<PAGE>


                                                                 Exhibit 10.5









                                 DISTRIBUTION

                                  AGREEMENT

                               BY AND BETWEEN

                            ELASTIC NETWORKS INC.

                                      &

                             NORTHERN TELECOM INC.




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                                                        Agreement No. NTI9801D
                                                                        Page 2


                             TABLE OF CONTENTS
                             -----------------

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>  <C>                                                                  <C>
1.   SCOPE...............................................................   3
2.   TERM, RENEWAL, REPLACEMENT AND EXPIRATION...........................   3
3.   EXHIBITS............................................................   4
4.   DISTRIBUTION RIGHTS AND OBLIGATIONS.................................   4
5.   RECORD KEEPING......................................................   8
6.   ORDERING............................................................   8
7.   PRICES AND PAYMENTS.................................................   9
8.   FORECAST............................................................  10
9.   DELIVERY, TITLE AND ACCEPTANCE......................................  10
10.  WARRANTY............................................................  12
11.  REPAIR AND REPLACEMENT PROCEDURES AND REPAIR SERVICES...............  15
12.  PRODUCT SUPPORT AND LIFECYCLES......................................  17
13.  EMERGENCY REPLACEMENT PRODUCTS......................................  19
14.  FORCE MAJEURE.......................................................  19
15.  PATENT INFRINGEMENT.................................................  19
16.  PROPRIETARY INFORMATION.............................................  21
17.  LIABILITY...........................................................  22
18.  DEFAULT.............................................................  22
19.  SEVERABILITY........................................................  23
20.  NOTICES.............................................................  23
21.  SOFTWARE LICENSE AGREEMENT..........................................  24
22.  INSURANCE...........................................................  24
23.  END USER AND/OR DISTRIBUTOR REQUIREMENTS............................  25
24.  GOVERNMENT SALES....................................................  25
25.  COMPLIANCE WITH LAWS................................................  25
26.  NORTH AMERICAN FREE TRADE AGREEMENT PROCEDURES......................  26
27.  EXPORT CONTROLS.....................................................  27
28.  PUBLICITY...........................................................  27
29.  HAZARDOUS MATERIALS.................................................  28
30.  GOVERNING LAW.......................................................  29
31.  ASSIGNMENT..........................................................  29
32.  WAIVER..............................................................  29
33.  SECTION HEADINGS....................................................  29
34.  ENTIRE AGREEMENT....................................................  29
35.  SURVIVAL............................................................  30
36.  NO THIRD PARTY BENEFICIARIES........................................  30

</TABLE>


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                                                        Agreement No. NTI9801D
                                                                        Page 3


                             DISTRIBUTION AGREEMENT

     THIS DISTRIBUTION AGREEMENT (this "Agreement"), effective as of
September 1, 1998 (the "Effective Date"), is entered into by and between
Northern Telecom, Inc., a Delaware corporation with offices located 5555
Windward Parkway, Suite B, Alpharetta, Georgia 30004, on behalf of itself,
its parent, Northern Telecom Limited and any Affiliates ("collectively Nortel
Networks"); and Elastic Networks, Inc., a Delaware corporation, with offices
located at 6120 Windward Parkway, Alpharetta, Georgia 30005 ("Elastic
Networks").

     WHEREAS, Elastic Networks desires to obtain assistance in the sale,
installation, and maintenance of its products consisting of high speed burst
mode ethernet products, as set forth in Exhibit A, and covered by the terms
of this Agreement; and

     WHEREAS, Nortel Networks desires to become one of Elastic Networks'
distributors, and to resell and maintain Elastic Networks' Products which are
covered by the terms of this Agreement.

     NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by all Parties hereto, the
Parties hereby agree as follows:

1.   SCOPE

1.1  This Agreement sets forth the terms and conditions applicable to:
     (i) the sale by Elastic Networks of Products listed in Exhibit A, and
     (ii) the purchase by Nortel Networks of such Products for resale by
     Nortel Networks to its customers worldwide, either directly or
     indirectly through Distributors.

1.2  As of the Effective Date, Exhibit A lists and describes the Products
     that are the subject matter of this Agreement. Exhibit A, upon written
     request of Nortel Networks and Elastic Networks, may be amended from
     time to time to add thereto other products offered for sale by Elastic
     Networks, and/or to incorporate herein enhancements or new features
     introduced in Products by Elastic Networks. Nortel Networks agrees
     that it has no right under this Agreement to resell any product not
     contained in a then-effective Exhibit A.

2.   TERM, RENEWAL, REPLACEMENT, AND EXPIRATION

2.1  The term of this Agreement shall begin on the Effective Date and shall
     expire at midnight, Eastern Standard Time, December 31, 2001 ("Term"),
     unless sooner terminated in accordance with the termination provisions
     of this Agreement, or renewed as provided below.


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                                                        Agreement No. NTI9801D
                                                                        Page 4


2.2  On or before October 1 of the year prior to the last calendar year of an
     initial or renewal term, Elastic Networks shall provide notice to Nortel
     Networks of Elastic Networks' intention: (1) to renew this Agreement for
     an additional three (3) years from the end of the then current term,
     with a different agreement (in which case Elastic Networks shall attach
     a copy of the new agreement to the notice and Nortel Networks shall have
     the right to negotiate with Elastic Networks any new terms and
     conditions); or (3) to allow this Agreement, and the distributor
     relationship, to expire at the end of the then current term. Failure of
     Eastic Networks to provide such notice shall be deemed an election by
     Elastic Networks of option (1). If either option (1) or (2) is
     unacceptable to Nortel Networks, or if Elastic Networks shall elect
     option (3), then the last calendar year of the then current term shall
     be considered a "wind-down" or "disengagement" period. Nortel Networks
     shall notify Elastic Networks within sixty (60) days of receipt of
     Elastic Networks' notice of Elastic Networks' intent to pursue either
     option (1) or (2) if either option (1) or (2) is unacceptable to Nortel
     Networks.

3.   EXHIBITS.

     The following Exhibits, attached hereto, are an integral part of this
     Agreement and are incorporated herein by reference:

     Exhibit A - Products and Commercial List Price
     Exhibit B - Product Pricing
     Exhibit C - Service and Support
     Exhibit D - Definitions
     Exhibit E - Software License
     Exhibit F - Point of Sale Report
     Exhibit G - Training and Certification Program

4.   DISTRIBUTIONS RIGHTS AND OBLIGATIONS.

4.1  Elastic Networks hereby grants to Nortel Networks, for use only during
     the Term, a non-exclusive right to: (1) purchase Products; (2) retain
     the Products for inventory purposes (3) sell Products to End Users
     either directly or indirectly through Distributors; over the life of the
     Products.

4.2  The relationship of the Parties under this Agreement shall be, and shall
     at all times remain, one of independent contractors and not that of
     franchiser and franchisee or joint ventures. For the purpose of Software
     licensing only, the relationship of principal and agent is established.
     All persons furnished by either Party to accomplish the intent of this
     Agreement shall be considered solely the furnishing Party's employees or
     agents.


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                                                        Agreement No. NTI9801D
                                                                        Page 5


4.3  Nortel Networks acknowledges that Elastic Networks has an existing
     network of distributors, some or all of which may have authorization to
     distribute the Products covered by the terms of this Agreement. Elastic
     Networks may appoint additional Elastic Networks Authorized
     Distributors, and may itself and/or through any subsidiary, subsidiary
     of a parent, representative or agent distribute the Products covered by
     this Agreement, in competition with Nortel Networks, irrespective of the
     grant of rights to Nortel Networks contained within this Agreement.

4.4  Subject to Section 28 and except as otherwise expressly agreed in
     writing, Nortel Networks shall bear all promotional, display and
     operating expenses incurred by it with respect to the distribution of
     the Products under this Agreement. Nothing contained in this Section 4.4
     shall imply any right in Elastic Networks to pre-approve or screen
     Nortel Networks' advertising and/or promotional efforts. However,
     Elastic Networks shall have the right to prohibit the continued use by
     Nortel Networks of specific advertising and/or promotional materials
     which Elastic Networks reasonably believes will damage Elastic Networks
     reputation. Elastic Networks shall not use Nortel Networks' name,
     tradename or trademark in any advertising or promotion without Nortel
     Networks' prior written consent.

4.5  Elastic Networks shall provide training for employees and contractors of
     Nortel Networks pursuant to the terms and conditions as set forth in
     Exhibit G and at the fees set forth in Exhibit A, if applicable.
     Training shall be strictly limited to BONDA-FIDE employees or
     contractors of Nortel Networks and/or BONDA-FIDE employees of Nortel
     Networks' subcontractors as authorized by Elastic Networks. In all cases
     in which Nortel Networks wishes Elastic Networks to accept employees of
     subcontractors for training, Nortel Networks shall identify such
     employees, and Elastic Networks shall invoice Nortel Networks, which
     shall be responsible for paying for such training.

4.6  Elastic Networks hereby grants to Nortel Networks, at no cost, the right
     to use and copy promotional material, the Product Documentation
     furnished hereunder and other material made generally available by
     Elastic Networks to its End Users and/or Distributors and to use such
     material to further Nortel Networks' Product marketing efforts.

4.7  This Agreement is non-exclusive and, except as specifically provided
     otherwise herein, shall not be construed: (1) to require Nortel Networks
     to purchase only from Elastic Networks (except to the extent that new
     Elastic Networks Products for resale may only be purchased from Elastic
     Networks); (2) to require Nortel Networks to purchase any specific
     amount of Product from Elastic Networks; (3) to require Elastic Networks
     to sell all or any specific proportion of its output to Nortel Networks;
     or (4) to require Elastic Networks to refrain from selling all or any
     portion of its output to any other entity.

4.8  Nortel Networks hereby accepts appointment as an Elastic Networks
     Authorized Distributor and agrees, in accordance with the standards
     contained in Sections 4.9,


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                                                        Agreement No. NTI9801D
                                                                        Page 6


     to devote its commercially reasonable efforts to diligently promote the
     distribution of Products pursuant to this Agreement, including, without
     limitation, the compensation and quota fulfillment rules for its sales
     force with respect to Elastic Networks' Products which are reasonably
     comparable when compared to similar sales of Nortel Networks product and
     to satisfy the needs of its End Users and/or Distributors.

4.9  Nortel Networks shall:

     (a)  select and enroll, pursuant to Section 4.5, an adequate number of
          it employees and/or contractors engaged in the sale of Products in
          Elastic Networks' orientation training course and any other Elastic
          Networks training courses as may be specified by Elastic Networks,
          in order to provide them with knowledge of the Products and Product
          applications. Such training shall be provided by Elastic Networks
          as set forth in Exhibit G. Nortel Networks shall, as mutually
          agreed to by Nortel Networks and Elastic Networks, continue to
          enroll untrained sales employees in such training on an ongoing
          basis as appropriate when there are changes in employees engaged in
          sales of Products and/or the addition of new Products to Exhibit A;
          and

     (b)  comply with the requirements for the establishment and maintenance
          of service standards and response time standards for the Product
          as specified in Exhibit C; and

     (c)  provide Elastic Networks with a monthly point of sale report
          ("Point of Sale Report"), in the format specified in Exhibit F; and

     (d)  offer to all of its End Users and/or Distributors a warranty on
          Products sold which has the Warranty Period as required in Section
          10 and which is substantially as comprehensive as the warranty
          extended to Nortel Networks by Elastic Networks upon the same
          Products; and

     (e)  be responsible for that portion of any warranty or other obligation
          to any End User and/or Distributor which exceeds, whether in time or
          scope, that provided on the applicable Product to Nortel Networks
          by Elastic Networks under the terms of this Agreement, and which was
          granted to that End User and/or Distributor as a result of the acts
          or omissions of Nortel Networks; and

     (f)  subject to Section 4.12, distribute Products only under the
          trademarks and tradenames used by Elastic Networks' or Elastic
          Networks' suppliers, as appropriate; and

     (g)  provide its End Users and/or Distributors Level I and Level II
          Product support as defined Exhibit C attached hereto.

4.10 Nortel Networks shall not:

     (a)  resell to End Users and/or Distributors Products obtained for it own
          use under other agreements between Elastic Networks and Nortel
          Networks; or


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                                                        Agreement No. NTI9801D
                                                                        Page 7


     (b)  distribute Products at locations at which Nortel Networks is unable
          to provide the level of service, if any, required in Exhibit C; or
     (c)  knowingly distribute damaged or defective Products, or parts
          thereof; or
     (d)  except as noted in any applicable Exhibit with respect to emergency
          replacement/repair and routine replacement/repair regarding
          repaired or replacement parts, knowingly distribute used Products
          without full prior disclosure to the End User and/or Distributor of
          the fact of such used condition; or
     (e)  convert, adjust, alter or modify Product except to the extent that
          such action is authorized in writing by Elastic Network; or
     (f)  remove, alter, disconnect or negate any of the safety features
          incorporated into Product; or
     (g)  distribute any Product which is represented to an End User and/or
          Distributor to be new and unused Elastic Networks Product unless it
          is assumed by Nortel Network to be, in fact, new and unused because
          it was distributed by Elastic Networks to Nortel Networks pursuant
          to this Agreement; or
     (h)  distribute any Software to anyone from whom Nortel Networks has
          not received and retained in its files a properly executed
          acceptance of the Software License terms and conditions; or
     (i)  take any action, other than as authorized in this Agreement, which
          could reasonably be foreseen to cause an adverse effect upon the
          goodwill of Elastic Networks and/or the Products; or
     (j)  alter, obliterate, cover or remove any trademark, tradename, serial
          number, or other identifying marks, characteristics or legends
          appearing on any Product (including any associated packaging,
          labels, manuals, and/or documentation), without Elastic Networks'
          consent; or
     (k)  use or display any of Elastic Networks' or Elastic Networks'
          suppliers' trademarks, tradenames, or copyrights except in
          connection with the advertising, promotion or distribution of the
          Products and in accordance with the provisions of this Agreement.

4.11 The Parties agree that from time to time Elastic Networks may request
     Nortel Networks to assist Elastic Networks in promoting Product
     utilizing Nortel Networks' Enterprise Networks Account team. In the
     event such assistance and/or direct promotion results in a sale of
     Elastic Networks Products, but not a sale of Products directly to Nortel
     Networks whereby Nortel Networks would have otherwise expected to earn
     on margin on any subsequent resale, Elastic Networks shall pay to Nortel
     Networks a fee of two percent (2%) of the total purchase price
     ("Finder's Fee") of the initial order for such Elastic Networks Products
     sold to the end user. Such Finder's Fee may be negotiated from time to
     time to the mutual agreement of the Parties.

4.12 If requested by Nortel Networks or Nortel Networks' End User and/or
     Distributor, Elastic Networks shall brand Product in accordance with
     Nortel Networks' or Nortel Networks' Fund User's and/or Distributor's
     branding specifications, such specifications to be mutually agreed. At
     the time Nortel Networks or Nortel


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                                                        Agreement No. NTI9801D
                                                                        Page 8


     Networks' End User and/or Distributor requests Product to be branded,
     Exhibit A shall be amended to add thereto such Product, and Exhibit B
     shall be amended upon agreement of the Parties to add thereto the prices
     and the deliver interval applicable to such branded Product. This
     paragraph 4.12 shall also be applicable to Documentation included with
     the Products.

4.13 Pursuant to terms and conditions to be agreed upon by the Parties,
     Nortel Networks shall have the right to integrate Hardware and Software
     into other Nortel Networks products, including Nortel Networks' UE9000
     product. Elastic Networks shall work with Nortel Networks to ensure that
     any output of interfaces shall be compatible with the Nortel Networks
     products in which such Product is being integrated. Nortel Networks
     shall have the right to use the Software to integrate the Products into
     Nortel Networks products.


5.   RECORD KEEPING AND REPORTING

5.1  Nortel Networks shall maintain a record of its distribution of Products
     in accordance with Exhibit F, in order to comply with the requirements
     imposed upon Elastic Networks by Elastic Networks' suppliers of Software
     and for Nortel Networks' and Elastic Networks' protection in the event that
     product liability, copyright infringement; trade secret misappropriation;
     or intellectual property misuse claims related to the Products should
     arise.

5.2  Nortel Networks shall retain a copy of the records specified in Section
     5.1 for at least seven (7) years from the date of distribution of the
     Product, and such obligation shall survive the termination of this
     Agreement. Nortel Networks may, at its option upon termination of this
     Agreement, satisfy the requirement to retain such records by delivering
     complete and accurate copies of such records to Elastic Networks and
     formally assigning to Elastic Networks all of Nortel Networks' rights under
     all then effective Software licenses. Elastic Networks shall have limited
     right, upon fifteen (15) days written notice to Nortel Networks and without
     unduly interfering with Nortel Networks' normal day-to-day operations, to
     examine Nortel Networks' records regarding the distribution of such Elastic
     Networks or Elastic Networks' supplier generated Software pursuant to the
     terms of this Agreement. Nortel Networks' shall cooperate fully with
     Elastic Networks or any of its Software suppliers in the defense or
     prosecution of any suit in which the existence or non-existence of a
     Software License is either an issue or any aspect of such Software License
     is in question.

6.   ORDERING

6.1  Subject to Section 8.2, all purchases for Products by Nortel Networks
     pursuant to this Agreement shall be made by means of Orders, issued from
     time to time by Nortel Networks by means of mail, fax or, web, in which
     case the procedures for web ordering will be provided by Elastic
     Networks to Nortel Networks, specifying (i) the quantity of each Product
     that Nortel Networks desires to purchase, and (ii) the Delivery Date
     and place or places, requested for delivery.


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                                                        Agreement No. NTI9801D
                                                                        Page 9


     Elastic Networks shall acknowledge receipt of each Order within two (2)
     business days after receipt of Order. Receipt by Elastic Networks of
     Nortel Networks' Order shall be deemed to occur on the same business day
     that Nortel Networks' Order is sent if forwarded by fax or electronic
     transmission and within three (3) business days if sent by mail.

6.2  All Orders issued hereunder by Nortel Networks shall reference this
     Agreement and shall be deemed to incorporate and be governed solely by
     the terms and conditions set forth in this Agreement. Any term or
     condition set forth in any Order or other document submitted that is
     inconsistent with this Agreement or Elastic Networks' written acceptance
     shall be of no force or effect.

6.3  Placement of an Order by Nortel Networks will not bind Elastic Networks
     until the Order is accepted in writing by a representative of Elastic
     Networks. Elastic Networks shall accept or reject Orders within two (2)
     business days of their receipt by Elastic Networks. In the event such
     Order is not accepted within such two (2) day period, such Order shall
     be deemed rejected.

6.4  Nortel Networks may, at any time, by written notice issued to Elastic
     Networks at least thirty (30) days prior to the accepted Delivery Date,
     reschedule the delivery of ordered Products, provided such rescheduled
     Delivery Date shall not exceed thirty (30) days following the date the
     Products were originally scheduled to ship. Delivery of the Products
     covered by any individual Order cannot be postponed more than once.

6.5  Nortel Network may cancel all or a portion of an Order accepted by
     Elastic Networks by providing Elastic Networks with a written notice of
     cancellation and by paying to Elastic Networks a cancellation charge,
     if any, (as liquidation damages and not as a penalty) equal to ten
     percent (10%) of the purchase price of the canceled portion of the Order
     if the date of Elastic Networks' receipt of the cancellation notice is
     less than thirty (30) days prior to the date of the scheduled Delivery
     Date of the Order.

7.   PRICES AND PAYMENTS

7.1  The pricing and volume discounts for each Product shall be as set forth
     in Exhibit B of this Agreement. Prices set forth in Exhibit A shall be
     firm through December 31, 1998; thereafter, prices may be revised
     annually upon providing Nortel Networks sixty (60) days written notice
     of such price changes. Such notice shall specify the effective date of
     the price change and shall apply to Orders received by Elastic Networks
     on or after the effective date of the price change.

7.2  In an effort to provide Nortel Networks the opportunity to competitively
     and profitably offer Products in high volume applications, Elastic
     Networks may offer to Nortel Networks, when requested by Nortel
     Networks, additional discounts on Products set forth in Exhibit A for
     Nortel Networks' use in high volume, competitive price proposals.


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                                                        Agreement No. NTI9801D
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7.3  Pricing to extend the Warranty Period, as defined in Section 10.1, on
     Products shall be made available to Nortel Networks as set forth in
     Exhibit C.

7.4  All taxes, import and export duties, if applicable, sales, use,
     privilege, value-added, excise or similar taxes, duties or assessments,
     shipping, handling, insurance, brokerage and related charged pertaining
     to the Products and any other goods and services purchased by Nortel
     Networks hereunder, other than taxes computed on the basis of the net
     income of Elastic Networks, will be paid by Nortel Networks. These
     charges shall appear as separate line items on Nortel Networks' invoice.

7.5  Payment shall be due to Elastic Networks from Nortel Networks forty-five
     (45) calendar days following the receipt by Nortel Networks of an
     invoice for the Products, which invoice shall be delivered to Nortel
     Networks no earlier than the Delivery Date of the Products. All amounts
     payable hereunder shall be in U.S. dollars. Any amount not paid when due
     will thereafter bear interest until paid at a rate equal to the lesser of
     (i) one percent (1%) per annum more than the prime rate established from
     time to time by Citibank, N.A., New York, or (ii) the maximum interest
     rate allowed by applicable law.

8.   FORECAST.

8.1  At or before the beginning of each month during the term of this
     Agreement, Nortel Networks shall provide to Elastic Networks a written
     forecast of the quantities of each Product to be purchased, if any, from
     Elastic Networks by Nortel Networks for delivery in each of the twelve
     (12) months immediately following calendar months (each such forecast
     hereinafter referred to as a "Forecast"). The issuance of a Forecast
     shall not be considered either an Order for nor a commitment on Nortel
     Networks' part to order or purchase any Products. In the event that
     Nortel Networks reasonably anticipates any material deviance between
     the Forecast and Nortel Networks' actual requirement for the Products in
     the applicable Forecast period, Nortel Networks will promptly notify
     Elastic Networks of any such anticipated material deviance, and Elastic
     Networks will use its good faith efforts to meet such actual requirement
     of Nortel Networks upon such prompt notice.

8.2  The Parties hereby undertake to discuss, within six (6) months from the
     Effective Date of the Agreement, the implementation of a Demand-Pull
     Program in which case ordering of Products under Section 6.1 would occur
     in the manner set forth in that program and the Agreement revised
     accordingly.

9.   DELIVERY, TITLE AND ACCEPTANCE.

9.1  Subject to Elastic Networks' acceptance of an Order, as per Section 6,
     Elastic Networks shall deliver Products that comply with the
     Specifications to the delivery location set forth in Nortel Networks'
     accepted Order. Unless otherwise


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                                                        Agreement No. NTI9801D
                                                                       Page 11


     mutually agreed in writing by the Parties, title and risk of loss or
     damage to Products shall pass to Nortel Networks upon delivery to the
     loading dock at the installation site or other delivery location specified
     by Nortel Networks in its Order. Nortel Networks shall keep such
     Products fully insured for the total amount then due Elastic Networks
     for such Products. Such delivery shall be made to a carrier or freight
     forwarder selected by Elastic Networks unless otherwise specified by
     Nortel Networks. Upon receipt of Products, Nortel Networks shall have
     ten (10) days to inspect shipment and verify any damage that may have
     occurred in delivery or report any mis-shipments to Elastic Networks. In
     the event of the foregoing, Nortel Networks shall return Products to
     Elastic Networks via the RMA procedure set forth in Section 11. In the
     event Nortel Networks fails to notify Elastic Networks of any damage or
     mis-shipments within such ten (10) day period, Nortel shall be deemed to
     have accepted the shipped Products.

9.2  Through March 31, 1999, standard delivery intervals for forecasted
     quantities of Products shall be six (6) weeks from receipt and
     acceptance of an Order; thereafter, standard delivery intervals for
     forecasted quantities of the Products shall be four (4) weeks from
     receipt and acceptance of an Order. Such standard delivery intervals may
     be amended by Elastic Networks from time to time with sixty (60) days
     prior written notice to Nortel Networks, but shall in no event exceed
     six (6) weeks from receipt and acceptance of an Order. Elastic Networks'
     only obligation regarding such delivery intervals shall be to meet
     Delivery Dates and quantities set forth in an accepted Order. Standard
     delivery intervals for unforecasted quantities will be ninety (90) days
     following Elastic Networks' receipt and acceptance of an Order for such
     unforcasted quantities. If Elastic Networks, prior to acceptance of an
     Order, advises Nortel Networks that it cannot meet a Delivery Date shown
     in an Order, both Parties may negotiate a revised date prior to
     acceptance of the Order by Elastic Networks, and such revised date
     shall be shown in Nortel Networks' acceptance of the Order.

9.3  An Order shall be delivered complete except when partial shipments are
     expressly specified in the Order or authorized in writing by Nortel
     Networks. In the event that Elastic Networks fails to deliver Products
     on or before the tenth (10th) business day after the Delivery Date or
     any extension thereof granted in writing by Nortel Networks, Nortel
     Networks may, as its sole and exclusive remedy, cancel, without charge,
     the affected portion thereof by providing to Elastic Networks a written
     notice of cancellation. In the event that Nortel Networks does not
     cancel such affected portion thereof in accordance with this Section
     9.3, then Nortel Networks will be entitled, as its sole and exclusive
     remedy for such delayed delivery, to receive the liquidated damages
     calculated in accordance with Section 9.4 hereof. Elastic Networks shall
     promptly advise Nortel Networks of any anticipated delay in meeting the
     Delivery Date specified in any Order and shall cooperate with Nortel
     Networks in the implementation by Elastic Networks of any appropriate
     action or workaround plans with a view to enable Nortel Networks to
     satisfy its End User and/or Distributor requirements.


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                                                        Agreement No. NTI9801D
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9.4  If and to the extent that Elastic Networks fails to meet a Delivery
     Date, specified in an Order accepted by Elastic Networks, by a period of
     more than fifteen (15) business days through no fault of Nortel Networks
     and such failure is not attributable to force majeure as described in
     Section 14, Nortel Networks shall be entitled to receive as liquidated
     damages, and not as a penalty, an amount equal to one percent (1%) per
     week of the purchase price of the applicable Product in an Order for
     which Elastic Networks fails to meet the Delivery Date for each week
     beyond such fifteen (15) business day period, until actual delivery;
     provided that the maximum amount of such liquidated damages due to
     Nortel Networks shall in no event exceed five percent (5%) of the
     purchase price of such Product in that Order or fifty thousand dollars
     ($50,000.00), whichever is less. At Nortel's option, Elastic Networks
     shall either credit the liquidated damages against the price of the
     applicable Order (if not cancelled) or promptly make payment to Nortel.

9.5  Nortel Networks may, from time to time, request expedited delivery
     intervals of Product. In such event, Elastic Networks shall accept such
     Order and shall make commercially reasonable efforts to deliver Products
     by such expedited delivery interval. In the event Elastic Networks fails
     to deliver such Products by such expedited delivery interval, Nortel
     Networks shall not be entitled to: (1) cancel the Order as set forth in
     Section 9.3, or (2) liquidated damages as set forth in Section 9.4.

10.  WARRANTY.

10.1 Elastic Networks warrants that

     a)   Product shall, at the Delivery Date, be new and free and clear of
          all security interest or other lien and other encumbrance;

     b)   for a period of ninety (90) days from the Delivery Date (such
          period being hereinafter referred to as the "Warranty Period"), the
          Hardware and the Software shall be free from defects in materials
          and workmanship and shall conform to and operate in accordance
          with the Specifications;

     c)   the Software will operate in the environment in which it is
          installed, without troubles, due to defects which result from the
          failure of the Software to conform to the Specifications;

     d)   with the exception of any notice which may be provided by Elastic
          Networks pursuant to Section 29, the Hardware furnished by Elastic
          Networks, as described in this Agreement, is safe for normal use,
          is non-toxic, presents no abnormal hazards to persons or their
          environment, and may be disposed of as normal refuse without
          special precautions;

    e)    for a period of five (5) years from the Delivery Date, the
          occurrence in, or use by, Elastic Networks' products ("Products")
          and any software or


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                                                        Agreement No. NTI9801D
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          systems of Elastic Networks used by Elastic Networks in the supply
          of Services or performance of this Agreement in any way, of dates
          before, on, or after January 1, 2000 A.D., including dates and leap
          years between the twentieth and twenty-first centuries ("Millennial
          Dates"), will not adversely affect the Products', software's or
          systems' performance. The Products, software and systems will
          without error or omission, create, receive, store, process and
          output (collectively, "Compute") information related to Millennial
          Dates. This warranty includes, without limitation, that the
          Products, software and systems will accurately, and without
          performance degradation, Compute Millennial Dates, date-dependent
          data, date-related interfaces, or other date-related functions
          (including, without limitation, calculating, comparing, and
          sequencing such functions).

     f)   it has developed, is the owner of and/or possesses all necessary
          rights, including, without limitation, rights in respect of Third
          Party Software, to use and to market the Products including the
          Product Software required for the operation of the Products;

     g)   no license or other agreement is or will be violated by the terms
          and conditions of this Agreement;

     h)   it is either the owner or is otherwise in possession of sufficient
          licensed rights pertaining to any portion of the Products
          (including the Product Hardware and Product Software) in order to
          allow it to satisfy all of its obligations hereunder.

     i)   the warranty provisions contained in this Section 10 shall apply
          during and after the Product Warranty Period, except as expressly
          set forth in 10 b) and c) above.

10.2 Elastic Networks shall, at its expense, during the Warranty Period,
     provide repair or replacement services ("Repair Services") in accordance
     with Section 10.3 with respect to Hardware and Software which have failed
     to conform to the above warranties. After expiry of the Warranty Period,
     Repair Services shall be at prices set forth in Exhibit C.

10.3 In routine warranty service situations, Elastic Networks shall provide
     immediate replacement Products upon receipt of the defective Products,
     which shall include the RMA number and documentation. Elastic Networks
     shall provide repaired Products within ten (10) days from receipt of the
     defective Products, which shall include the RMA number and
     documentation. Advanced Replacement of Products, as defined in Exhibit
     C, shall be made available to Nortel Networks as set forth in Exhibit C,
     Section 2.1.1. All Hardware and Software subject to this Section 10.3
     shall be functionally equivalent or better than the vintage of the
     repaired or replaced units, and must be backward compatible. Hardware
     repairs and replacements and Software corrections effected during the
     Warranty Period shall be warranted, as above provided, for the remainder
     of the Product Warranty


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                                                        Agreement No. NTI9801D
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     Period or thirty (30) days from the date of shipment, whichever is
     longer. Hardware repairs or replacements and Software corrections or
     replacements effected after expiry of the Warranty Period shall be
     warranted, as described above, for a period of thirty (30) days from the
     repair date stenciled or otherwise identified in accordance with Section
     11.4 (Repair Procedures).

10.4 This warranty does not apply to items normally consumed in operation,
     such as lamps and fuses and to any defect which has been caused by
     Nortel and arises from mishandling, misuse, neglect or improper testing
     or repair. The warranties set forth in this Section 10 shall not apply
     to Third Party Software or Third Party Hardware, provided however that
     Elastic Networks shall assign to Nortel Networks the warranty rights
     granted to Elastic Networks by the appropriate vendor of such Third
     Party Software or Third Party Hardware.

10.5 Notwithstanding the foregoing, Products found to be defective within
     thirty (30) days from their initial utilization at Nortel Networks' End
     User and/or Distributor site (each such defective Product hereinafter
     referred to as a "DOA"), shall be returned to Elastic Networks along
     with the RMA documentation. Returned DOA units shall be repaired,
     re-furbished, tested and returned, free-of-charge, to Nortel Networks as
     new Products. Should the DOA occurrence exceed 0.5% of the units shipped
     in any given calendar quarter, Elastic Networks shall perform root cause
     analysis and agree with Nortel Networks on a plan to correct the
     situation.

10.6 The above warranty shall survive inspection, acceptance and payment. All
     transportation charges arising from Nortel Networks' return of any
     defective Product to Elastic Networks shall be paid by Nortel Networks.
     All transportation charges arising from Elastic Networks' delivery of
     the repaired or replacement Product to Nortel Networks shall be paid by
     Elastic Networks.

10.7 If Elastic Networks is in default pursuant to Section 18 (Default), then
     in addition to Nortel Networks' rights as described in Section 10.2
     above, Nortel Networks, where directed by its End User(s) and/or
     Distributor(s), reserves the right to repair or replace any defective
     Hardware or to correct any defective Software on its own or to arrange
     for such repair, replacement or correction by other entities, in which
     case the warranties of Elastic Networks shall be null and void in
     respect to any such repair, replacement or correction of such Product.
     In that event Elastic Networks shall reimburse Nortel Networks for all
     reasonable costs and expenses incurred by Nortel Networks in exercising
     either right under this Section during the applicable Warranty Period.
     Any failure by Elastic Networks to execute its warranty obligation as
     contained in this Section 10 and Section 11 shall constitute a material
     breach of Elastic Networks' obligations hereunder.

10.8 In the event that (i) there is a breach of the warranty described in
     Section 10.1 above with respect to any Products purchased by Nortel
     Networks hereunder and (ii) Elastic Networks decides to repair or
     replace such defective unit, then Elastic Networks shall (1) provide a
     "Unit Failure Analysis" report on each such field returned units and a
     "Component Failure Analysis" report, within sixty (60)


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                                                        Agreement No. NTI9801D
                                                                       Page 15


      calendar days from the date that Elastic Networks receives the defective
      unit from Nortel Networks, to Nortel Networks' Repair Manager and Quality
      Manager, and (2) upon Nortel Networks' reasonable written request,
      Elastic Networks shall perform root cause analysis on each such returned
      unit and shall provide a detailed report of such analysis to Nortel
      Networks within sixty (60) calendar days of receipt of Nortel Networks'
      request.

10.9  In case of a "No Fault Found" ("NFF") in respect of Products returned
      where, in the calendar quarter in which the NFF unit is received by
      Elastic Networks, the number of NFF units is more than five percent (5%)
      of the number of units of the Products delivered in that calendar
      quarter or if Nortel Networks requests retesting of Products reasonably
      known to Nortel Networks as being in good condition, Nortel Networks
      will pay to Elastic Networks a service fee in accordance with Elastic
      Networks' then current standard rates therefor and any return
      transportation costs.

10.10 Should the Product failures classified by Elastic Networks NFF
      represent more than twenty percent (20%) of the Products return rates as
      defined in the Specifications, then, in addition to Elastic Networks'
      performing a root cause analysis, the Parties shall jointly determine a
      corrective action plan and implement such corrective plan of action
      within thirty (30) calendar days of this occurrence being reported.
      Elastic Networks will update Nortel in writing with the findings of the
      root cause analysis as well as with the corrective plan of action.

10.11 THE FOREGOING WARRANTIES AND REMEDIES CONSTITUTE THE ONLY WARRANTIES
      WITH RESPECT TO THE PRODUCTS AND ARE NORTEL NETWORKS' SOLE AND
      EXCLUSIVE REMEDIES IN THE EVENT SUCH WARRANTIES ARE BREACHED. EXCEPT AS
      OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, THERE ARE NO OTHER
      WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS, OR IMPLIED, INCLUDING
      WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
      PARTICULAR PURPOSE.

11.   REPAIR AND REPLACEMENT PROCEDURES AND REPAIR SERVICES.

11.1  Repair Services shall be available to Nortel Networks in accordance
      with the provisions contained in this Section 11 and shall be
      applicable to the provision of Repair Services by Elastic Networks
      during and after the Product Warranty Period.

11.2  Prior to returning any defective Products to the Elastic Networks
      repair/replacement center, Nortel Networks shall notify Elastic
      Networks orally of the defect, if known at that time, and shall request
      authorization from Elastic Networks for the return of such Products.
      Elastic Networks shall provide Nortel Networks with a Return Material
      Authorization ("RMA") number to be prominently displayed on the
      shipping container for the defective Products and advise Nortel
      Networks of the repair location to which the Products should be


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                                                        Agreement No. NTI9801D
                                                                       Page 16


      returned. All transportation charges arising from Nortel Networks'
      return of any defective Product to Elastic Networks shall be paid by
      Nortel Networks. All transportation charges arising from Elastic
      Networks' delivery of the repaired or replacement Product to Nortel
      Networks shall be paid by Elastic Networks.

11.3  Nortel Networks shall furnish the following information with any
      defective Products returned to Elastic Networks for Repair Service:

      i)    Nortel Networks' complete address;
      ii)   quantities and model numbers of Products being delivered for
            repair/replacement;
      iii)  the nature of the defect or failure, if known;
      iv)   if Product is no longer under warranty, the Order number under which
            repairs are to be made (not applicable for DOA units);
      v)    name(s) and telephone number(s) of Nortel Networks' employee(s)
            or other designated persons to contact in case of questions
            about the Products;
      vi)   ship-to address or Nortel Networks' location to which repaired or
            replacement Products should be returned;
      vii)  whether or not returned Product is under warranty.

11.4  Elastic Networks shall date stamp each repaired and returned Product
      with the repair date and type of repair "pre fix" as per Bellcore
      GR-209 specifications. Hardware repaired by Elastic Networks shall be
      stamped in accordance with requirements outlined in Bellcore
      TR-NWT-000078. Without limiting the generality of the foregoing, the
      stamping shall include the repair date stenciled or otherwise
      identified in a permanent manner at a readily visible location on the
      Hardware, unless otherwise directed by Nortel Networks.

11.5  Upon Nortel Networks' request, Elastic Networks shall promptly provide
      Nortel Networks with the name(s) and telephone number(s) of the
      individual(s) to be contacted concerning any questions that may arise
      with respect to the Repair Services.

11.6  Elastic Networks shall promptly notify Nortel Networks of returned
      Products which are found by Elastic Networks to be beyond repair or
      irreplaceable. Products shall only be considered beyond repair or
      irreplaceable after agreement of the Parties to that effect. All
      Products under warranty which are found to be beyond repair or
      irreplaceable, through no fault of Nortel Networks, shall be returned
      to Nortel Networks freight pre-paid and properly insured with a
      complete refund or credit of the original purchase price.

11.7  OUT OF WARRANTY REPAIR SERVICES. Out of Warranty Repair Services will be
      offered by Elastic Networks as part of the Extended Support Services
      Program described in Exhibit C.


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                                                        Agreement No. NTI9801D
                                                                       Page 17


11.8  Except for the provisions set forth in Section 12.3 relative to
      discontinued Products, Elastic Networks shall make such Repair Services
      and technical support services available for a minimum period of three
      (3) years from the date of last purchase of such Products by Nortel
      Networks hereunder. This provision shall survive the expiration of this
      Agreement.

12.   PRODUCT SUPPORT AND LIFECYCLES

12.1  Elastic Networks shall supply to Nortel Networks, at no additional
      charge, at lease one (1) set of electronic copies of Elastic Networks'
      Product Documentation for use by Nortel Networks' technicians in
      support of the Products, as well as provide Nortel Networks access to
      Elastic Networks' web site, Thereafter, Elastic Networks shall continue
      to provide updates to such set or sets, as the case may be, of Product
      Documentation, at no additional charge to Nortel Networks, during the
      Term of this Agreement, as soon as they are available. Elastic Networks
      shall give Nortel Networks thirty (30) days prior notice of any changes
      to Product Documentation or web site address changes.

12.2  In addition to Elastic Networks' warranty obligations as set forth in
      Section 10, Elastic Networks shall provide technical support in
      accordance with Exhibit C for the Product supplied hereunder during the
      Warranty Period at no charge to Nortel Networks. Thereafter, Nortel
      Networks shall pay all fees, if any, for such technical support as set
      forth in Exhibit C.

12.3  DISCONTINUED PRODUCTS. From time to time during the term of this
      Agreement, Elastic Networks may determine that Products have reached
      the end of their useful life. Elastic Networks reserves the right to
      discontinued, at its own discretion, any Product that it deems no longer
      marketable upon one hundred eighty (180) days written notice to Nortel
      Networks. Elastic Networks shall provide Nortel Networks information on
      such Product discontinuance simultaneously with its other distributors
      of such discontinued Products. During such one hundred eighty (180) day
      period, Nortel Networks may place a non-cancellable order for its
      requirements or enter into any other mutually satisfactory agreement
      with Elastic Networks prior to such discontinuance. This provision
      shall survive the expiration of this Agreement. In the event Elastic
      Networks elects to discontinue any Products hereunder, Elastic Networks
      shall continue to provide Nortel Networks with repair and replacement
      service for a minimum period of one (1) year from the discontinuance
      date of the Product.

12.4  MODIFIED AND NEW PRODUCTS. From time to time during the term of this
      Agreement, Elastic Networks may develop enhancements or changes to any
      Products, in which event Elastic Networks shall provide Nortel Networks
      written information on such Product enhancements as it does to its
      other commercial customers for the Products. In the event such
      enhancements or changes affect the form, fit, function, performance or
      price to the Products and/or process ("Changes"), Elastic Networks
      shall provide Nortel Networks written notification of such Changes
      within thirty (30) days of Elastic Networks' internal design


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                                                        Agreement No. NTI9801D
                                                                       Page 18


      authorization allowing any such Change. Where, however, in Elastic
      Networks' sole opinion, an intrinsic design or manufacturing defect of
      the Product(s), including a failure of the Software to operate in the
      environment in which it is installed, without troubles, due to defects
      which result from failure of the Software to conform to the
      Specifications, causes an inoperative, hazardous or unsatisfactory
      condition of a nature as to require the introduction in the Products of a
      Class A or AC Change, as described in GR-209, Elastic Networks shall
      promptly notify Nortel Networks and initiate immediate action to correct
      the situation. The Changes which require that a notice be forwarded to
      Nortel Networks shall include, without limitation, any proposed Change to
      the Products in accordance with the classifications described in
      GR-209-CORE ("GR-209"). All Changes proposed outside the spectrum shall
      be classified as "O". The interpretation of GR-209 resides with Elastic
      Networks.

12.5  RETROFITS. If Elastic Networks shall determine that a need exists to
      make either Class A Corrective Retrofits or Class B Corrective
      Retrofits, then Elastic Networks shall so notify Nortel Networks within
      thirty (30) days of the date of such determination by means of
      appropriate documentation. Elastic Networks shall use all commercially
      reasonable efforts to develop required Corrective Retrofits and, when
      and if such Corrective Retrofits are developed, shall provide
      to Nortel Networks without charge, one Corrective Retrofit kit for each
      affected item of Product delivered to Nortel Networks pursuant to this
      Agreement.

      12.5.1   Elastic Networks shall have the option to: (a) request Nortel
               Networks to install all Class A Corrective Retrofit kits with
               its own personnel, or such personnel as Nortel Networks may
               contract: or (b) install all Class A Corrective Retrofit kits
               using its own personnel, provided Nortel Networks first:
               (1) obtains permission from Nortel Networks' End User and/or
               Distributor for Elastic Networks personnel to work on such End
               User's and/or Distributor's affected Product during normal
               business working hours and at such time as is reasonably
               convenient to both Elastic Networks and the End User and/or
               Distributor; and (2) when necessary, obtains the such End
               User's and/or Distributor's permission to take the affected
               Product out of service during the time necessary to install
               the Class A Corrective Retrofit kit; and (3) has obtained from
               such End User and/or Distributor a written agreement
               protecting Elastic Networks against liability for any
               incidental, special and/or consequential damages to such End
               User and/or Distributor as a result of performance by Elastic
               Networks. In the event Elastic Networks elects to have Nortel
               Networks install all Class A Corrective Retrofit kits, Elastic
               Networks agrees to pay Nortel Networks for all reasonable
               deinstallation and installation expenses incurred as a result of
               the Class A Corrective Retrofits.

      12.5.2   Installation of Class B Corrective Retrofit kits at Nortel
               Networks' End User and/or Distributor sites shall be the
               responsibility and obligation of Nortel Networks, and the
               expense and timing of such retrofits shall be determined
               mutually by the Parties on a case by case basis, unless Elastic


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                                                        Agreement No. NTI9801D
                                                                       Page 19


               Networks is providing post-warranty maintenance to the
               affected Product under contract to Nortel Networks' End User
               and/or Distributor, in which case Elastic Networks will
               install the Class B Corrective Retrofit kit at Elastic
               Networks' expense. If Elastic Networks shall determine that a
               need exists to make Regulatory Retrofits, then Elastic Networks
               shall notify Nortel Networks by means of appropriate
               documentation. When a Regulatory Retrofit kit is developed,
               Elastic Networks shall offer, at such price as it may
               announce, and on its then standard terms and conditions, to
               provide such Regulatory Retrofit kit for all affected Products
               delivered to Nortel Networks pursuant to this Agreement.

13.   EMERGENCY REPLACEMENT PRODUCTS.

      In emergency situations threatening continuity of service, Elastic
      Networks will use its good faith efforts to ship Nortel Networks or its
      End Users and/or Distributors emergency replacement Products within
      twenty-four (24) hours of Nortel Networks' request, which may be
      conveyed to Elastic Networks by telephone or facsimile. All Products
      supplied under this Section shall be functionally equivalent to or
      better than the vintage of the replaced Products. Emergency replacement
      Products shall be shipped via next day service. Elastic Networks shall
      provide emergency replacement of Products to Nortel Networks at no charge
      during the Warranty Period. For Products replaced out of the Warranty
      Period, Elastic Networks' provision of emergency replacement shall be as
      set forth in this Section 13 and such replacement Products shall be
      subject to fees as set forth in Exhibit C, if any.

14.   FORCE MAJEURE.

      If the performance of any obligation under this Agreement or an Order
      is interfered with by reason of any circumstances beyond the reasonable
      control of the Party affected, including, without limitation, fire,
      explosion, power failure, acts of God, war, revolution, civil
      commotion, delays of the other Party in the performance of any of its
      obligations hereunder, delays of subcontractors, or delays of suppliers
      in providing to Elastic Networks the materials required for the
      manufacturing of the Products, unavailability of sources of energy,
      acts of the public enemy, or any law, order, regulation, ordinance or
      requirement of any government or legal body, and labor difficulties,
      including without limitation, strikes, slowdowns, picketing or
      boycotts; then the Party affected shall be excused from such
      performance for a period equal to the delay resulting from any such
      causes and such additional period as may be reasonably necessary to
      allow the Party to resume its obligations, (and the other Party shall
      likewise be excused from performance of its obligations to the extent
      such Party's obligations relate to the performance which was interfered
      with). The Party so affected shall make reasonable efforts to remove
      such causes of nonperformance; provided, however, in the context of
      labor difficulties, that a Party shall not be obligated to accede to
      any demands being made by employees or other personnel.


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                                                       Agreement No. NTI9801D
                                                                      Page 20


15.   PATENT INFRINGEMENT.

15.1  Elastic Networks will defend at its expense all claims, proceedings
      and/or suits brought against Nortel Networks, its End User and/or
      Distributors alleging that the use, copying, licensing, sublicensing,
      sale and/or distribution of any Products, excluding Third Party
      Hardware and/or Third Party Software, delivered hereunder infringes or
      violates any patent, copyright, trade secret or other intellectual
      property right in any country where Nortel Networks resells the
      Products (herein "Infringement Claim"). Elastic Networks shall pay all
      litigation costs, reasonable attorney's fees, settlement payments and
      any damages awarded or resulting from any such suit, claim or
      proceeding. With respect to Third Party Hardware and/or Third Party
      Software, Elastic Networks shall assign any rights with respect to
      infringement of any patent, copyright, trade secret or other
      intellectual property right in any country where Nortel Networks
      resells the Products granted to Elastic Networks by the supplier of
      such Third Party Hardware and/or Third Party Software. In the event
      a Product becomes the subject of an Infringement Claim outside of
      North America, Elastic Networks shall have the right to ask Nortel
      Networks to cease all sales of such Product in such country, and
      Elastic Networks will not be liable for any subsequent sales in such
      country in the event Nortel Networks continues to sell such infringing
      Product.

15.2  The Party entitled to defense pursuant to Section 15.1 shall promptly
      advise the Party required to provide such defense of the applicable suit,
      claim, or proceeding and shall cooperate with such Party in the defense
      or settlement thereof. The Party required to provide such defense shall
      have sole control of the defense of the applicable suit, claim, or
      proceeding and of all negotiations for its settlement or compromise.

15.3  Upon providing Nortel Networks with notice of a potential or actual
      infringement claim, Elastic Networks may (or in the case of an
      injunction, shall), at Elastic Networks' option, either procure a right
      to use, replace or modify, or require the return of the affected
      Product for a refund of its depreciated cost based on a seven (7) year
      straight-line process of accounting.

15.4  The obligations of Elastic Networks hereunder with respect to any suit,
      claim, or proceeding described in Section 15.1 shall not apply with
      respect to Products which are (a) manufactured or supplied by Elastic
      Networks in accordance with any design or any special instruction
      furnished by Nortel Networks, (b) used by Nortel Networks in a manner
      or for a purpose not contemplated by this Agreement, (c) used by Nortel
      Networks in combination with other products not provided by Elastic
      Networks, including, without limitation, any software developed solely
      by Nortel Networks through the permitted use of Products furnished
      hereunder, provided the infringement arises from such combination or the
      use thereof. Nortel Networks shall indemnify and hold Elastic Networks
      harmless against any loss, cost, expense, damage, settlement or other
      liability, including, but not limited to, attorneys' fees,



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                                                       Agreement No. NTI9801D
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      which may be incurred by Elastic Networks with respect to any suit,
      claim, or proceeding described in this Section 15.4.

15.5  The provisions of Sections 15.1 through 15.4 state the entire liability
      of Elastic Networks and its suppliers and the exclusive remedy of
      Nortel Networks with respect to any suits, claims, or proceedings of
      the nature described in Section 15.1. Elastic Networks' total
      cumulative liability, pursuant to Sections 15.1 shall for each
      infringement claim not exceed one hundred percent (100%) of the total
      aggregate purchase price of the Product(s) purchased under the
      Agreement and giving rise to such claim.

15.6  Each Party's respective obligations pursuant to this Section shall
      survive any termination of this Agreement.

16.   PROPRIETARY INFORMATION.

16.1  DISCLOSURE OF PROPRIETARY INFORMATION
      It is expected that the Parties will disclose to each other certain
      business, marketing, technical, scientific or other information of any
      Party, including, without limitation, Specifications and Software
      which, at the time of disclosure, is designated as proprietary (or like
      designation), is disclosed in circumstances of confidence, or would be
      understood by the Parties, exercising reasonable business judgment, to
      be confidential information ("Proprietary Information") and each Party
      recognizes the value and importance of the protection of the other's
      Proprietary Information. Except as permitted otherwise by law, the
      Receiving Party shall keep confidential Proprietary Information of the
      Disclosing Party using the same degree of care that it uses to
      safeguard its own Proprietary Information of a similar nature, but not
      less than reasonable care, and shall not disclose Proprietary
      Information of the Disclosing Party, to any but its own employees with
      a need to know the Proprietary Information in furtherance of the
      purposes of this Agreement. With respect to Software, this obligation
      may be expanded, amplified or modified by the terms of the Software
      License; in the event of a conflict between a Software License and this
      Section 16, the Software License shall control.

16.2  APPLICATION OF RESTRICTION
      The restrictions of this article shall not apply: (1) to Proprietary
      Information which enters the public domain without fault of the
      Receiving Party; or (2) to Proprietary Information which the Receiving
      Party can prove was rightfully in its possession prior to disclosure
      from the Disclosing Party; or (3) to Proprietary Information which is
      independently developed by the Receiving Party; or (4) if such
      restrictions would prevent required compliance with applicable law,
      applicable governmental regulation, or an order of a court of
      competent jurisdiction. A Receiving Party invoking exception (4)
      above shall use all commercially reasonable efforts to notify the
      Disclosing Party of any intended disclosure as far in advance of the
      date of required compliance as is practicable


<PAGE>


                                                       Agreement No. NTI9801D
                                                                      Page 22



      and shall not make such disclosure in advance of the date of required
      compliance, so that the Disclosing Party may have an opportunity to take
      such steps as it deems appropriate to defend its interests; provided,
      however, that in the event the Receiving Party invokes exception (4)
      above and the Proprietary Information is that of a Elastic Networks
      supplier, such notification shall be made to Elastic Networks.

16.3  SURVIVAL OF RESTRICTION
      The Parties' confidentiality obligations shall survive the termination
      of this Agreement, regardless of the cause, and shall extend to the
      earlier of such times as Proprietary Information and/or Software
      enters the public domain through no fault of either Party, or ten (10)
      years following the expiration or termination of this Agreement.

16.4  The Parties acknowledge and agree that a breach of this Agreement may
      result in irreparable and continuing harm to the Disclosing Party for
      which there may be no adequate remedy at law. In the event of a breach
      or a threatened or intended breach of this Agreement by the Receiving
      Party, the Disclosing Party shall be entitled to seek, preliminary
      injunctions unilaterally with twenty-four (24) hour notice, and final
      injunctions with notice, enjoining and restraining such breach, or
      threatened or intended breach, and to such other rights and remedies as
      are available at law or in equity to the Disclosing Party except as
      expressly set forth herein.

17.   LIABILITY.

17.1  Nortel Networks shall obtain a contract with each End User and/or
      Distributor that includes both warranty and general contractual
      disclaimers of any Elastic Networks' liability for incidental and
      consequential damages of that End User and/or Distributor. Any such
      contract should not identify Elastic Networks by name but rather as
      the "manufacturer" or "supplier" of the Products distributed.

17.2  Each Party shall indemnify and save the other Party harmless from any
      liability or claim (including, without limitation, the costs and
      reasonable attorneys' fees in connection therewith) that may be made
      by anyone relating to personal injury, including death to persons, or
      damage to tangible property which results from product liability or
      from the negligence and/or willful misconduct of the indemnifying
      Party, its employees or agents in the performance of this Agreement.

18.   DEFAULT.

18.1  In the event of any material breach of this Agreement or an Order by
      either Party which shall continue for thirty (30) or more days after
      written notice of such breach, including a reasonably detailed
      statement of the nature of such breach, shall have been given to the
      breaching Party by the aggrieved Party, the aggrieved Party may then
      terminate this Agreement by providing to the breaching Party a




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                                                       Agreement No. NTI9801D
                                                                      Page 23



      written notice of termination at any time prior to any such material
      breach having been cured by the breaching Party.

18.2  Either Party may terminate this Agreement in the event the other Party
      becomes insolvent or bankrupt, makes a general assignment for the
      benefit of, or enters into any arrangement with, creditors, files a
      voluntary petition under any bankruptcy, insolvency, or similar law,
      or has proceedings under any such laws or proceedings seeking
      appointment of a receiver, trustee or liquidator instituted against it
      which are not terminated within thirty (30) days of their commencement.

18.3  EXCEPT AS PROVIDED IN SECTIONS 15, 16 AND 17, IN NO EVENT SHALL EITHER
      PARTY BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OF
      ANY NATURE WHATSOEVER FOR ANY BREACH OF THIS AGREEMENT OR OTHERWISE,
      INCLUDING LOSS OF PROFIT, LOSS OF DATA OR INTERRUPTION OF BUSINESS
      WHETHER SUCH DAMAGES ARE LABELED IN TORT, CONTRACT OR INDEMNITY EVEN IF
      DISTRIBUTOR HAS BEEN ADVISED OF SUCH DAMAGES. THIS LIMITATION SHALL
      SURVIVE ANY TERMINATION OF THIS AGREEMENT.

18.4  Any action for breach of this Agreement or to enforce any right
      hereunder shall be commenced with one (1) year after the cause of
      action accrues or it shall be deemed waived and barred.

19.   SEVERABILITY.

      In the event that any of the terms of this Agreement become or are
      declared to be illegal by any Court of competent jurisdiction, such
      term(s) shall be null and void and shall be deemed deleted from this
      Agreement. All remaining terms of this Agreement shall remain in full
      force and effect. Notwithstanding the foregoing, if this paragraph
      becomes applicable and, as a result, the value of this Agreement is
      substantially impaired for either Party, then the affected Party may
      terminate this Agreement by written notice to the other.

20.   NOTICES.

      Any and all notices, requests, instructions and other communications
      required or permitted to be given hereunder may be delivered personally
      or by nationally recognized overnight courier service or may be sent by
      mail, by telex or by facsimile transmission, at the respective address
      or transmission numbers set forth below, and shall be effective (a) in
      the case of personal delivery, telex or facsimile transmission, when
      received; (b) in the case of mail, upon the earlier of actual receipt
      or three (3) business days after deposit in the United States Postal
      Service, first class certified or registered mail; and (3) in the case
      of nationally recognized overnight courier service, one business day
      after delivery to such courier service together with all appropriate
      fees or charges for such delivery. The Parties may change their
      respective addresses and transmission numbers by written notice to



<PAGE>


                                                       Agreement No. NTI9801D
                                                                      Page 24



      the other parties, sent as provided in this Section 20. All
      communications must be in writing and addressed as follows:

      To Elastic Networks:      Elastic Networks
                                6120 Windward Parkway, Suite 100
                                Alpharetta, GA 30005
                                Attention: CFO
                                Facsimile No.: (678) 297-3100

      To Nortel Networks:       Northern Telecom Inc.
                                5555 Windward Parkway, Suite B
                                Alpharetta, Georgia 30004
                                Attention:  VP Finance
                                Facsimile No.: (770) 708-4971


21.   SOFTWARE LICENSE AGREEMENT.

21.   Upon payment of the applicable right to use fees or Software License
      fees as set forth in Exhibit B, if any, Nortel Networks is hereby
      granted a non-exclusive, paid-up license to use the object code version
      of the Software furnished, and subject to the provisions of the
      Software License contained in Exhibit E, as applicable, which Nortel
      Networks hereby agrees to be bound to. Nortel Networks is further
      granted the right to assign this license and sublicense the rights
      herein granted, to any End User and/or Distributor who purchases
      Product with licensed Software and all such sublicenses shall be under
      sublicenses agreements containing terms no less stringent than those
      contained in Nortel Networks' standard software license agreement.
      Nortel Networks hereby agrees that should it materially change its
      standard software license agreement, Nortel Networks shall use its best
      efforts to notify Elastic Networks of the change prior to the licensing
      of the Software. Nortel Networks is granted no title or ownership
      rights to the Software. Such rights shall remain in Elastic Networks or
      Elastic Networks' suppliers as appropriate.

21.2  Nortel Networks shall use all commercially reasonable efforts to ensure
      that each Nortel Networks End User and/or Distributor complies with all
      of the requirements of the Software License. If Nortel Networks becomes
      aware of an End User and/or Distributor breaching the Elastic Networks
      Software License, then Nortel Networks shall promptly advise Elastic
      Networks in writing of the identity of such End User and/or Distributor
      and the nature of the breach. Nortel Networks shall cooperate, in any
      commercially reasonable manner requested, at the expense of Elastic
      Networks and/or Elastic Networks' suppliers, in any legal action or
      potential legal action by them against the Nortel Networks End User
      and/or Distributor in material breach, related to that breach. Nortel
      Networks shall indemnify and hold Elastic Networks harmless from any
      claims, demands or damages if Nortel Networks violates any provisions
      of this section.







<PAGE>


                                                        Agreement No. NTI9801D
                                                                       Page 25


22.   INSURANCE

      Nortel Networks shall maintain, during the term of this Agreement, all
      insurance and/or bonds required by any applicable law, including but
      not limited to: (1) workers' compensation insurance as prescribed by
      the laws of all states and/or provinces in which work pursuant to this
      Agreement is performed; (2) employer's liability insurance with limits
      of at least $5 million per occurrence; (3) comprehensive general
      liability insurance (including products liability coverage, contractual
      liability, advertising liability, and comprehensive automobile
      liability coverage) with each coverage having limits of at least $5
      million per occurrence. Nortel Networks shall furnish certificates or
      other adequate proof of such insurance to the other upon written
      request. Proof of a program of self-insurance acceptable to the
      requesting Party (which acceptance shall not be unreasonably withheld)
      shall satisfy any such request.

23.   END USER AND/OR DISTRIBUTOR REQUIREMENTS.

      Elastic Networks, through its sale of Products to Nortel Networks
      hereunder, does not consent to be bound by any requirements or
      conditions of any of Nortel Networks' End Users and/or Distributors
      including, without limitation any federal, state or local law or
      regulation concerning contracts with the governmental authorities or
      with the terms and conditions in any prime or subcontract unless
      Elastic Networks has agreed to said law, regulation, requirement, term
      or condition explicitly in writing. In no event will Elastic Networks
      agree to provide cost or pricing data as defined in Federal Acquisition
      Regulation (FAR) Part 15.804 to either Nortel Networks or its End User
      and/or Distributor. Nortel Networks shall not represent to its End
      Users and/or Distributors or others that the prices charged to it by
      Elastic Networks are based upon Elastic Networks' cost or pricing data
      or that Elastic Networks' prices to Nortel Networks are based upon
      established catalog or market prices as defined in FAR Part
      15.804-1(b)(2).

24.   GOVERNMENT SALES.

24.1  Nortel Networks will not distribute the Products to the United States
      Federal Government either directly or indirectly, or through the
      General Services Administration ("GSA"). Elastic Networks does not
      accept any flowdown provisions including but not limited to United
      States Government Federal Acquisition Regulations ("FARs"), Defense
      FARs, or NASA FARs notwithstanding existence of such provisions on
      Nortel Networks' Orders or supplementary documentation or Elastic
      Networks' acceptance of such Orders or documentation.

24.2  This Agreement shall not be construed by Nortel Networks as a
      representation that Elastic Networks will furnish supplies needed by
      Nortel Networks to fulfill


<PAGE>



                                                       Agreement No. NTI9801D
                                                                      Page 26


      any of Nortel Networks' GSA, California Multiple Award Schedules (CMAS),
      or similar contract obligations under any schedule contract.

25.   COMPLIANCE WITH LAWS.

      At its own expense, each Party will comply with all applicable laws and
      governmental orders and regulations in connection with such Party's
      performance of this Agreement.

26.   NORTH AMERICAN FREE TRADE AGREEMENT PROCEDURES.

26.1  Elastic Networks and Nortel Networks will work together in good faith
      and take all reasonably necessary administrative actions required to
      qualify Products for preferential treatment under the rules of any
      applicable trade treaty among Canada, U.S.A. and Mexico, including,
      without limitation, the North American Free Trade Agreement ("NAFTA").
      If a Product qualifies under NAFTA, Elastic Networks, with Nortel
      Networks' assistance, will use its good faith efforts to (i) prepare
      and distribute a NAFTA Exporter's Certificate of Origin according to
      Sections 26.2 and 26.3 below, whichever applies, and any other
      documents required, and (ii) respond to NAFTA Exporter's Certificate of
      Origin questionnaires and assist Nortel Networks in resolving any
      Product eligibility issues.

26.2  If a NAFTA Exporter's Certificate of Origin is prepared for each
      shipment, Elastic Networks will (a) retain the original NAFTA
      Exporter's Certificate of Origin in Elastic Networks' files with
      appropriate backup documentation, (b) attach a copy of the NAFTA
      Exporter's Certificate of Origin to the customs/shipping documents for
      the qualifying Product, and (c) mark these customs/shipping documents
      with the legend: "Copy of the North American Free Trade Certificate of
      Origin attached."

26.3  If a blanket NAFTA Exporter's Certificate of Origin is prepared,
      Elastic Networks will (a) retain the original NAFTA Exporter's
      Certificate of Origin in Elastic Networks' files with appropriate
      backup documentation, (b) mark the customs/shipping documents for the
      qualifying product with the legend: "Copy of blanket NAFTA Exporter's
      Certificate of Origin on file at Elastic Networks' customs offices" and
      (c) mail copies of the blanket NAFTA Exporter's Certificate of Origin
      to the following offices:






<PAGE>

                                                         Agreement No. NTI9801D
                                                                        Page 27



      Canada:                                   USA:
      Northern Telecom Limited                  Northern Telecom Inc.
      Dept. 1560                                77 Oriskany Drive
      901 Steeles Avenue                        Tonawanda, NY, 14150
      Milton, Ontario, Canada L9T 4B6           USA




27.   EXPORT CONTROLS.

27.1  Nortel Networks hereby acknowledges that the Products and technical
      data supplied by Elastic Networks hereunder are subject to export
      controls under the laws and regulations of the United States, including
      the Export Administration Regulations ("EAR"). Nortel Networks shall
      comply with such United States export control laws and regulations
      applicable to all Elastic Networks Products and technical data
      (including software, processes and services), and, without limiting the
      generality of this Section, agrees to obtain all licenses, permits or
      approvals required by any government. Elastic Networks and Nortel
      Networks each agree to provide the other such information and
      assistance as may reasonably be required by the other in connection
      with securing such licenses, approvals, and permits, and to take timely
      action to obtain all required import and export documents.

27.2  Nortel Networks hereby certifies that none of the Products or technical
      data supplied by Elastic Networks under this Agreement will be
      knowingly sold or otherwise transferred to a US embargoed destination,
      or made available for use by or for, any military End User and/or
      Distributor, or in any military end-use located in or operating under
      the authority of any country identified in Country Group D1 under
      Supplement No. 1 to Part 740 of the EAR (The current restricted lists
      are available on Elastic Networks Connection Online) without a U.S.
      license. Nortel Networks also certifies that none of the products or
      technical data supplied by Elastic Networks under this Agreement will
      be sold or otherwise transferred to, or made available for use by or
      for, any entity that is engaged in the design, development,
      production, stockpiling or use of nuclear, biological or chemical
      weapons or missiles. Nortel Networks' obligation under this Section 27
      shall survive the expiration or termination of this Agreement for any
      reason whatsoever.

28.   PUBLICITY.

      Prior to the publication or use by a Party hereto of any advertising,
      sale promotions, press releases or other publicity matters relating to
      the Product or this Agreement in which the names or logo of the other
      Party is mentioned or can be reasonably inferred, the Party shall
      obtain the consent of the other Party. Such consent shall not be
      unreasonably withheld. Terms, conditions and general terms of this
      Agreement shall be held in confidence by both Parties and only disclosed



<PAGE>

                                                         Agreement No. NTI9801D
                                                                        Page 28



      as may be agreed to by both Parties or as may be required to meet
      securities disclosure or export permit requirements or as may be
      otherwise required by applicable law. Neither Party shall make public
      statements or issue publicity or media releases with regard to this
      Agreement or the relationship between the Parties without the prior
      written approval of the other Party, except as may be otherwise
      required by law or stock exchange regulations. Notwithstanding any
      provisions hereof to the contrary, terms, conditions and general terms
      of this Agreement may be disclosed by Elastic Networks to a third party
      who is a potential investor of Elastic Networks, whether in debt or in
      equity, or who is a potential purchaser of all, or substantially all,
      of Elastic Networks' assets or stock, so long as such third party
      agrees in writing to keep such information in confidence and to use
      such information solely for purposes of evaluating the business and
      financial condition of Elastic Networks.

29.   HAZARDOUS MATERIALS

29.1  Elastic Networks shall identify and list in a notice forwarded to
      Nortel Networks all of the hazardous or toxic materials which may be
      contained in the products prior to shipping the Products. For the
      purposes of this Section 29.1, the hazardous and/or toxic materials
      shall be those identified or described by characteristics in the
      regulations promulgated under all applicable laws, rules and
      regulations of any applicable governmental entity including, without
      limitation, the following: the Toxic Substances Control Act, Resource
      Conservation and Recovery Act of 1976, Hazardous Materials
      Transportation Act, Occupational Safety and Health Act of 1970,
      Comprehensive Environmental Response, Compensation and Liability Act of
      1980, Consumer Product Safety Act, Radiation Control for Health and
      Safety Act of 1968, Clean Air Act, and Clean Water Act.

29.2  Elastic Networks shall periodically, but no less than annually, review
      the pertinent regulations and the materials contained in the Products
      and update the lists of hazardous and/or toxic materials accordingly.
      Upon request by Nortel Networks, Elastic Networks shall also identify
      such other hazardous and/or toxic substances as Nortel Networks may
      specify.

29.3  Elastic Networks hereby warrants to Nortel Networks that, with the
      exception of the notice referred to above, the Products furnished by
      Elastic Networks, as described in this Agreement, are safe for normal
      use, are non-toxic, present no abnormal hazards to persons or their
      environment, and may be disposed of as normal refuse without special
      precautions.

29.4  Elastic Networks shall indemnify Nortel Networks for any expenses
      (including the cost of substitute materials, less accumulated
      depreciation) that Nortel Networks may incur by reason of the recall or
      prohibition against continued use or disposal of the Products furnished
      by Elastic Networks, whether such recall or prohibition is directed by
      Elastic Networks, or occurs under compulsion of law. Nortel Networks
      shall cooperate with Elastic Networks to facilitate and minimize






<PAGE>


                                                         Agreement No. NTI9801D
                                                                        Page 29

      the expense of any recall or prohibition against use of the Products
      directed by Elastic Networks or under compulsion of law.

29.5  Elastic Networks shall indemnify, defend and hold harmless Nortel
      Networks from any claims, demands, suits, judgments, liabilities, costs
      and expenses (including, without limitation, reasonable attorneys'
      fees) which Nortel Networks may incur under any of the laws, rules and
      regulations referred to in Section 29.1 or any amendment to said
      statutes by reason of Nortel Networks' acquisition, use, sale or
      disposal of the Products furnished by Elastic Networks.

30.   GOVERNING LAW.

      The construction, interpretation and performance of the Agreement shall
      be governed by the laws of the State of Georgia, except for its rules
      with respect to the conflict of laws.

31.   ASSIGNMENT.

      Except that Nortel Networks may assign to an affiliate or subsidiary of
      Northern Telecom Limited, neither Party may assign or transfer this
      Agreement or any rights hereunder without the prior written consent of
      the other Party; provided that Elastic Networks may assign or transfer
      this Agreement or any rights hereunder to a third Party without Nortel
      Networks' prior written consent if such assignment or transfer is
      ancillary or related to a sale, lease or exchange of a majority of
      Elastic Networks' assets or the merger or acquisition of Elastic
      Networks which has substantially the same effect.

32.   WAIVER.

      Except as specifically provided for in a waiver signed by duly
      authorized representatives of Nortel Networks and Elastic Networks,
      failure by either Party at any time to require performance by the other
      Party or to claim a breach of any provision of this Agreement shall not
      be construed as affecting any subsequent breach of the right to require
      performance with respect thereto or to claim a breach with respect
      thereto.

33.   SECTION HEADINGS.

      Section headings are inserted herein for convenience only and shall not
      affect the meaning or interpretation of this Agreement or any provision
      hereof.

34.   ENTIRE AGREEMENT.

      This Agreement, including each Exhibit attached hereto, comprises all
      the terms, conditions and agreements of the Parties hereto and
      supercedes all prior agreements with respect to the subject matter
      herein. Save as expressly provided


<PAGE>

                                                         Agreement No. NTI9801D
                                                                        Page 30



      herein, this Agreement, including any Exhibit, may not be altered or
      amended except in writing signed by authorized representatives of each
      Party hereto.

35.   SURVIVAL.

      Any terms of this Agreement, which by their nature are intended to
      survive including but not limited to Sections 5, 7, 10, 11, 12.3, 15,
      16, 17, 18, 19, 21 and 27 shall survive the termination or expiration
      of this Agreement.

36.   NO THIRD PARTY BENEFICIARIES.

      Nothing in this Agreement is intended or will be construed to give any
      party, other than the Parties hereto, any legal or equitable right,
      remedy, or claim under or in respect of this Agreement or any provision
      contained herein.



IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
day and year last written below.






ELASTIC NETWORKS, INC.                          NORTHERN TELECOM INC.


By: /s/ Phillip Griffith                        By:  /s/ Donald J. Richmond
   -------------------------------                 ----------------------------
          (Signature)                                     (Signature)


Name: PHILLIP GRIFFITH                          Name: DONALD J. RICHMOND
      ----------------------------                    -------------------------
          (Print)                                          (Print)



Title: VP SALES/MARKETING                      Title: VP&GM ACCESS NETWORKS
       ---------------------------                    -------------------------

Date:     12/14/98                              Date:        12/11/98
      ----------------------------                    -------------------------