms and conditions of an individual
Award grant. The Stock Award Agreement is subject to the terms and conditions of
the Plan.

                  (CC) "SUBSIDIARY" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.

         3.       STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 13 of the Plan, the maximum number of Shares which are available for
issuance under the Plan is

         (a) 5,000,000 Shares; plus

         (b) an automatic increase to be added on the first day of the fiscal
quarter beginning on January 1, 2000 equal to 10,000 Shares multiplied by the
number of individuals who began employment or services at the Company, a Parent
or a Subsidiary in the preceding fiscal quarter in connection with the Company's
acquisition of any corporation or business entity in such quarter; plus

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         (c) an automatic increase to be added on the first day of each month
beginning on or after March 1, 2000 equal to 10,000 Shares multiplied by the
number of individuals who began employment or services at the Company, a Parent
or a Subsidiary in the immediately preceding month;

provided, however, that the maximum number of Shares which may be issued under
the Plan may not exceed 8,000,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.

                  No more than 30% of the Shares authorized for issuance under
the Plan may be issued to officers who are not subject to Section 16 of the
Exchange Act.

                  Any Shares that have been made subject to an Award that cease
to be subject to the Award (other than by reason of exercise or payment of the
Award to the extent it is exercised for or settled in vested and nonforfeitable
Shares) shall again be available for issuance in connection with future grants
of Awards under the Plan.

         4.       ADMINISTRATION OF THE PLAN.

                  (a)      Procedure.

                           (i)      MULTIPLE ADMINISTRATIVE BODIES.  The Plan
may be administered by different Committees with respect to different groups of
Service Providers. In addition, to the extent consistent with applicable law,
the Board may authorize one or more senior executive officers to grant Awards to
specified classes of Service Providers, within the limits specifically
prescribed by the Board.

                           (ii)     OTHER ADMINISTRATION.  Other than as
provided above, the Plan shall be administered by (A) the Board or (B) a
Committee, which committee shall be constituted to satisfy Applicable Laws.

                  (b)      POWERS OF THE ADMINISTRATOR. Subject to the
provisions of the Plan, and in the case of a Committee or executive officer,
subject to the specific duties delegated by the Board to such Committee or
officer, the Administrator shall have the authority, in its discretion:

                           (i)      to determine the Fair Market Value;

                           (ii)     to select the Service Providers to whom
Awards may be granted hereunder;

                           (iii)    to determine the number of shares of Common
Stock to be covered by each Award granted hereunder;

                           (iv)     to approve forms of agreement for use under
the Plan;

                           (v)      to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Award granted hereunder. Such
terms and conditions include, but are

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not limited to, the exercise price, the time or times when Awards may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Award or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;

                           (vi)     to construe and interpret the terms of the
Plan and Awards granted pursuant to the Plan;

                           (vii)    to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;

                           (viii)    to modify or amend each Award (subject to
Section 16(b) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;

                           (ix)     to allow Participants to satisfy withholding
tax obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or the grant of a Stock Award that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined. All elections by
a Participant to have Shares withheld for this purpose shall be made in such
form and under such conditions as the Administrator may deem necessary or
advisable;

                           (x)      to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an Award
previously granted by the Administrator;

                           (xi)     to make all other determinations deemed
necessary or advisable for administering the Plan.

                  (c)      EFFECT OF ADMINISTRATOR'S DECISION. The
Administrator's decisions, determinations and interpretations shall be final and
binding on all Participants and any other holders of Awards.

         5.       ELIGIBILITY. Awards may be granted to Service Providers
selected by the Administrator who are not, at the time the Award is granted,
Officers or Directors of the Company.

         6.       LIMITATIONS.

                  (a) Neither the Plan nor any Award shall confer upon a
Participant any right with respect to continuing the Participant's relationship
as a Service Provider with the Company, nor shall they interfere in any way with
the Participant's right or the Company's right to terminate such relationship at
any time, with or without cause.

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         7.       TERM OF PLAN. The Plan shall become effective upon its
adoption by the Board. The Plan shall have no fixed expiration date.

         8.       TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement or, if not stated in the Option Agreement, shall be ten (10)
years from the date of grant.

         9.       OPTION EXERCISE PRICE AND CONSIDERATION.

                  (a) EXERCISE PRICE.  The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator.

                  (b) WAITING PERIOD AND EXERCISE DATES. At the time an Option
is granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions that must be satisfied before
the Option may be exercised.

                  (c) FORM OF CONSIDERATION. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. Such consideration may consist entirely of:

                           (i)      cash;

                           (ii)     check;

                           (iii)    to the extent permitted by the Plan
Administrator in the Option Agreement, other Shares which (A) in the case of
Shares acquired upon exercise of an option, have been owned by the Participant
for more than six months on the date of surrender, and (B) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised;

                           (iv)     consideration received by the Company under
a cashless exercise program implemented by the Company in connection with the
Plan;

                           (v)      any combination of the foregoing methods of
payment; or

                           (vi)     such other consideration and method of
payment for the issuance of Shares to the extent permitted by Applicable Laws.

         10.      EXERCISE OF OPTION.

                  (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.

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                           An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Participant or, if
requested by the Participant, in the name of the Participant and his or her
spouse. Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the Company),
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such Shares promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Shares are
issued, except as provided in Section 13 of the Plan.

                           Exercising an Option in any manner for vested and
nonforfeitable Shares shall decrease the number of Shares thereafter available,
both for purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.

                  (b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If a
Participant ceases to be a Service Provider, other than upon the Participant's
death or Disability, the Participant may exercise his or her Option within such
period of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement). In
the absence of a specified time in the Option Agreement, the Option shall remain
exercisable for three (3) months following the Participant's termination. If, on
the date of termination, the Participant is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert to
the Plan. If, after termination, the Participant does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

                  (c) DISABILITY OF PARTICIPANT. If a Participant ceases to be a
Service Provider as a result of the Participant's Disability, the Participant
may exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Participant's termination. If, on the date of termination, the Participant
is not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Participant does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

                  (d) DEATH OF PARTICIPANT. If a Participant dies while a
Service Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration of
the term of such Option as set forth in the Option

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Agreement), by the Participant's estate or by a person who acquires the right to
exercise the Option by bequest or inheritance, but only to the extent that the
Option is vested on the date of death. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Participant's termination. If, at the time of death, the
Participant is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall immediately revert to the Plan. The
Option may be exercised by the executor or administrator of the Participant's
estate or, if none, by the person(s) entitled to exercise the Option under the
Participant's will or the laws of descent or distribution. If the Option is not
so exercised within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.

                  (e) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Participant at the time that such offer is made.

         11.      Stock Awards.

                  (a) The Administrator is authorized to make Awards of Common
Stock or Awards denominated in units of Common Stock on such terms and
conditions and subject to such restrictions, if any (which may be based on
continuous service with the Company or the achievement of performance goals), as
the Administrator shall determine, in its sole discretion, which terms,
conditions and restrictions shall be set forth in the instrument evidencing the
Award. The terms, conditions and restrictions that the Administrator shall have
the power to determine shall include, without limitation, the manner in which
Shares subject to Stock Awards are held during the periods they are subject to
restrictions and the circumstances under which forfeiture of the Stock Award
shall occur by reason of termination of the Participant's employment or service
relationship.

                  (b) Upon the satisfaction of any terms, conditions and
restrictions prescribed in respect to a Stock Award, or upon the Participant's
release from any terms, conditions and restrictions of a Stock Award, as
determined by the Administrator, the Company shall release, as soon as
practicable, to the Participant or, in the case of the Participant's death, to
the personal representative of the Participant's estate or as the appropriate
court directs, the appropriate number of Shares.

                  (c) Notwithstanding any other provisions of the Plan, the
Administrator may, in its sole discretion, waive the forfeiture period and any
other terms, conditions or restrictions on any Stock Award under such
circumstances and subject to such terms and conditions as the Administrator
shall deem appropriate

         12.      NON-TRANSFERABILITY OF AWARDS. Unless determined otherwise by
the Administrator, an Award may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Participant, only by the Participant. If the Administrator

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makes an Award transferable, such Award shall contain such additional terms and
conditions as the Administrator deems appropriate.

         13.      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
MERGER OR ASSET SALE.

                  (a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Award, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Shares have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Award, as well as the price per share of Common Stock covered
by each such outstanding Award, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Award.

                  (b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Participant as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for a Participant
to have the right to exercise his or her Option until ten (10) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option or forfeiture
provision applicable to any Award shall lapse as to all such Shares, provided
the proposed dissolution or liquidation takes place at the time and in the
manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action. To the extent a repurchase option or forfeiture provision applicable to
a Stock Award has not been waived by the Administrator, the Stock Award shall be
forfeited automatically immediately prior to the consummation of the proposed
action.

                  (c) MERGER OR ASSET SALE. Unless otherwise described in the
instrument evidencing the Award, in the event of a merger of the Company with or
into another corporation, or the sale of all or substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
or right substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Participant shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall

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notify the Participant in writing or electronically that the Option shall be
fully vested and exercisable for a period of fifteen (15) days from the date of
such notice, and the Option shall terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.

                  Unless otherwise described in the instrument evidencing the
Award, in the event of a merger of the Company with or into another corporation,
or the sale of all or substantially all of the assets of the Company, the
vesting of Shares subject to Stock Awards shall accelerate, and the repurchase
and forfeiture provisions to which such Shares are subject shall lapse, if and
to the same extent that the vesting of outstanding Options accelerates in
connection with such merger or sale. If Options are to be assumed, continued or
substituted by a successor corporation or a Parent or Subsidiary thereof without
acceleration upon the occurrence of a merger or sale, the forfeiture provisions
to which such Stock Awards are subject shall continue with respect to shares of
the successor corporation or a Parent or Subsidiary thereof that may be issued
in exchange for such shares.

         14.      ACQUIRED COMPANY AWARDS. Notwithstanding anything in the Plan
to the contrary, the Administrator may grant Awards under the Plan in
substitution for awards issued under other plans, or assume under the Plan
awards issued under other plans, if the other plans are or were plans of other
acquired entities ("Acquired Entities") (or the parent of the Acquired Entity)
and the new Award is substituted, or the old award is assumed, by reason of a
merger, consolidation, acquisition of property or stock, reorganization or
liquidation (the "Acquisition Transaction"). In the event that a written
agreement pursuant to which the Acquisition Transaction is completed is approved
by the Board and said agreement sets forth the terms and conditions of the
substitution for or assumption of outstanding awards of the Acquired Entity,
said terms and conditions shall be deemed to be the action of the Administrator,
and the persons holding such awards shall be deemed to be Participants.

         15.      DATE OF GRANT. The date of grant of an Award shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Award, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Participant within a
reasonable time after the date of such grant.

         16.      AMENDMENT AND TERMINATION OF THE PLAN.

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                  (a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or terminate the Plan.

                  (b) EFFECT OF AMENDMENT OR TERMINATION. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Participant, unless mutually agreed otherwise between the Participant and the
Administrator, which agreement must be in writing and signed by the Participant
and the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Awards
granted under the Plan prior to the date of such termination.

         17.      CONDITIONS UPON ISSUANCE OF SHARES.

                  (a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to
an Award unless the issuance and delivery of such Shares shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.

                  (b) INVESTMENT REPRESENTATIONS. As a condition to the exercise
of an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.

         18.      INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

         19.      RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.

         ADOPTED BY THE BOARD ON DECEMBER 8, 1999. AMENDED BY THE BOARD ON
         JANUARY13, 2000 TO ADD STOCK AWARDS AND SECTION 14. PLAN FURTHER
         AMENDED BY THE BOARD ON FEBRUARY 10, 2000 TO INCREASE THE NUMBER OF
         SHARES AVAILABLE FOR ISSUANCE (ALTHOUGH THE AGGREGATE NUMBER OF SHARES
         AVAILABLE REMAINED AT 4,000,000 SHARES). PLAN FURTHER AMENDED BY THE
         BOARD  ON MARCH 21, 2000 TO INCREASE THE NUMBER OF SHARES AVAILABLE
         FOR ISSUANCE AND TO INCREASE THE AGGREGATE NUMBER OF SHARES AVAILABLE
         UNDER THE PLAN.

                                      -11-<PAGE>

                                                                    EXHIBIT 10.1

                                                     February 2, 2000

John E. Hanley
34 Joel Drive
Hebron, CT  06248

Dear John:

This letter states Lydall, Inc.'s ("Lydall") proposal to extend special
separation benefits to you in exchange for your execution of a release of
possible claims against Lydall. You would be entitled to the special benefits
after the attached Termination, Voluntary Release and Waiver of Rights Agreement
("Release") (see Exhibit A) has been negotiated between you and Lydall and is
executed and effective. The special benefits will be retroactive to February 1,
2000 (the day following your last day of active employment with Lydall) and any
payments will begin no later than seven (7) days after you have executed the
Release. This offer to extend special separation benefits is conditioned on your
execution of the Release.

From the date of this letter until your termination date of January 31, 2000,
you will report and take direction from the Acting Interim CFO.

In reviewing this proposal, you should be aware that Lydall's offer to extend
special separation benefits to you in consideration for your execution of a
Release does not involve an exchange or forfeiture of any benefits to which you
are presently or otherwise entitled, nor are you being asked to release any
rights arising out of future events. To the contrary, Lydall's extension of this
offer is contingent upon your execution of a mutually acceptable Release wherein
you agree to waive certain rights expressly set forth therein relating to your
past employment relationship with Lydall. Lydall encourages you to review the
attached Release, with your attorney if you choose, and to discuss any questions
or modifications you propose with Lydall. You should note that should you decide
to sign the Release, you are entitled to revoke it within seven (7) calendar
days after executing it, and the Release does not become effective or
enforceable until the revocation period has expired.

An immediate response to Lydall's separation benefit proposal is not required. A
reasonable period for your deliberation and review will be provided before a
final decision must be made. If, however, no communication at all is received by
the undersigned within twenty-one (21) days of your receipt of this
correspondence, your silence will constitute a rejection of this offer,
whereupon Lydall's proposal to extend the separation benefits discussed herein
shall be withdrawn.

The following special Separation Benefits Section is a summary of benefits
offered to you ONLY if you should sign the Termination, Voluntary Release and
Waiver of Rights Agreement.

                                       1

<PAGE>

SEVERANCE PERIOD

You will receive your current base compensation, less applicable taxes and
deductions for a severance period of twelve (12) months beginning February 1,
2000 contingent upon the successful divestment of the Fort Washington facility.
Also, Lydall agrees to convert your Incentive Stock Options (ISO) to
Non-Qualified Options effective February 1, 2000 for a period of one-year ending
on January 31, 2001.

If the Fort Washington facility is not divested by January 31, 2000, you will
receive your current base compensation, less applicable taxes and deductions for
a severance period of ten (10) months beginning February 1, 2000. Under this
circumstance, you will not be extended the opportunity to convert your ISO to
Non-Qualified Options.

HEALTH COVERAGE

Lydall agrees to pay your medical and/or dental coverage under COBRA through the
earlier of; the end of your severance period, or until such time as you are
first afforded the opportunity to secure health care coverage provided through a
subsequent employer. You may extend coverage beyond that date at your expense if
you exercised your rights under COBRA (see "Health Coverage" under "Other
Benefits") and continue to qualify for COBRA coverage.

USE OF COMPANY CAR

You can continue use of the company car through January 31, 2000, or until you
have obtained employment, whichever is earlier. The monthly payments for your
options will continue to be deducted, but when the car is returned Lydall will
pay the balance owed for those options. Lydall agrees to pay you a car allowance
in the amount of $500.00/month through the end of your severance period.

EXECUTIVE LIFE AND DISABILITY INSURANCE

Lydall agrees to continue to pay your executive life and disability premiums
until the end of your severance period.

OTHER BENEFITS

All other benefits you have held as an employee will end as of your termination
date, January 29, 2000 according to the terms of the Plan Documents. Your
Personnel Department will contact you with specific information.

                                       2

<PAGE>

It is our hope that this correspondence conveys clearly the special separation
benefits Lydall is proposing to extend to you in consideration for your
execution of a mutually acceptable Release. Acceptance of this proposal is your
own choice and is not required, but purely voluntary on your part.

If you have any questions regarding any aspect of this correspondence, or wish
to discuss these benefits or their possible modification further, please contact
me at your earliest convenience.

                                               Sincerely,

                                               Christopher R. Skomorowski
                                               President and CEO

_____________________________________________         Date: ___________________
Signature - Employee (Receipt of Letter)

                                       3

<PAGE>

                                                                       EXHIBIT A

                       TERMINATION, VOLUNTARY RELEASE AND
                           WAIVER OF RIGHTS AGREEMENT

         I, John E. Hanley, unqualifiedly accept and agree to the relinquishment
of my title, responsibilities and obligations as an employee and specifically as
Vice President, Finance and Treasurer of Lydall, Inc. ("Lydall"), and
concurrently and unconditionally agree to sever my relationship as an employee
of Lydall effective January 31, 2000, in consideration for the voluntary payment
to me by Lydall of the monetary amount set forth in the attached cover letter
which is made a part hereof. I hereby accept the proposal as negotiated in the
attached cover letter.

         1. In exchange for the consideration described in the attached cover
letter, which I understand that Lydall is not otherwise obligated to provide to
me, I voluntarily agree to waive and forego any claims that I may have against
Lydall and to release Lydall and their respective affiliates, subsidiaries, past
and present officers, directors, employees, representatives, agents, successors
and assigns (hereinafter collectively referred to as "Releasees") from any
obligations any of them may owe to me, accepting the aforestated consideration
as full settlement of any monies or obligations owed to me by Releasees that may
have arisen at any time under and out of my employment relationship with Lydall,
except as specifically provided below in the following paragraph number 2.

         2. I do not waive, nor has Lydall asked me to waive, any rights arising
exclusively under the Fair Labor Standards Act, except as such waiver may
henceforth be made in a manner provided by law. I do not waive, nor has Lydall
asked me to waive, any vested benefits that I may have or that I may have
derived from the course of my prior employment with Lydall. I understand that
such vested benefits will be subject to and administered in accordance with the
established and usual terms governing same. I do not waive any rights which may
in the future arise exclusively from a substantial breach by Lydall of a
material obligation of Lydall expressly undertaken in consideration of my
entering into this Termination, Voluntary Release and Waiver of Rights
Agreement.

         3. I agree to release, remise and forever discharge, and by these
presents do, for myself, my heirs, executors and administrators, release, remise
and forever discharge Lydall, its past and present and future parent and
affiliate corporations and its past and present and future divisions,
subsidiaries and related companies and their successors and assigns and Lydall's
directors, officers, employees, agents and representatives, personally and as
directors, officers, employees, agents and representatives of and from all
manner of action and actions, causes and causes of action, sums of money,
covenants, contracts, controversies, agreements, promises, damages, claims and
demands whatsoever, in law or in equity, which I ever had, may have had, now
have or which my heirs, executors or administrators hereinafter can, shall or
may

                                       4

<PAGE>

have as a result of my employment with or termination of employment with
Lydall, whether known or unknown, asserted or unasserted, suspected or
unsuspected, which I may have as a result of any act which has occurred at
any time up to and including the date of my execution of this Termination,
Voluntary Release and Waiver of Rights Agreement, including, without
limitation, any and all claims arising under the Agreement between Lydall,
Inc. and myself dated March 10, 1995 and any claims, demands and causes of
action under federal or state law, including without limitation, any rights
to bring any demands, complaints, causes of action, claims and charges under
the Federal Age Discrimination in Employment Act, 29 U.S.C. Sections 621-634,
including the Older Workers' Benefit Protection Act 29 U.S.C.  Section
626(f)(1), Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C.
Section 2000e-2000e-17, the Civil Rights Act of 1991, the Connecticut Fair
Employment Practices Act, Conn. Gen. Stat. Sections 46a-60-46a-62 (1995), the
Americans With Disabilities Act, 42 U.S.C. Sections 12101-12213, the Employee
Retirement Income Security Act ("ERISA"), the Fair Labor Standards Act, the
Equal Pay Act of 1963, Executive Order 11246, and the right to bring demands,
complaints, causes of action, claims and charges under any other federal,
state or local law, statute, regulation or decision, including laws that
prohibit discrimination on the basis of sex, age or any claims for invasion
of privacy, infliction of emotional distress, assault, battery or other
common law claims, and any claims, demands or causes of action for injunctive
and declaratory relief, breach of contract, wrongful discharge, compensation
for lost wages and benefits, emotional distress, compensatory and punitive
damages and costs including attorneys' fees, expenses and costs of
litigation, and such other and additional relief as may be appropriate.

         THIS MEANS THAT, BY SIGNING THIS AGREEMENT, I WILL HAVE WAIVED ANY
RIGHT I MAY HAVE HAD TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIMS AGAINST LYDALL
AND/OR THE RELEASEES INCLUDING, BUT NOT LIMITED TO, CLAIMS WHICH IN ANY WAY
ARISE FROM OR RELATE TO MY EMPLOYMENT RELATIONSHIP WITH AND/OR CESSATION OF
EMPLOYMENT WITH LYDALL UP TO THE DATE OF THE SIGNING OF THIS AGREEMENT.

         4. Nothing in this Agreement shall release, discharge or waive any
rights and obligations created by this Agreement.

         5. I further acknowledge that I have been specifically asked by Lydall
to review thoroughly the terms of this agreement and the concurrently executed
cover letter including, especially, the waiver of rights set forth herein, with
an attorney prior to my execution of this agreement. I understand that should I
decide to sign the Termination, Voluntary Release and Waiver of Rights
Agreement, I am entitled to revoke it within seven (7) calendar days after
executing it, and the Termination, Voluntary Release and Waiver of Rights
Agreement does not become effective or enforceable until the revocation period
has expired. I also understand that if I do not communicate a decision to Lydall
within twenty-one (21) calendar days of my receipt of this correspondence, my
silence shall constitute a rejection of this offer, whereupon Lydall's proposal
to extend the separation benefits discussed herein shall be withdrawn. I
acknowledge that I have been given sufficient time to freely consult with an
attorney or counselor of my own choosing and that I knowingly and voluntarily
execute this Termination, Voluntary Release and Waiver of Rights Agreement,
after bargaining over the terms hereof, with knowledge of the

                                       5

<PAGE>

consequences made clear, and with the genuine intent to release claims without
threats, duress, or coercion on the part of Lydall. I do so understanding and
acknowledging the significance of such waiver.

         6. Further, in view of the above-referenced consideration voluntarily
provided to me by Lydall, after due deliberation, I agree to waive any right to
further litigation or claim against any or all of the Releasees except as
specifically provided in paragraph number 2 above. I hereby agree to indemnify
and hold harmless the Releasees and their respective agents or representatives
from and against any and all losses, costs, damages or expenses, including,
without limitation, attorneys fees incurred by said parties, or any of them,
arising out of any breach of this Agreement by me or by any person acting on my
behalf, or the fact that any representation made herein by the undersigned was
false when made.

         7. As a material inducement to Lydall to enter into this Termination,
Voluntary Release and Waiver of Rights Agreement, the undersigned understands
and agrees that if he/she should fail to comply with the conditions hereof or to
carry out the agreement set forth herein, all amounts paid to the undersigned
under this Agreement shall immediately be forfeited to Lydall and that the right
or claim to further payments and/or benefits hereunder would likewise be
forfeited.

         8. I agree to refrain from directly or indirectly interfering in any
manner with the operations, management or administration of the Releasees and I
further agree that I will not publicly disparage the Releasees, nor will I
discuss in any public forum or in the media any claims that have been made
against the Releasees arising from my employment relationship with Lydall. For
purposes of this paragraph, "disparage" shall mean any statements, actions or
insinuations, made either directly or through a third party, that would lessen
the standing or stature of an institution or individual in the eyes of an
ordinary citizen.

         9. Lydall agrees to refrain from publicly disparaging Hanley, nor will
LydalI discuss in any public forum or in the media any claims that have been
made against Hanley arising from his employment relationship with Lydall. For
purposes of this paragraph, "disparage" shall mean any statements, actions or
insinuations, made either directly or through a third party, that would lessen
the standing or stature of an institution or individual in the eyes of an
ordinary citizen.

         10. I acknowledge that (a) I may subsequently discover facts in
addition to or different from those that I now know or believe to be true with
respect to the claims described in Paragraph 1 above, and (b) that I may have
sustained or may yet sustain damages, costs or expenses that are presently
unknown and that relate to those claims. I acknowledge, however, that I have
negotiated, agreed upon and entered into this Termination, Voluntary Release and
Waiver of Rights Agreement with full knowledge of these possibilities and agree
that this Agreement shall not be affected in any manner whatsoever if any of
these possibilities come to pass.

         11. Except to enforce this Termination, Voluntary Release and Waiver of
Rights Agreement, Lydall and I agree that we will forever forbear from pursuing
any legal proceedings,

                                       6

<PAGE>

administrative or judicial, and we will not in any other way make or continue to
make any demand or claims against each other with respect to any aspect of my
employment, and cessation of employment, with Lydall occurring at any time up to
and including the date of our execution of this Agreement.

         12. I hereby agree that I will not seek reinstatement or reemployment
at Lydall or any of its divisions or subsidiaries, and waive any right to seek
such positions. I further agree that I will not apply for any such position at
any time in the future and that the execution of this Termination, Voluntary
Release and Waiver of Rights Agreement is good and sufficient cause for Lydall
to reject any such applications or to terminate my employment if I obtain any
such future employment.

         13. As a further material inducement to Lydall to enter into this
agreement, the undersigned provides as follows:

         FIRST. The undersigned represents that he has not filed any complaints
or charges against Lydall, or any of the Releasees relating to the
relinquishment of his former titles and responsibilities at Lydall or the terms
of his former employment with Lydall and that if any agency or court assumes
jurisdiction of any complaint or charge against Lydall or any of the Releasees
on behalf of the undersigned concerning his former employment with Lydall, the
undersigned understands and agrees that he has, by his knowing and willing
execution of this Agreement waived his rights to any form of recovery or relief
against Lydall, or any of the Releasees, including but not limited to,
attorney's fees. Provided, however, that this provision shall not preclude the
undersigned from pursuing appropriate legal relief against Lydall for redress of
a substantial breach of a material obligation of Lydall expressly undertaken in
consideration of the undersigned's entering into this Termination, Voluntary
Release and Waiver of Rights Agreement.

         SECOND. The undersigned acknowledges and understands that the
consideration for this release shall not be in any way construed as an admission
by Lydall or any of the Releasees of any improper acts or any improper
employment decisions, and that Lydall, specifically disclaims any liability on
the part of themselves, their agents, employees, representatives, successors or
assigns in this regard.

         THIRD. The undersigned acknowledges and agrees that this Termination,
Voluntary Release and Waiver of Rights Agreement shall be binding upon the
undersigned, upon Lydall, and upon our respective administrators,
representatives, executives, successors, heirs and assigns and shall inure to
the benefit of said parties and each of them.

         FOURTH. The undersigned represents, understands, and agrees that this
is a voluntary agreement which may not be construed as binding precedent that
can be utilized or asserted by the undersigned or by others acting on his/her
behalf in any manner whatsoever against Lydall or any of the Releasees here, or
elsewhere, in the future. Provided, however, that this provision shall not
preclude the undersigned from utilizing or asserting this agreement to obtain
appropriate relief for redress of a substantial breach of a material obligation
of Lydall expressly

                                       7

<PAGE>

undertaken in consideration of the undersigned's entering into this Termination,
Voluntary Release and Waiver of Rights Agreement.

         FIFTH. The undersigned represents, understands and agrees that this
Termination, Voluntary Release and Waiver of Rights Agreement sets forth the
entire agreement between the parties hereto, and fully supersedes any and all
prior agreements or understandings between the parties pertaining to the subject
matter hereof, EXCEPT for the Employee Agreement previously executed by the
undersigned, the terms of which retain their full force and effect, and which
are in no way limited or curtailed by this Termination, Voluntary Release and
Waiver of Rights Agreement. (A copy of that Employee Agreement is attached
hereto, made a part hereof, and designated as Exhibit B.)

         SIXTH. The undersigned represents, understands and agrees that for a
period of two (2) years from the date of termination, he will not directly or
indirectly: (i) own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or work for (as an employee,
consultant or independent contractor) or have any material financial interest
in, any business which manufactures and/or sells products competitive with
Lydall's products or products currently in development in any market in which
Lydall has sold or attempted to sell any of its product in the two (2) years
preceding such termination; or (ii) induce or attempt to induce any person who
is an employee of Lydall to terminate his or her employment with Lydall; or
(iii) induce or attempt to induce any person, business or entity which, as of
the date of the termination of his employment, is a supplier of, a purchaser
from, or a contracting party with Lydall to terminate any written or oral
agreement, order or understanding with Lydall.

         SEVENTH. MODIFICATION. Neither this Agreement nor the cover letter may
be altered or changed orally, but only by an agreement in writing that has been
properly executed by the party against whom any waiver, change, modification or
discharge is sought.

         EIGHTH. SEVERABILITY. All provisions and terms of this Agreement are
severable. The invalidity or unenforceability of any particular provision(s) or
term(s) of this Agreement shall not affect the validity or enforceability of the
other provisions and such other provisions shall be enforceable in law or equity
in all respects as if such particular invalid or unenforceable provision(s) or
term(s) were omitted. Notwithstanding the foregoing, the language of all parts
of this Agreement shall, in all cases, be construed as a whole, according to its
fair meaning, and not strictly for or against any of the parties.

         NINTH. CONFIDENTIALITY. Lydall and the undersigned agree to refrain
from disclosing to third parties and to keep strictly confidential all details
of this Agreement and any and all information relating to its negotiation,
except as necessary to each party's accountants or attorneys.

         I agree and recognize that by reason of my employment and services to
the Releasees I have had access to certain confidential and proprietary
information relating to the Releasees' business, which may include, but is not
limited to, technical notebook records, technical reports, patent applications,
machine equipment, computer software, models, process and product

                                       8

<PAGE>

designs including any drawings and descriptions, unwritten knowledge and
"know-how", operating instructions, training manuals, production and development
processes, production or other schedules, customer lists, customer buying
records, product sales records, sales requests, territory listings, market
surveys, plans including marketing plans and long range plans, salary
information, contracts, supplier lists, product costs, policy statements, policy
procedures, policy manuals, flowcharts, computer printouts, computer programs,
software and financial information, reproductions and correspondence, trade
secrets, marketing and sales techniques, strategies and programs, (collectively
referred to as "Confidential Information"). I acknowledge that I will not,
unless expressly authorized in writing by the Releasees, directly or indirectly,
at any time, use any Confidential Information or divulge or disclose any
Confidential Information to any person, firm or corporation, unless such
information is in the public domain through no fault of me or except when
required to do so by a court of law, by any governmental agency having
supervisory authority over the business of Lydall or by any administrative or
legislative body (including a committee thereof) with apparent jurisdiction over
me to divulge, disclose or make accessible such information in which case I will
inform the Releasees in writing promptly of such required disclosure, but in any
event at least two days prior to disclosure. All written Confidential
Information (including, without limitation, in any computer or other electronic
format) which came into my possession during the course of my employment shall
remain the property of the Releasees. I agree that I will return all
Confidential Information of Lydall in my possession no later than the date on
which this Agreement is signed. I further agree to immediately deliver my laptop
computer, including all floppy disks, to Lydall for removal of all computer
programs, files and documents that are Confidential Information of Lydall.

                                       9

<PAGE>

                             AFFIRMATION OF RELEASOR

         I, John E. Hanley, warrant that this Termination, Voluntary Release and
Waiver of Rights Agreement, the accompanying cover letter executed concurrently
herewith, and the Employee Agreement reflect the entire agreement between me and
Lydall.

         I, John E. Hanley, warrant that I am competent to execute this
Termination, Voluntary Release and Waiver of Rights Agreement and that I accept
full responsibility therefor.

         I, John E. Hanley, have read this Termination, Voluntary Release and
Waiver of Rights Agreement carefully and I fully understand its terms. I execute
this document voluntarily with full and complete knowledge of its significance.

         Executed this__________ day of _____________, 2000, at _______________.

                                                  ___________________________
                                                  John E. Hanley

STATE OF_____________________________ )
                                      )       SS:
COUNTY OF____________________________ )

        Subscribed and sworn to before me, a Notary Public in and for said
County and State, this_____________day of ____________, 2000, under the pains
and penalties of perjury.

                                                  ___________________________
                                                                 , Notary Public

My Commission Expires: _____________________

County of Residence: _______________________

                                       10

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