Document:

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                                                                    EXHIBIT 10.5

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.

                         PURCHASE AND LICENSE AGREEMENT

                                     BETWEEN

                 NET 2000 COMMUNICATIONS CAPITAL EQUIPMENT, INC.

                                       AND

                              NORTEL NETWORKS INC.

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                         PURCHASE AND LICENSE AGREEMENT

This Purchase and License Agreement No. 031201mab ("Purchase and License
Agreement") is between Nortel Networks Inc. ("Nortel Networks") and Net2000
Communications Capital Equipment, Inc., ("Net2000" or "Customer") effective as
of the last date signed (each a "Party" and collectively the "Parties").
Additional terms related to Customer's purchase or license of Products or
Services may be added by written agreements ("Supplements") referring to the
Purchase and License Agreement, collectively referred to as the "Agreement." The
Services Supplement is attached hereto and incorporated by reference.

1.       DEFINITIONS

"Acceptance" shall be the meaning ascribed to it in Section 12.

"Affiliate" of a Party means a company or other entity that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control of, or with, such Party or any partnership, corporation
or other entity in which a Party owns more than fifty percent (50%) equity
interest.

"Documentation" means the documentation that Nortel Networks customarily
provides to customers, which may include user, technical and operating manuals,
installation guides, and operating instructions.

"Financing Agreement" shall mean the Third Amended and Restated Credit Agreement
by and among Net2000 Communications Group, Inc., as Borrower, and the lenders
named therein, dated as of March 2001, and related Loan Documents as defined
therein and shall be deemed to be the specified written agreement of financing
set forth in Section 2.1.

"Furnish-only" means Products that Customer installs.

"Hardware" means a Nortel Networks machine or components to include any
equipment which Nortel Networks adds to its generally available Hardware price
lists or so identifies to Customer in a quotation.

"Installation Site" shall mean the location or facility identified in an Order
at which the applicable Products will be installed and is under the control of
Net2000.

"Order" shall be as defined in Section 2.1.

"Products" are any Hardware, Software or Third Party Vendor Items, and
Documentation provided under this Agreement.

"Scheduled Ship Date" shall mean the date as mutually agreed to by the parties,
on which a Product ordered by Customer is scheduled to be shipped from Nortel
Networks' facility or, in the case of Software which is downloaded, the date
upon which such Software is scheduled to be downloaded.

"Services" means the activities to be undertaken by Nortel Networks pursuant to
an Order, including, but not limited to, engineering, maintenance and
installation, implementation, design, consulting, business planning, network
planning and analysis.

"Actual Ship Date" shall mean the date on which a Product ordered by Customer is
shipped from Nortel Networks' facility or, in the case of Software which is
downloaded, the date upon which such Software is downloaded to the System.

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"Software" is owned or licensed, and is provided by Nortel Networks, its parent
or one of its subsidiaries or affiliates, and is copyrighted and licensed, not
sold. Software consists of machine-readable instructions, its components, data,
audio-visual content (such as images, text, recordings or pictures) and related
licensed materials including all whole or partial copies, and including Software
and firmware that is embedded in Hardware.

"Specifications" mean the functional, performance, design, operational, and
physical characteristics of a Product as described in the Northern Telecom
Practices ("NTP") for the Product at the time Nortel Networks accepts the Order
for such Product. The Specifications shall include the dependencies and
interactions required to provide the Products' functionality. Where there is no
Specification for embedded Software or firmware, the Specification for the
corresponding Hardware shall apply.

"Statement of Work" is a document, prepared by Nortel Networks, describing the
scope of work, estimated schedule, prices, deliverables (all engineering,
designs, documentation, analysis, and other work product prepared by Nortel
Networks and all Software delivered to Net2000 pursuant to an Order, but
specifically excluding any diagnostics, documentation, or test equipment used by
Nortel Networks in the performance of Services), and other relevant terms
specific to a Service, which may, from time to time, be mutually agreed to in
writing by Customer and Nortel Networks. A Statement of Work shall be governed
by the terms and conditions of, and constitute a part of, this Agreement.

"System" shall mean Hardware and Software, inclusive of a central processor
unit, included in a configuration which is initially engineered by Nortel
Networks, provides a specified functionality and is installed at a specific
Installation Site.

"Third Party Vendor Item" includes "Third Party Hardware" and "Third Party
Software" and means any non-Nortel Networks hardware and/or software supplied to
Customer under this Agreement and not embedded in Nortel Networks Hardware or
Software. Nortel Networks will use reasonable efforts to identify Third Party
Vendors Items as such in its price quote, however, notwithstanding such, the
failure to do so as a result of an oversight shall not disqualify a Third Party
Vendor Item from being deemed a Third Party Vendor Item.

"Turnover" shall mean, with respect to a Product or System installed by Nortel,
that a) Nortel Networks has completed its standard manufacturing test
procedures, b) the Hardware materially conforms to the Specification, as
applicable, c) that the System is ready for acceptance testing by Net2000, and
d) that the System is ready for service to the extent that Net2000 has timely
completed its responsibilities or as otherwise mutually agreed.

"Turnover Date" shall mean, with respect to any Product installed by Nortel
Networks hereunder, the date on which Nortel Networks provides a written notice
of Turnover to Net2000.

2.       ORDERS

2.1      Customer may acquire Products or Services by issuing a written purchase
         order signed by an authorized representative or, if Customer is
         enrolled in Nortel Networks' Order Online Program, by submitting
         electronic orders (collectively, "Orders"). All Orders shall reference
         this Agreement and specify the quantity, price, Nortel Networks
         quotation number, shipping and billing instructions, requested delivery
         dates, requested commencement date for Services and any other special
         instructions. All Orders will be governed by and cannot alter the terms
         and conditions of this Agreement. Nortel Networks' shipment of Products
         or completion of Services will be Nortel Networks' exclusive acceptance
         of Customer's Order. Each Order shall contain a representation by
         Customer that no material default or event of material default has
         occurred under any documents evidencing or securing financing to
         purchase any Products

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         or Services (the "Loan Documents") which has not been (a) cured by
         Net2000 or a direct or indirect parent of Net2000 (if capable of being
         cured) within the cure period (if any) set forth in the Loan Documents
         or (b) waived in writing by the required lenders under the Loan
         Documents.

2.2      Net2000 shall be liable for all engineering charges incurred at the
         direction of Net2000, at Nortel Networks' then standard charges, unless
         Nortel Networks declines to fulfill the Order for any reason. If an
         order is delayed or suspended, but later shipped, Net2000 shall be
         liable for such engineering charges.

2.2.1    If Customer cancels a Service after commencement of Service, Customer
         shall pay Nortel Networks for those services actually performed through
         the date of cancellation; provided that, such amount does not exceed
         the total price of the cancelled Service.

2.2.2    Subject to any remedy specified or otherwise available to Nortel
         Networks relating to any commitment by Customer for the taking delivery
         of Products and Services, the foregoing shall be Nortel Networks' sole
         remedy for delay, cancellation or suspension of the delivery of a
         Product or Service by Customer. Except as stated herein, Orders for
         Products that have been shipped may not be canceled. Furthermore,
         Orders for Products that Nortel Networks customizes in accordance with
         a specific Net2000 request may not be canceled.

2.3      Nortel Networks will promptly notify Net2000 (i.e., within three
         business days or as soon as practical thereafter) after it has
         determined that it will not ship Products or deliver Services under an
         Order.

3.       DOCUMENTATION.

3.1      Nortel Networks shall furnish to Customer four sets of Documentation in
         the manner and quantity Nortel Networks customarily provides to
         customers.

3.2      All such Documentation marked as Confidential Information shall be
         treated as Confidential Information in accordance with the terms of
         this Agreement. Updates to Documentation shall be provided at no charge
         during the warranty period and any periods of paid maintenance support.

3.3      Net2000 may print paper copies from Nortel Networks Documentation
         provided in compact disc or other digital form for its internal
         business use. Net2000 hereby agrees not to digitally reproduce such
         Documentation, except as expressly provided as follows in the following
         sentence. Net2000 is permitted to post such Documentation on a host
         server for its secured internal business use by Net2000 employees who
         have a need to know and access such Documentation via the internal
         network; such access by virtue of displaying the information on
         employees client monitors is understood and agreed to be a permitted
         copying under the terms of this Agreement.

4.       EQUIPMENT CONTINUING AVAILABILITY

4.1      Nortel Networks shall make available to Customer sufficient repair and
         spare parts and technical support for each Product, excluding Third
         Party Vendor Items, furnished under this Agreement to keep such Product
         operative for the period specified in a Supplement hereto. Prices shall
         be based on Nortel Networks' then current prices.
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         Notwithstanding the foregoing, the obligation with respect to Shasta
         Product shall be for Nortel Networks to make replacement parts, or
         their functional equivalent, at Nortel Networks' sole discretion,
         available for purchase by Net2000. Nortel Networks, at its option and
         expense, may replace Products for which repair parts are no longer
         available with functionally equivalent Products.

4.2      Nortel Networks shall provide Customer with written notice of the
         manufacturing discontinuance for any particular Product or related
         functionality, by at least the number of months in advance as specified
         in a Supplement No. 1, Schedule 1.D attached hereto, and, subject to
         subsection [4.1] above, shall furnish the repair parts to Customer at
         the Nortel Networks' then current repair parts price unless furnished
         during the Warranty Period in which case it shall be at no charge.
         However, such notice shall not be required for component and individual
         circuit pack discontinuance or if only components of a Product are
         being replaced and such replacement does not affect price, form, fit or
         function of the Product.

4.3      In the event certain changes to Products purchased hereunder or
         previously purchased by Customer become necessary for safety reasons,
         Nortel Networks shall provide immediate written notice to Customer and
         shall proceed promptly to make the necessary changes at Nortel
         Networks' expense, except as noted in the following sentence. Nortel
         Networks shall not charge Net2000 hardware costs and labor charges
         where Nortel Networks has determined for its customers that
         retrofitting or replacement is hazardous to complete, as relating to
         such retrofit or replacement and all peripheral equipment and software.

5.       ELECTRONIC COMMERCE PROGRAMS

         By enrolling in any Nortel Networks' electronic commerce program,
         Customer agrees to comply with the terms of such program. Customer
         agrees that all electronic Orders issued are equivalent to a written
         Order, are governed by the terms and conditions of this Agreement and
         that in the event of any conflict between this Agreement and the
         information contained in Customer's or Nortel Networks' electronic
         commerce website, this Agreement governs. Customer is responsible for
         the use and protection of all electronic commerce passcodes provided by
         Nortel Networks and agrees that all Orders submitted using such
         passcodes are valid and binding Orders authorized by Customer.

6.       LICENSED USE OF SOFTWARE AND DOCUMENTATION

         Nortel Networks grants Customer a nonexclusive, perpetual license and
         right to use a copy of the Software to the extent of the activation or
         authorized usage level. To the extent Software is furnished for use
         with designated Products or Customer furnished equipment ("CFE"),
         Customer is granted a nonexclusive, perpetual license and right to use
         Software only on such Products or CFE, as applicable. Software contains
         trade secrets and Customer agrees to treat Software as Confidential
         Information; however, the parties acknowledge that certain Software
         must be deployed with the Hardware. Customer will ensure that anyone
         who uses the Software does so only in compliance with the terms of the
         license provisions in this Agreement. Customer shall not (a) use, copy,
         modify, transfer or distribute the Software except as expressly
         authorized in the Documentation; (b) reverse assemble, reverse compile,
         reverse engineer or otherwise translate the Software; (c) create
         derivative works or modifications unless expressly authorized; or (d)
         sublicense, rent, sublicense, or lease the Software provided however,
         Customer shall have the right to sublicense the Software in the event
         of an assignment as set forth under this Agreement. Licensors of
         intellectual property to Nortel Networks are beneficiaries of this
         provision. Nortel Networks shall provide to Net2000 written notice and
         reasonable opportunity to cure. In the event that a breach of the

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         license is not cured after written notice and a reasonable opportunity
         to cure following such notice, or in the case of willful breach of the
         license or in the event that a designated Product or CFE is no longer
         in use and no further use is planned, Customer will promptly return the
         Software to Nortel Networks or certify its destruction. Nortel Networks
         may audit by remote polling or other reasonable means to determine
         Customer's Software activation or usage levels. All Customer data
         acquired by polling shall be deemed to be Confidential Information of
         Customer. Third Party Software, furnished by Nortel Networks shall be
         licensed subject to the terms of the third party license for such
         software.

7.       CHARGES AND PAYMENT

7.1      Amounts are due upon receipt of invoice and shall be paid by Customer
         within ten (10) days for any invoices which Nortel Networks is
         financing under the Financing Agreement as may be amended, and thirty
         (30) days for any other invoices; provided the Products have been
         shipped by Nortel Networks and/or that the other respective invoice
         milestone(s) as applicable as specified in a Supplement, if any, have
         been reached. In the event that Nortel Networks is no longer a Lender
         (as defined in the Financing Agreement), payment shall be due thirty
         (30) days from receipt of invoice. Customer shall pay interest on any
         late payments at the rate of ***% per annum (***% per month) until such
         time as the outstanding invoice is paid, except for any amounts that
         are subject to a good-faith dispute which Net2000 has provided Nortel
         Networks in writing of the reasons for such dispute prior to the date
         upon such invoice would be due. Net2000's failure to notify Nortel
         Networks within such period shall not be construed as a waiver of the
         right to dispute an invoice.

7.2      Nortel Networks will inform Customer in advance and in writing whenever
         additional charges apply. Additional charges shall apply for shipping
         and special handling, if any are applicable, as passed through by
         Nortel Networks. Charges for Software may be based on extent of use
         authorized as specified in a Supplement or invoice. Customer shall pay
         the charges applicable for any activation or usage beyond the
         authorized level. If any authority imposes a tax, duty, levy or fee,
         excluding those based on Nortel Networks' net income, upon a Product or
         Service supplied by Nortel Networks under this Agreement, Customer
         agrees to pay that amount as specified in the invoice, or supply
         exemption documentation. Customer is responsible for personal property
         taxes for each Product from the date of shipment by Nortel Networks.

7.3      Subject to the terms and conditions of the Financing Agreement Net2000
         consents without qualification to the sale of receivables, in whole or
         in part, including all or any part of any associated rights, remedies,
         and obligations, by Nortel Networks without further notice and
         authorizes the disclosure of this Purchase and License Agreement and
         Supplements as necessary to facilitate such sale.

8.       WARRANTY

8.1      Nortel Networks warrants that Hardware (i) is free from defects in
         materials and workmanship and (ii) materially conforms to its
         Specifications. If Hardware does not function as warranted during the
         warranty period, Nortel Networks will either (y) make it do so, or (z)
         replace it with equivalent Hardware.

8.2      Nortel Networks warrants that when Software is used in the specified
         operating environment it will materially conform to its Specifications.
         If Software does not function as warranted during the warranty period,
         Nortel Networks will provide a suitable fix or workaround or will
         replace the Software; provided Software is within two software release
         levels of the then-current software.

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8.3      Services will be performed in a professional and workmanlike manner. If
         Services are not performed as warranted and Nortel Networks is notified
         in writing by Customer within thirty (30) days, Nortel Networks will
         reperform the non-conforming Services. Any warranty period for the
         Services shall be as specified in a Supplement hereto or as specified
         in a Statement of Work. The warranty period for Installation Services
         shall be the same as the warranty for the installed Product. 8.4 The
         warranty period for Hardware and Software shall be fourteen (14) months
         after Actual Ship Date or as otherwise set forth in a Supplement to
         this Purchase and License Agreement. In the event that (i) Nortel
         Networks is unable to repair or replace the Hardware or Software within
         the period specified in a Supplement to this Purchase and License
         Agreement and Net2000 requests a refund, or (ii) Nortel Networks
         determines that repair or replacement as set forth in this Section 6 is
         commercially impracticable, then Nortel Networks will refund to
         Customer the price paid for the Product, less applicable depreciation,
         however, if such Product is returned within the first twelve (12)
         months after the Actual Ship Date then Nortel Networks will refund to
         Net2000 one hundred percent (100%) of the price paid for the Product
         plus the shipping that was charged by Nortel Networks.

8.5      No warranty is provided for (i) supply items normally consumed during
         Product operation, e.g., fuses, lamps, etc.; (ii) failures caused by
         non-Nortel Networks products (iii) failures caused by a Product's
         inability to operate in conjunction with other Customer hardware or
         software where the Nortel Networks' Products did not contribute to the
         failure; or (iv) performance failures to the extent caused by services
         not performed by Nortel Networks or Customer's failure to purchase all
         necessary Products under this Agreement. Nortel Networks' warranty
         obligations shall not apply in cases of misuse, accident, damage or
         unauthorized modification, failure to maintain proper physical or
         operating environment or improper Customer maintenance not provided by
         Nortel Networks. Software is not warranted to operate uninterrupted or
         error free.

8.6      THE WARRANTIES AND LIMITATIONS SET FORTH IN THIS AGREEMENT, INCLUDING
         ANY ATTACHMENTS,, ARE CUSTOMER'S EXCLUSIVE WARRANTIES AND SOLE
         REMEDIES. EXCEPT AS SET FORTH IN ANY SPECIFICATIONS FOR PRODUCTS OR
         SERVICES, THE WARRANTIES SET FORTH IN THIS AGREEMENT, INCLUDING ANY
         ATTACHMENTS, ARE THE ONLY WARRANTIES PROVIDED BY NORTEL NETWORKS AND
         REPLACE ALL OTHER WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED,
         INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES WARRANTY OR
         CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
         SUBJECT TO SECTION 18.2, IF SUPPLIER FAILS TO PROVIDE THE WARRANTIES
         SET IN THIS AGREEMENT, INCLUDING ANY ATTACHMENTS, THIS SECTION 8.6
         SHALL NOT BE CONSTRUED AS LIMITING ANY RIGHT OR REMEDY WHICH CUSTOMER
         MAY OTHERWISE HAVE UNDER THIS AGREEMENT, AT LAW OR IN EQUITY.

8.7      With respect to Third Party Vendor Items, Nortel Networks shall pass
         through or assign to Client the rights (e.g., warranties and
         indemnities) Nortel Networks obtains from the manufacturer or vendors
         of such products and services, all to the extent that such rights may
         be assigned. Nortel Networks shall provide no independent warranty or
         indemnities with respect to such Third Party Vendor Items. Except for
         the obligations specified in this paragraph, Customer hereby waives any
         and all claims against Nortel Networks with regard to the malfunction
         or failure of Third Party Vendor Items.

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9.       WARRANTY SERVICE

         Nortel Networks provides certain types of warranty repair and exchange
         service, without charge. Nortel Networks will inform Customer of the
         types of warranty services available to Customer consistent with Nortel
         Networks standard practices and response times. Nortel Networks
         Technical Assistance Services ("TAS") are available for warranty repair
         during the warranty period at no charge only for specified Products.
         When Customer is required to return Hardware to Nortel Networks for
         warranty service, Customer agrees to ship it prepaid and suitably
         packaged to a location Nortel Networks designates. Nortel Networks will
         return the Hardware to Customer at Nortel Networks' expense. Nortel
         Networks is responsible for loss of, or damage to, Customer Hardware
         while it is (a) in Nortel Networks' possession or (b) in transit back
         to Customer. Any returned Hardware becomes Nortel Networks' property
         and, subject to Section 11 (Title and Risk of Loss), its replacement
         becomes the Customer's property. The replacement Hardware may not be
         new but will be in working order and equivalent to the item exchanged.
         The warranty period for the Hardware shall be the greater of ninety
         (90) days from the date of repair or replacement or the remaining
         Hardware warranty period. Customer agrees to ensure that exchanged
         Hardware is free of any legal obligations or restrictions that prevent
         its exchange and represents that all returned items are genuine and
         unaltered. Where applicable, before Nortel Networks provides warranty
         services, Customer agrees to (a) follow the problem determination,
         problem analysis, and warranty services request procedures that Nortel
         Networks provides; (b) secure all programs and data contained in
         Hardware; and (c) inform Nortel Networks of changes in the Hardware's
         location. Post warranty services may be available at Nortel Networks'
         then-current prices.

10.      SHIPMENT, TITLE AND RISK OF LOSS

10.1     The Parties shall use reasonable commercial efforts to agree upon a
         Scheduled Ship Date. The agreed Scheduled Ship Date shall be included
         in the Order if agreed prior to placement of the Order. Otherwise the
         agreed Scheduled Ship Date shall be reflected in the project plan for
         the Order. Except where provided in Section 2.1 of this Purchase and
         License Agreement, Nortel Networks shall ship the relevant Products on
         the Scheduled Ship Date.

10.2     Until April 1, 2001 title and risk of loss for ordered Products shall
         pass from Nortel Networks to Customer upon shipment, thereafter upon
         delivery at the Customer destination, unless otherwise mutually agreed
         in writing. Subject to the terms and conditions of the Financing
         Agreement, Nortel Networks reserves a purchase money security interest
         in a Product until receipt of all amounts due from Customer for the
         Product. In the event of a conflict with the terms of the Financing
         Agreement, Customer shall use its commercially practicable efforts to
         secure a waiver of such conflict prior to shipment for all Products to
         be provided hereunder. In the event Customer cannot secure a waiver of
         such conflict, Nortel Networks reserves the right to suspend its
         performance of this Agreement until a waiver is secured. Customer
         agrees to sign appropriate documentation to permit Nortel Networks to
         perfect such interest.

11.      IMPLEMENTATION AND INSTALLATION SERVICES

11.1     Customer agrees to provide sufficient, free and safe access to
         Customer's facilities and a suitable physical environment meeting
         Nortel Networks' reasonable specified requirements during mutually
         agreed times as necessary to permit the timely installation of Products
         and/or and the performance of Services. Nortel Networks personnel shall
         comply with Customer's site and security regulations where such
         regulations are provided to Nortel Networks in writing in advance
         within a reasonable period of time in advance of the required access
         and

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         where required for security, provide advance notice and identification
         of individuals requiring access.

11.2     Nortel Networks will perform implementation and installation Services
         in accordance with the Specifications and with the mutually agreed
         Statement of Work applicable to the Order, or in the absence of such
         then standard Nortel Networks statement of work where applicable.
         Nortel Networks will successfully complete its standard installation
         and commissioning procedures and provide a notice of Turnover ("ICN")
         to Net2000 indicating such completion.

11.2.3   In the event that Net2000 notifies Nortel Networks of non-execution of
         an ICN and Nortel Networks personnel travels to the Net2000 facility to
         remedy such non-execution and determines that non-execution is due to a
         deficiency caused by Net2000, Nortel Networks will invoice Net2000 for
         Nortel Networks' investigation of the matter, consisting of the
         standard labor rate for Nortel Networks' personnel who travel to the
         Net2000 facility and the reasonable travel and living expenses incurred
         by such personnel.

11.3     Nortel Networks may make alterations to any Product and Service as
         necessary to comply with specifications, changed safety standards or
         governmental regulations, to make a Product non-infringing with respect
         to any patent, copyright or other proprietary interest, or to otherwise
         improve a Product or Service. Customer is responsible for (i) the
         results obtained from the use of Products and Services; (ii)
         integration and interconnection with Customer's hardware and/or third
         party hardware and/or systems, and (iii) installation of the
         Furnish-only Products.

12.      ACCEPTANCE

12.1     Customer shall have the right to test a Product for a period of ***
         days for Switching, Succession and Optical Products and *** days for
         other Products, from the Turnover Date, to verify the Product conforms
         to the Specifications ("Acceptance Period").

12.2     For Products installed by Nortel Networks, the Acceptance Period shall
         begin on the Turnover Date.

12.3     For Products installed by Nortel Networks, Acceptance shall occur when
         (i) the Product has been installed and the installation Services have
         been completed in accordance Specification for such Product and
         Services; (ii) the Product has successfully completed the testing
         proscribed in the Specifications (iii) the Product materially conforms
         to the Specifications; and (iv) Customer has provided Nortel Networks
         with written notice of Acceptance based on the foregoing.
         Notwithstanding the foregoing, in the event Net2000 is utilizing any
         Product in service, then Acceptance shall be deemed to have occurred
         without limitation or restriction, upon the date of placement of such
         Product into service with Net2000 customer traffic.

12.4     For Products installed by Customer, Nortel Networks shall, prior to
         delivery of the Products, perform such factory tests as Nortel
         determines to be appropriate in order to confirm that such Products
         perform in all material respects in accordance with the applicable
         Specifications. Net2000 shall be deemed to have accepted the Products
         based upon such tests and Acceptance shall be deemed to have occurred
         upon receipt of the Products by Customer.

12.5     For Services, Acceptance shall occur (i) when the Services have been
         completed in accordance with the agreed upon Statement of Work, or if
         none, Nortel Networks standard processes for such Services, and (ii)
         Customer has provided Nortel Networks with written notice of Acceptance
         based on the foregoing.

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12.6     Net2000 shall either accept the Product and Services in writing by
         execution of a notice of Acceptance, or notify Nortel in writing,
         specifying in reasonable detail those particulars in which, in
         Net2000's opinion, the Product and Services are not in material
         conformance with the Specifications or Statement of Work respectively.
         If Acceptance does not occur within the period specified in Section
         12.1 above or the Services completion date respectively, and Net2000
         has not indicated to Nortel Networks in writing its basis for not
         accepting such Product and/or Services, then Acceptance shall be deemed
         to have occurred.

12.7     Following Acceptance of Products and Services, Net2000 shall execute
         Nortel Networks' Acceptance notice, confirming Acceptance without any
         conditions, restrictions, or limitations of any nature whatsoever
         except as specified in Section 12.8. Net2000's execution of Nortel
         Networks' Acceptance Notice, however, shall not in any way be deemed to
         release Nortel Networks of its warranty or other liability obligations.

12.8     Acceptance shall not be withheld or postponed due to deficiencies of
         such Products or Services resulting from causes not attributable to
         Nortel Networks, such as, but not limited to (a) material change or
         inaccuracy of Customer Information, (b) inadequacy or deficiencies of
         any materials, information, facilities or services provided directly or
         indirectly by Net2000 and tested in conjunction with the applicable
         Products, or spurious outputs from adjacent material, or (c) other
         conditions external to the Products which are beyond the limits
         specified by Nortel Networks in the Specifications for the Products.

12.9     In the event that Net2000 notifies Nortel Networks of non-acceptance of
         a Product and Nortel Networks personnel travels to the installation
         site to remedy such non-acceptance and determines that non-acceptance
         is due to a deficiency of the type described in Section [12.8] above,
         Nortel Networks will invoice Net2000 for Nortel Networks' investigation
         of the matter, consisting of the standard labor rate for Nortel
         Networks' personnel who travel to the installation site and the
         reasonable travel and living expenses incurred by such personnel.

13.      CONFIDENTIAL INFORMATION

13.1     Confidential information ("Confidential Information") means (i)
         Software and Third Party Software; (ii) information particular to
         describing Customer's network and/or Customer's customers, and (iii)
         all business, technical, marketing and financial information and data
         that is clearly marked with a restrictive legend of the disclosing
         party ("Discloser").

13.2     The party receiving Confidential Information ("Recipient") will use the
         same care and discretion, but not less than reasonable care, to avoid
         disclosure, publication or dissemination of Confidential Information as
         it uses with its own similar information that it does not wish to
         disclose, publish or disseminate. The Recipient may disclose
         Confidential Information only to i) its employees and employees of its
         parent, subsidiary or affiliated companies who have a need to know for
         purposes of carrying out this Agreement; and ii) any other party with
         the Discloser's prior written consent. Before disclosure to any of the
         above parties, the Recipient will have a written agreement with such
         party sufficient to require that party to treat Confidential
         Information in accordance with the provisions of this Section 13.

13.3     The Recipient may disclose Confidential Information to the extent
         required by law. However, the Recipient must give the Discloser prompt
         notice and make a reasonable effort to obtain a protective order.

13.4     No obligation of confidentiality applies to any Confidential
         Information that the Recipient (i) already possesses without obligation
         of confidentiality; (ii) develops independently; or (iii)

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         rightfully receives without obligations of confidentiality from a third
         party. No obligation of confidentiality applies to any Confidential
         Information that is, or becomes, publicly available without breach of
         this Agreement.

13.5     The release of any advertising or other publicity relating to this
         Agreement requires the prior approval of both parties.

14.      INFRINGEMENT

14.1     If a third party claims that Nortel Networks Hardware, Software or
         Services provided to Customer under this Agreement either (i) infringe
         that party's patent, trademark or copyright or (ii) constitute an
         unauthorized use, disclosure or misappropriation of that party's trade
         secrets, Nortel Networks will indemnify, defend and hold Customer
         harmless against that claim at Nortel Networks' expense and will pay
         all costs and damages awarded against Customer resulting from the claim
         or are agreed in settlement, provided that Customer (y) promptly
         notifies Nortel Networks in writing of the claim and (z) allows Nortel
         Networks to control, and cooperates with Nortel Networks (at Nortel
         Networks' request and expense with respect to Net2000's direct
         reasonable out of pocket expenses including legal fees) in, the defense
         and any related settlement negotiations. Failure by Customer to
         promptly notify Nortel Networks of a claim shall not relieve Nortel
         Networks of its obligations under this Section except to the extent
         that Nortel Network can demonstrate prejudice attributable to
         Customer's failure to promptly notify.

14.2     If such a claim is made or appears likely to be made, Nortel Networks
         agrees to secure the right for Customer to continue to use the
         Hardware, Software or Services, or to modify it, or to replace it at
         Nortel Networks' expense with one that is equivalent. If Nortel
         Networks determines that all of these alternatives are commercially
         impracticable, Customer agrees to return the Hardware, Software, or
         Services to Nortel Networks on Nortel Networks' written request. Nortel
         Networks will then give Customer a refund equal to the price paid for
         the Hardware, Software, or Service, less applicable depreciation using
         a seven year straight-line depreciation schedule, provided Net2000 has
         followed generally accepted account principles, however, if such
         Hardware, Software, or Services is returned within the first twelve
         (12) months after the Actual Ship Date or completion, if applicable,
         then Nortel Networks will *** to Net2000 *** of the price paid for the
         Hardware, Software or Services plus the shipping that was charged by
         Nortel Networks. Any such claims against the Customer or liability for
         infringement arising from use of the Hardware or Software or Services
         following a request for return by Nortel Networks are the sole
         responsibility of Customer.

14.3     Nortel Networks has no obligation regarding any claim to the extent
         that such claim is based on any of the following: (a) anything Customer
         provides which is incorporated into the Products or Services; (b)
         functionality provided by Nortel Networks at the instruction of
         Customer; c) Customer's modification of Products or Services except as
         provided by Nortel Networks' Documentation or except as performed by
         Nortel Networks at the request of Net2000; (d) the combination,
         operation, or use of Products or Services with other products not
         provided by Nortel Networks where such combination, operation, or use
         of Products or Services with any product, data, or apparatus that
         Nortel Networks did not provide; or (e) infringement by a Third Party
         Vendor Item alone, as opposed to its combination with Products Nortel
         Networks provides to Customer as a system.

14.4     This Section 14 represents Nortel Networks' entire obligation to
         Customer regarding any claim of infringement.

<PAGE>   12

15.      INDEMNITY

         Each Party will indemnify, defend and hold harmless the other Party,
         its directors, officers, agents, and employees from all liability or
         expense (including but not limited to reasonable attorney fees and
         costs of investigation and defense) resulting from (a) bodily injury to
         any person (including injury resulting in death) or damage to real or
         personal property arising out of the indemnifying Party's performance
         of this Agreement, provided such injury or property damage is due to
         the negligence of the indemnifying Party, its employees, agents, or
         subcontractors, (b) any action taken by or on behalf of the
         indemnifying Party which is not permitted by or pursuant to the terms
         of this Agreement, or (c) any act or omission constituting negligence
         or willful misconduct or breach of fiduciary duty by any officer,
         director, agent or employee of the indemnifying Party in connection
         with its performance under this Agreement.

16.      DISPUTES

         In the event of any dispute or claim arising under or in connection
         with this Agreement, including a dispute regarding an alleged breach of
         this Agreement, one Party shall notify the other Party in writing of
         the dispute (the "Dispute"). The Parties shall work together in good
         faith first to informally resolve the Dispute internally by escalating
         it as necessary to progressively higher levels of management. If after
         sixty days the Parties cannot resolve the Dispute, either Party may
         request arbitration under the Commercial Rules of the American
         Arbitration Association, and judgment upon the award rendered by the
         arbitrator(s) may be entered in any court having jurisdiction thereof.
         Unless otherwise expressly agreed in writing by the parties,
         arbitration will be held in Washington, D.C. Except to the extent
         actually prevented by the Dispute, both Parties shall continue
         performing their respective obligations under this Agreement while the
         dispute is being resolved unless and until this Agreement expires or is
         terminated in accordance herewith. The provisions of this Section will
         not be construed to prevent a Party from (i) seeking a temporary
         restraining order or injunctive or other equitable relief in connection
         with alleged or actual infringement or misappropriation of intellectual
         property rights or misuse of proprietary or Confidential Information,
         or (ii) instituting litigation or other appropriate proceedings to the
         extent necessary to avoid the expiration of any applicable limitations
         period or to preserve a superior position with respect to other
         creditors.

17.      TERMINATION

17.1     Either Party may terminate the Agreement if the other Party shall: (a)
         file a voluntary petition under any bankruptcy or insolvency law, or
         file a voluntary petition under the reorganization or arrangement
         provisions of any law of any jurisdiction, or have proceedings under
         any such laws instituted against it which are not terminated within
         thirty days of such commencement; (b) become insolvent, bankrupt, or
         admit in writing of its inability to pay all debts as they mature or
         make a general assignment for the benefit of or enter into any
         composition or arrangement with creditors; (c) authorize, apply for, or
         consent to the appointment of a receiver, trustee, or liquidator of all
         or a substantial part of its assets, or has proceedings seeking such
         appointment commenced against it which are not terminated within thirty
         days of such commencement.

17.2     Either party may delay performance under this Agreement or terminate
         this Agreement, in whole or in part, in the event of a default by the
         other, provided that the non-defaulting party so advises the defaulting
         party in writing of the event of alleged default and the defaulting
         party does not remedy the alleged default within thirty (30) days after
         written notice thereof. If

<PAGE>   13

         the alleged default is not capable of being remedied within thirty (30)
         days, the defaulting party must commence to remedy the alleged default
         within such thirty (30) day period and provide to the non-defaulting
         party a plan for timely remedying the alleged default in order to avoid
         termination. A default shall include:

(i)      a party's insolvency or initiation of bankruptcy or receivership
         proceedings by or against a party or the execution of an assignment for
         the benefit of creditors; or

(ii)     either party's material breach of any of the terms or conditions hereof
         including the failure to make any payment when due.

18.      LIMITATION OF LIABILITY

18.1     In no event shall Nortel Networks or its agents or suppliers be liable
         to Customer for more than the amount of any actual direct damages up to
         the greater of (i) *** or (ii) ***, regardless of the cause and whether
         arising in contract, tort (including negligence) or otherwise.

18.2     IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
         SPECIAL OR CONSEQUENTIAL DAMAGES OR DAMAGES FOR LOSS OF PROFITS,
         REVENUE, DATA, OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY,
         WHETHER IN AN ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER PARTY OR
         ANY OTHER PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

18.3     THE LIMITATIONS IN SECTIONS 18.1 AND 18.2 WILL NOT APPLY TO LIABILITY
         RESULTING FROM THE INDEMNITIES PROVIDED IN SECTION 7 SOFTWARE USE OF
         SOFTWARE AND DOCUMENTATION, SECTION 14 CONFIDENTIAL, SECTION 16
         (INFRINGEMENT) AND SECTION 15 subsection a) only (INDEMNITY).

19.      GENERAL

19.1     Each Party agrees not to assign, or otherwise transfer this Agreement
         or its rights under it, or delegate its obligations, except to an
         Affiliate or upon a "Change in Control" (as defined below), without the
         other Party's prior written consent, and any attempt to do so is void.
         A Change in Control shall be deemed an assignment hereunder and shall
         not require the consent. A "Change in Control" shall mean the
         acquisition by any individual, entity, or group of fifty (50%) percent
         or more of either (a) the then outstanding shares of Customer's stock;
         or (b) the combined voting power of the then outstanding voting shares
         of the Customer entitled to vote generally in the election of
         directors; (ii) the closing of a sale or conveyance of all or
         substantially all of the assets of Customer; or (iii) the effective
         time of any merger, share exchange, consolidation or other
         reorganization or business combination of Customer if immediately after
         such transaction such persons who hold a majority or the outstanding
         voting securities entitled to vote generally in the election of
         directors of the surviving entity are not persons who hold voting
         capital stock of the Customer immediately prior to such transaction.

         Net2000 may transfer the Hardware, including all license rights to any
         Software required to operate such Hardware, and the license rights to
         any other Nortel Networks Software provided hereunder, to any Net2000
         Affiliate, to the surviving entity in a merger or consolidation of
         Net2000, or to purchaser of all or substantially all the assets of
         Net2000 provided that purchaser agrees in writing to be bound by the
         terms of the terms of Section 6 "Software License" and to protect the
         confidentiality of the Software under terms no less stringent than
         those set forth in Section 13 "Confidentiality."

<PAGE>   14

         Net2000's Affiliates shall be entitled to the rights of Net2000
         hereunder with respect to Products and Services purchased by such
         Affiliates; provided, however, Net2000 shall accept responsibility for,
         and satisfy the payment obligations of, its Affiliates, to the extent
         necessary to meet such payment obligations and commitments incurred by
         its Affiliates hereunder. Nortel Networks may provide Products and
         Services to Net2000 and Net2000 Affiliates through certain Nortel
         Networks Affiliates.

19.2     Customer represents and warrants that it is buying Products and/or
         Services for its own internal use and not for resale. The Parties shall
         comply with all applicable federal, state and local laws, regulations
         and ordinances as they relate to this more than three years after the
         cause of action arose. Neither party is responsible for failure to
         fulfill any obligations due to causes beyond its reasonable control. In
         the event that any provision of this Agreement or portions thereof are
         held to be invalid or unenforceable, the remainder of this Agreement
         will remain in full force and effect.

19.3     All notices or other communications required to be given hereunder
         shall be in writing and delivered either personally or by mail,
         courier, or similar reliable means of dispatch and addressed as
         provided in this Agreement or as otherwise requested by the receiving
         party. Notices delivered personally shall be effective upon delivery
         and notices delivered by any other means shall be effective upon their
         receipt by the party to whom they are addressed.

19.4     The terms of Sections 6 (Licensed Use of Software and Documentation), 8
         (Warranty), 9 (Warranty Service), 13 (Confidential Information), 14
         (Infringement), 15 (Indemnity), 18 (Limitation of Liability) and 19
         (General) shall survive termination of this Agreement or completion of
         any Order.

19.5     The terms and conditions of this Agreement, including any Supplement(s)
         Supplements and/or Attachments, form the complete and exclusive
         agreement between Customer and Nortel Networks and replace any prior
         oral or written proposals, correspondence or communications regarding
         the subject matter hereof. With respect to new purchases made by
         Customer as of the effective date of this Agreement or as otherwise
         indicated by a Supplement. (All purchases made by Customer to Nortel
         Networks (including without limitation purchases for Products or
         Services) that were made pursuant to the Master Purchase Agreement
         between Net2000 Communications Capital Equipment, Inc, and Northern
         Telecom, Inc, dated November 2, 1998, as amended, and all supporting
         Exhibits; and the Master Services Agreement dated November 2, 1998, as
         amended and all supporting Exhibits ("MPA"). shall continue to be
         governed by such MPA.)

19.6     In the event of a conflict between this Purchase and License Agreement
         and a Supplement, the terms in any Supplement(s) prevail. Any changes
         to this Agreement must be made by the Parties in writing. All
         Customer's rights and all of Nortel Networks' obligations are valid
         only in the country in which the Products and Services were supplied.

19.7     The laws of the State of New York govern this Agreement, exclusive of
         its conflict of laws provisions; and nothing in this Agreement affects
         any statutory rights of consumers that cannot be waived or limited by
         contract.

19.8     Excepting replacement Hardware as specified in Section 9 all Hardware
         provided hereunder shall be new Hardware.

<PAGE>   15

19.9     Prior to ordering Services, eBusiness Products, and/or Enterprise
         Products, the parties shall mutually agree on the supplemental terms
         that shall apply to such Orders. The parties agree to negotiate in good
         faith such terms with the goal of reaching such mutual agreement on the
         terms that shall apply to Orders of Enterprise Products within thirty
         (30) days of the date hereof.

                                      * * *

FOR NORTEL NETWORKS INC.             FOR NET2000 COMMUNICATIONS CAPITAL
                                           EQUIPMENT, INC.

BY:       /s/ PEGGY M. BLOODWORTH    BY:       /s/ DONALD E. CLARKE
         ---------------------------          -------------------------------

PRINTED                              PRINTED
NAME:     Peggy M. Bloodworth        NAME:     Donald E. Clarke
         ---------------------------          -------------------------------

TITLE:    Vice President, Sales      TITLE:    Chief Financial Officer
         ---------------------------          -------------------------------

DATE:      3/27/01                   DATE:      3/27/01
         ---------------------------          -------------------------------

<PAGE>   16

[NORTEL NETWORKS LOGO]                                             NET2000

                                                         Agreement No. 031201mab
                                                  Supplement No. 1, Schedule 1-E
                                                                         PAGE 16
SUPPLEMENT NO 1 TO THE PURCHASE AND LICENSE AGREEMENT

The terms and conditions provided in this Supplement ("Supplement No. 1") are in
addition to those contained in the Purchase and License Agreement No. 031201mab,
by and between Net2000 Communications Capitol Equipment, Inc. and Nortel
Networks Inc. effective March 27, 2001 ("Agreement") and describe the manner in
which Products shall be provided and priced during the Term as defined below.

1.       TERM

This Supplement No. 1 shall commence on January 1, 2001 and terminate on either
December 31, 2003 (as may be amended by the parties or otherwise extended as
specified herein), or on the date the Net2000 satisfies the Commitment, as
defined below, whichever comes first ("Term").

2.       DEFINITIONS

For the purposes of this Supplement No. 1, the capitalized terms shall be
defined as set forth below. Any capitalized terms not defined herein shall have
the meaning given them in the Agreement.

         "COMMITMENT" means the commitment that Net2000 makes herein to order
         Products and Services as established in Article 3 below.

         "MASTER PURCHASE AGREEMENT" means the agreement between Net2000
         Communications Capitol Equipment, Inc and Nortel Networks Inc.,
         formerly Northern Telecom Inc., effective November 2, 1998, as amended,
         inclusive of Exhibit A - Product Annexes including Lists of Product and
         Prices, the Exhibit B - Master Services Agreement all attachments or
         schedules thereto.

         "TERM" shall have the meaning as specified in Section 1 of this
         Supplement.

         "SANCTIONED OEM SOLUTION" means a Third Party Vendor Item which Net2000
         requests quotations from Nortel Networks and a) that are available to
         Nortel Networks from Nortel Networks' suppliers, excluding Affiliates,
         under Nortel Networks then-current subcontracts, and that Nortel
         Networks makes generally available in its standard proposal offering to
         its customers or b) as mutually agreed in writing. Sanctioned OEM
         Solutions does not include any non-Nortel hardware and/or software
         supplied to Customer under the Agreement and embedded in Nortel
         Networks Hardware or Software. Nortel Networks shall use reasonable
         efforts to identify Sanctioned OEM Solutions as such in its price
         quote; however, notwithstanding such, the failure to do so as a result
         of an oversight shall not disqualify a Sanctioned OEM Solution from
         being a Sanctioned OEM Solution.

3.   SCOPE / COMMITMENT / RESPONSIBILITIES OF THE PARTIES

     3.1 With respect to Agreement, Article 2 ("Orders"), the following
additional terms shall apply:

         "2.1 VOLUME COMMITMENT: Net2000 hereby agrees to order during the Term
              and take delivery of a) the Products, and/or Services selected
              from Schedule 1.A, b) others as may be requested by Net2000 and
              mutually agreed, such request not to be unreasonably denied by
              Nortel Networks, and/or as set forth in this Supplement, and c)
              Sanctioned OEM as set forth in Section 3.8 below, having a
              combined total price of at least one hundred sixty five million
              dollars ($165,000,000).

              2.1.1 Orders issued by Net2000 on or after January 1, 2001 for the
              Products and Services specified in Schedule A-1 shall be deemed to
              be issued in satisfaction of this Commitment, notwithstanding that
              they were issued before the date that the Agreement was executed.
              Orders issued by Net2000 on or before December 31, 2003 for
              delivery according to mutually agreed Scheduled Ship Dates shall
              be deemed to be made in satisfaction of the Commitment,
              notwithstanding that such Orders, if any, may be delivered to
              Net2000 after the end of the Term. At the end of the Term Nortel
              Networks shall invoice Net2000 for *** and Nortel Networks shall
              have no further obligations with respect to any part of the
              Commitment not ordered

<PAGE>   17

              2.1.2 Notwithstanding the foregoing, in the event that Nortel
              Networks terminates Net2000 financing under the Financing
              Agreement and an economically reasonable alternate source of
              financing is not available, then on or after such date of
              termination notice Net2000 shall be released from issuing Orders
              to satisfy the Commitment specified in this Section.

              2.1.3 Notwithstanding the foregoing, in the event that Nortel
              Networks suspends Net2000 financing under the Financing Agreement
              for a period(s) greater than ninety (90) consecutive days and an
              economically reasonable alternate source of financing is not
              available, then the Term to satisfy the Commitment shall be
              extended by that number of days that the financing was suspended,
              not to exceed *** months for all suspensions that may occur, if
              any.

              2.1.4 Notwithstanding the foregoing, in the event that Net2000
              issues an Order for Products specified in Schedule 1.A and Nortel
              Networks notifies Net2000 that it is not able to make such
              Products available for delivery to Net2000 *** and provided that
              such Product had been at one time generally available to customers
              for ordering, then Net2000 shall be ***.

    "2.2 PREFERRED SUPPLIER COMMITMENT: In the third year of the Term, Net2000
         hereby agrees to grant Nortel Networks the right to proffer, not later
         than the date it provides alternate vendors with an opportunity to
         proffer, a competitive bid on any or all telecommunications and data
         equipment or services that are comparable to the Nortel Networks
         generally available Hardware or Software identified on Schedule 1.A or
         the further progression thereof of which Net2000 is considering
         procurement, provided that Nortel Networks responds to Net2000's
         written request within *** days after the date of the request. In the
         event that Net2000 reasonably concludes that Nortel Networks' bid does
         not meet the technical or financial requirements of Net2000's business,
         Net2000 may elect to solicit bids from other Net2000 suppliers. In the
         event that Net2000 tentatively decides to order a solution set forth in
         bid from an alternate Net2000 supplier and before ordering, Net2000
         shall provide Nortel Networks ***days after providing Nortel Networks
         the relevant details to offer the same or comparable technical solution
         and value as the other Net2000 third party supplier, and Net2000 and
         Nortel Networks shall negotiate in good faith before Net2000 selects
         the offer from such third party supplier or from Nortel Networks.

         In the event that Nortel Networks declines to respond to the written
         request for proposal as indicated above or is incapable of providing
         such Hardware or Software, or the alternate supplier solution is a
         significantly superior technical solution or value than the solution
         Nortel Networks offers, then the Term to satisfy the portion of the
         Commitment equal to the amount of the order issued to such alternate
         supplier for such superior solution up to a maximum of *** shall be
         extended, for a period for all such orders under this Section 2.2 until
         ***, provided by such date that the Orders issued are for delivery
         pursuant to mutually agreed Scheduled Ship Dates necessary to satisfy
         the Commitment.

3.2      Nortel Networks shall make available to Net2000 the following:

              3.2.1  Commitment Discounts and Prices as specified in Section 4;

              3.2.2  Training Credits as specified in Section 3.4;

              3.2.3  Cooperative Advertising and Marketing Credits as specified
                     in Section 3.5;

              3.2.4  Intentionally Left Blank;

              3.2.5  Nortel Networks' Commitment To Deliver Succession Call
                     Server Functionality as specified in Section 3.7;

              3.2.6  Sanctioned OEM Solutions as specified in Section 3.8;

              3.2.7  Rebate Credits as specified in Section 3.9;

              3.2.8  ***.

<PAGE>   18

         a. Credits specified above shall be accrued either as a lump sum as
         defined herein or as a percent of the Schedule 1-A prices paid by
         Net2000 to Nortel Networks hereunder for Products and Services ordered
         in satisfaction of the Commitment, as specified herein.

         b. Training Credits and Cooperative Advertising and Marketing Credits
         (both defined below) may be applied by Net2000 to pay for the eligible
         charges incurred for eligible specified training or marketing services
         ordered by Net2000 pursuant to this Supplement No. 1, however, their
         use shall not be applied towards the satisfaction of the Commitment.

         c. For Orders for which Net2000 intends to use Rebate Credits ***,
         Net2000 shall indicate on the relevant Order a) the gross Order price
         net of pricing discounts but before the credit is applied and b) the
         net Order price after the credit is applied. *** For the Rebate Credits
         *** to apply Net2000 shall designate its intent to apply such credits
         on the Order when issuing the relevant Order.

         d. Any credits not used by Net2000 before the expiration of the Term
         shall be forfeited except as provided herein, and in no case shall cash
         refunds of any type whatsoever be paid by Nortel Networks to Net2000
         for any unused credits.3.6.2.1.

     3.3 During the Term Nortel Networks may internally arrange for the
         Technical Resources as specified in Section 4.0 to facilitate the
         receipt and implementation of Orders.

3.4. TRAINING

3.4.1  Pursuant to Section 3.2 of this Supplement No. 1, upon execution of the
       Agreement including this Supplement No. 1 Nortel Networks shall make
       training available to representatives of Net2000 with respect to the
       operation, configuration, installation, service, maintenance and support
       of the Products at Nortel Network's then current prices. Nortel Networks
       shall provide Net2000 *** training credits for every *** of the Products
       and Services specified in Schedule A-1 for which invoices have been
       satisfied ("Training Credits"), valued at $150.00 per credit.

3.4.2  Eligible courses shall be those courses that are a) generally available
       to Nortel Networks customers, b) associated with any Nortel Networks
       Products, and c) are provided directly by Nortel Networks employees, or
       by Nortel Networks training vendors/partners that accept Training
       Credits. Net2000 may review available general details (not necessarily
       specific to the Commitment No. 2) of Nortel Networks' training services
       on the Internet at www.nortelnetworks.com/td.

3.4.3  Net2000 shall bear the cost of transportation, meals, lodging or any
       other incidental expenses of Net2000 personnel to, from and during
       training, and the same for Nortel training personnel (unless such travel
       costs are expressly included in the training fees) to, from and during
       on-site training delivered at a mutually agreed Net2000 location.

3.4.4  Notwithstanding the provisions of Section 3.2 of this Supplement No. 1,
       Training Credits must be used within one (1) year after the end of the
       Term. Nortel Networks shall issue a report detailing number of Training
       Credits earned, used, scheduled (unavailable) and available for use at
       least once a year.

3.5. COOPERATIVE ADVERTISING AND MARKETING

3.5.1  Pursuant to Section 3.2 of this Supplement No. 1, during the Term Nortel
       Networks shall accrue on a quarterly basis, credits up to a maximum of
       *** of the Schedule 1-A prices paid by Net2000 to Nortel Networks
       hereunder for Product and/or Service purchased and/or licensed in
       satisfaction of Commitment ("Cooperative Advertising and Marketing
       Credits"). Cooperative Advertising and Marketing Credits may be applied
       by Net2000 to pay for eligible charges incurred for certain cooperative
       advertising and/ or marketing programs, provided that Net2000 provides
       "matching funds", as defined and in the amount specified below, to the
       credits that Nortel Networks accrues, as further specified in Schedule
       1.C entitled "Cooperative Marketing and Advertising Marketing Credits"
       attached hereto.
<PAGE>   19

3.5.2  "Matching Funds" shall mean that Net2000 may apply Cooperative
       Advertising and Marketing Credits in an amount up to *** of the eligible
       charges on an invoice for agreed cooperative marketing and/or advertising
       programs, and Net2000 shall be liable for the remainder of the eligible
       charges on such invoice.

3.5.3  Any Statement of Work agreed and duly executed during the Term that sets
       forth agreements between the parties utilizing the Cooperative
       Advertising and Marketing Credits shall be deemed to be a Statement of
       Work pursuant to that certain Professional Services Supplement which is
       part of the Agreement.

3.5.4  The provisions relating to "Documentation" as set in the Agreement shall
       not apply to documents prepared or delivered pursuant to Schedule 1.C
       attached hereto.

3.6. INTENTIONALLY LEFT BLANK

3.7. COMMITMENT TO DELIVER SUCCESSION CALL SERVER FUNCTIONALITY

3.7.1 PHASE 0 AND PHASE 1

Nortel Networks hereby agrees to make the *** available as follows:

       a)     ***

              Nortel Networks agrees to make *** available for ordering and
              delivery *** not later than ***identified as Phase 0 in Schedule
              1.B.

       b)     ***

              Nortel Networks agrees to make *** available for ordering and
              delivery *** not later than *** identified as Phase 1 in Schedule
              1.E.

3.7.2 PHASE 0

If an order is issued pursuant to the terms of the Agreement for delivery of a
*** as stated in Section 3.7.1.a above, the following terms shall apply to such
***

     a. Both parties agree to make good faith best efforts to mutually to (i)
     develop a Statement of Work governing engineering, installation and
     evaluation of *** and of ***, to (ii) add details to the Specifications set
     forth in Schedule 1.B, for *** and to iii) develop a test and acceptance
     plan ("Test and Acceptance Plan"), all consistent with Schedule 1.B without
     expansion of the existing functionality set forth in such Schedule. Nortel
     Networks shall provide proposed versions of the above documents by *** for
     functionality in Schedule 1.B, and the parties shall make good faith best
     efforts to mutually agree by *** on such documents governing ***. If the
     parties fail to agree on such documents by *** then Net2000 shall be
     entitled to the remedies as set forth in Section 3.7.3.

     b. Nortel Networks and Net2000 will jointly perform testing of *** in
     accordance with the agreed Statement of Work and Test and Acceptance Plan
     to evaluate the functionality specified in Schedule 1-B and the detailed
     Specifications thereof, to the extent feasible ***. Nortel Networks will
     complete such testing and provide a notice to Net2000 indicating such
     completion, which will specifically identify the successes and failures of
     *** if any, relative to the Schedule 1-B and the detailed Specifications
     thereof, to complete the tests. Net2000 will then complete it's testing of
     ***. Net2000 will complete its responsibilities as identified in the
     Statement of Work. Nortel Networks and Net2000 will then retest *** to
     complete the tests that previously failed, if any. Upon Net2000's and
     Nortel Network's mutual agreement that *** completed its testing according
     to this Section 3.7.2.b and is ready for *** as set forth in the following
     Section 3.7.2.c, Net2000 and Nortel Networks shall execute the completion
     notice indicating Acceptance and thereafter *** shall be supported by
     Nortel Networks technical support organizations.

     c. Nortel Networks and Net2000 will perform testing of *** in accordance
     with the agreed Statement of Work and the Test and Acceptance Plan relative
     to the functionality specified in Schedule 1-B and the detailed
     Specifications thereof for those tests that can be performed ***. Nortel
     Networks will complete such testing and provide a notice to Net2000
     indicating such completion, which will specifically identify the successes
     and failures of *** if any, relative to conformance to the Schedule 1.B the
     detailed Specifications thereof, and remedy such failures. Net2000 will
     complete its responsibilities identified in the

<PAGE>   20

     Statement of Work. Nortel Networks trial team will provide technical
     engineering support for *** as specified in the Statement of Work. Nortel
     Networks and Net2000 will then retest *** to complete the tests in this
     Section that previously failed, if any. Upon Net2000's and Nortel Networks
     mutual agreement that *** successfully completed its testing according to
     this Section 3.7.2.c and is ready for the traffic and testing specified in
     the following Section 3.7.2.d, Net2000 shall execute the completion notice
     indicating acceptance of ***.

     d. Nortel Networks will perform testing of *** in accordance with the
     agreed Statement of Work and the Test and Acceptance Plan relative to the
     functionality specified in Schedule 1-B and the detailed Specifications
     thereof for those tests that can be performed ***. Nortel Networks will
     complete such testing and provide a notice to Net2000 indicating such
     completion, which will specifically identify the successes and failures of
     *** if any, to complete the tests relative to the Statement of Work, and
     remedy such failures. Net2000 will complete its responsibilities identified
     in the Statement of Work. Nortel Networks trial team will provide technical
     engineering support for *** Nortel Networks and Net2000 will retest *** to
     complete the tests in this Section that previously failed. Upon Net2000's
     and Nortel Networks mutual agreement that *** testing has been successfully
     completed its testing according to this Section 3.7.2.d and that the
     Statement of Work responsibilities have been completed (unless otherwise
     mutually agreed and indicated in the notice), Net2000 shall execute the
     completion notice indicating acceptance of ***.

     e. Except as otherwise provided in the Test and Acceptance Plan, the
     parties agree that the provisions of Sections 12.6, 12.7, 12.8 and 12.9 of
     the Agreement shall apply to the Sections 3.7.2.b, 3.7.2.c and 3.7.2.d
     above. In the event that Net2000 does not accept *** as set forth in
     Sections 3.7.2.c and 3.7.2.d above then *** shall be suspended or stopped
     unless otherwise mutually agreed in writing. If Acceptance does not occur
     within *** business days after Nortel Networks provides Net2000 the
     relevant completion notice, and Net2000 has not indicated to Nortel
     Networks in writing its basis for not accepting such Product and/or
     Services, then Acceptance shall be deemed to have occurred.

     f. The detailed Specifications for *** shall be as agreed by the parties
     according to Section 3.7.2.a above for the functionality specified in
     Schedule 1-B. The Statement of Work may include scheduled down time (i.e.
     out-of-service) to upgrade from the functionality specified in 3.7.1.a
     above to the functionality specified in 3.7.1.b.

  3.7.3 If an Order is placed pursuant to the terms of the Agreement for
     delivery of *** as stated in Section 3.7.1 above, and Nortel Networks fails
     or decides not to deliver such ordered version by the date set forth in
     Section 3.7.1, due solely to its own failure, and Net2000 was ready to
     receive *** by completing its implementation and installation
     responsibilities consistent with Section 11 of the Agreement, then

     a)   Nortel Networks and Net2000 agree to jointly evaluate related issues
          and possible solutions and in good faith attempt to mutually agree on
          an action plan to continue or commence the testing of ***; and if such
          agreement is not reached; then

     b)   if a Nortel Networks' alternative solution of Software and/or Hardware
          will provide the Product functionality and features specified in
          Schedule 1.B, inclusive of consideration of costs, such alternative
          solution shall be delivered instead of *** following mutual agreement
          on the ***. Such alternative solution shall a)***, b)***, and c) ***
          upon the date of the mutual agreement set forth in the prior sentence.
          However, if there is no such alternative solution;

      then Net2000 shall have the right to either:

     c)   Net2000's sole and exclusive remedy shall be that Net2000 shall be
          permitted ***; or

     d)   Net2000's sole and exclusive remedy upon the failure of the remedy set
          forth in Section 3.7.3.b shall be that Net2000 may ***.

3.7.4 PHASE 1

     3.7.4.1 Nortel Networks shall demonstrate its progress towards the
     commitment set forth in Section

     3.7.1.b by confirming to Net2000 not later than *** that its Phase 1
     functionality will conform to Schedule
<PAGE>   21

     1.E. In the event that Nortel Networks fails or decides not to confirm such
     date, then Net2000 shall be entitled to the remedies as set forth in
     Section 3.7.3.

     3.7.4.2 If an order is issued pursuant to the terms of the Agreement for
     delivery of a ***as stated in Section 3.7.1.b above, the following terms
     shall apply to ***

         Both parties agree to make good faith best efforts to mutually agree to
         (i) develop a Statement of Work governing engineering, installation and
         evaluation of *** and of *** to (ii) add details to the Specifications
         set forth in Schedule 1.E , for *** and to iii) develop a test and
         acceptance plan ("Phase I Test and Acceptance Plan"), all consistent
         with Schedule 1.E without expansion of the existing functionality set
         forth in such Schedule, following a process comparable to that process
         agreed in Section 3.7.2 ***. If by a mutually agreed date to be
         established by the parties after *** but in no event later than *** the
         parties fail to agree on the foregoing Statement of Work, detailed
         Specifications applicable to *** or the Phase I Test and Acceptance
         Plan, then Net2000 shall be entitled to the remedies as set forth in
         Section 3.7.3.

     3.7.4.3 In the event that Nortel Networks fails or decides not to deliver
     *** as set forth in Section

     3.7.1.b above, and Net2000 was ready to receive *** by completing its
     implementation and installation responsibilities consistent with Section 11
     of the Agreement and the Statement of Work set forth in Section

     3.7.4.1 above, then Net2000 shall be entitled to the remedies as set forth
     in Section 3.7.3.

     3.7.4.4. Nortel Networks shall make available to Net2000 *** as set forth
     in Section 3.7.1.b above, that materially conforms to the detailed
     Specifications and has passed the criteria in the Phase 1 Test and
     Acceptance Plan, on or before *** subject to the issuance of an Order
     pursuant to the terms of the Agreement. In the event that Nortel Networks
     fails or decides not to deliver a ***, and Net2000 was ready to receive ***
     by completing its implementation and installation responsibilities
     consistent with Section 11 of the Agreement and the Statement of Work set
     forth in Section 3.7.4.1 above, then Net2000 shall be entitled to the
     remedies as set forth in Section 3.7.3.

3.8  SANCTIONED OEM SOLUTIONS

3.8.1 Nortel Networks agrees to offer to sell or sublicense to Net2000
Sanctioned OEM Solutions.

3.8.2 Prices for such Sanctioned OEM shall be based on Nortel quotations to
     Net2000 inclusive of a mark-up of *** over Nortel Networks' actual cost, or
     as otherwise mutually agreed in writing. The parties agree that the
     Schedule 1.A will not include or be amended to include Sanctioned OEM, with
     the exception of any Sanctioned OEM, if any, that may result from Section
     3.7.3.b, however, Sanctioned OEM shall count towards satisfaction of the
     Commitment as set forth in this Section 3.8.2 and Section 3.1 above.

3.8.3 In the event that Net2000 Orders and receives installation of such
     Sanctioned OEM, notwithstanding Section 2.1 of this Supplement No. 1 such
     Orders shall be deemed to be placed in satisfaction of the Commitment, up
     to a maximum value of *** percent (***%) of the total Commitment set forth
     in Section 2.1 of this Supplement, however, if Nortel Networks provides a
     OEM solution pursuant to Section 3.7.3.b above such solution shall not be
     counted as part of such *** percent (***%) maximum.

3.8.4 Notwithstanding Section 2.2.2 of the Agreement, Net2000 may cancel an
     Order(s) for Sanctioned OEM according to the provisions of Section 3.9
     below, and Net2000 shall pay restocking charges only to the extent that
     Nortel Networks a) will be charged such charges by its supplier, and b) has
     identified such charges to Net2000 in advance.

3.9  REBATE CREDITS

3.9.1    ***

3.9.2 The Rebate Credits granted pursuant to Section 3.2.7 may be applied to
     reduce the price up to *** of the price under Orders issued subsequent to
     the Effective Date of the Agreement for Products on Schedule 1-A, provided
     that Net2000 designates its intent to apply such Credits on the Order when
     issuing the relevant Order. For Orders for which Net2000 intends to use
     Rebate Credit, Net2000 shall indicate on the relevant Order the gross Order
     price before the credit is applied and the net Order price after the credit
     is applied. The Rebate Credits shall not apply towards satisfaction of the
     Commitment. Rebate Credits must

<PAGE>   22

     be used within one (1) year after the end of the Term; any credits not used
     by Net2000 before the end of one year after the end of the Term shall be
     forfeited and in no case shall cash refunds of any type whatsoever be paid
     by Nortel Networks to Net2000 for any unused credits.

4.0. TECHNICAL RESOURCES SUPPORT

4.1  Nortel Networks agrees to assign, at its own expense, one Project Manager
     effective upon the Effective Date, and may assign at its option upon
     reviewing the type and volume of Orders during the Term one additional
     Project Manager. Project Manager responsibilities shall include supporting
     the planning, ordering, and implementation of Products ordered pursuant to
     the Commitment. Specific work assignments, travel, and level of expertise
     shall be at the discretion of Nortel Networks. Nortel Networks shall direct
     the activity of such personnel who shall perform during normal business
     hours while based at existing Nortel Networks locations.

4.2  The provisions set forth in Section 4.1 above may be applicable from the
     start of the Term and continuing until Net2000 has fully satisfied the
     Commitment or, notwithstanding the provisions of Section 4.1 above, until
     it is determined in the sole discretion of Nortel Networks that such
     special technical resources support are no longer as useful as originally
     envisioned. Nortel Networks shall provide Net2000 at least thirty (30) days
     advance notice before removing a Project Manager from assignment.

5.   PRICING AND PAYMENT

With respect to Article 7 ("Charges and Payment") of the Agreement, the
following additional terms shall apply:

 "7.4 The discounts and prices for the Products and Services are set forth in
     Schedule 1.A COMMITMENT PRODUCTS, SERVICES, DISCOUNTS, AND PRICES attached
     hereto, and/or for Products and Services set forth in subsection 2.1 b) of
     Section 3.1 above the prices shall be as mutually agreed upon by the
     parties. The prices for the Products for which discounts are specified in
     Schedule 1-A shall be the Nortel Networks' standard list price then in
     effect at the time the Order is issued less the discounts specified in such
     Schedule 1.A.

7.5  The amounts payable for Products and/or Services included in the Commitment
     shall be invoiced by Nortel Networks to Net2000 in accordance with the
     following schedules:

      7.5.1 For Products, Nortel Networks shall invoice one hundred percent
         (100%) of the Product price upon delivery to the carrier at Nortel
         Networks for delivery to Net2000 ***

     a)   ***

     b)   ***

7.5.2. For Services, unless otherwise mutually agreed in a statement of work,
     Nortel Networks shall invoice one hundred percent (100%) of the Services
     price upon completion, except that (a) recurring Services will be paid for
     quarterly, in advance, and (b) engineering, furnish, and installation
     services may be invoiced and payable upon the *** installation (wholly or
     conditionally pursuant to Section 12.8 of the Agreement)."

6.0      WARRANTY

6.1  Notwithstanding Section 8.4 of the Agreement the warranty period that
     applies to Switching, Succession, and Optical Hardware and Software ordered
     pursuant to this Supplement No. 1 shall be *** from the Ship Date.

6.2  Notwithstanding Section 8.3 of the Agreement, installation Services ordered
     pursuant to this Agreement shall be warranted for the same warranty period
     as the Hardware and Software to which they apply. All other Services shall
     have a warranty period of ninety (90) days from the date such Services are
     complete, unless otherwise specified in a mutually agreed Statement of
     Work.

6.3  In Section 8.4.i of the Agreement the period that Nortel Networks shall
     have to repair or replace the Hardware or Software shall be *** after a
     trouble ticket is opened.

<PAGE>   23

7.0 GENERAL

7.1      SECTION 4.0 OF THE AGREEMENT EQUIPMENT CONTINUING AVAILABILITY

     In Section [4] of the Agreement the continuing availability period and
     advance notice of manufacture discontinue that applies to the Hardware and
     Software ordered pursuant to this Supplement No. 1 shall be for Products as
     set forth in Schedule 1.D attached hereto, except for Third Party Vendor
     Item. Nortel Networks shall pass through or assign to Net2000 the rights
     that Nortel Networks obtains from the manufacturer or vendors of such
     products and services, all to the extent that such rights may be assigned.
     Nortel Networks shall provide no independent representation or obligation
     with respect to such Third Party Vendor Items. Except for the obligations
     specified in this paragraph, Net2000 hereby waives any and all claims
     against Nortel Networks with regard to the satisfaction by the Third Party
     Vendor to the obligations of this provision. The above-mentioned period in
     this Section 7.0 commencing on the date of the last Order placed by Net2000
     for the relevant Product.

7.2      SCHEDULES AND DAMAGES

  7.2.1 If Nortel Networks fails to achieve mutually agreed Scheduled Ship Date
     within *** after such date for Hardware or Software which counts towards
     the Commitment, with such delay being excused due to force majeure factors,
     and the delay is due primarily to the fault or negligence of Nortel
     Networks, Nortel Networks shall pay to Net2000 as stipulated damages and
     not as a penalty, in the form of ***.

7.2.2 If the delay referenced in Section 7.2.1 above is solely attributable to
     Net2000, and is not due to any force majeure factors, Net2000 shall pay
     Nortel Networks, per day, as stipulated damages and not as a penalty, ***.
     If no costs are incurred by Nortel Networks, Net2000 shall not be liable
     for any payment.

7.3  Relative to the Master Purchase Agreement the parties hereby agree as
     follows:

7.3.1 Any Orders that Net2000 issues on or after Term commences shall be deemed
     to be issued pursuant to the Agreement, notwithstanding any reference to
     the Master Purchase Agreement which may be indicated on such Order;

7.3.2 Orders issued before the commencement of the Term shall continue in effect
     under the terms of the Master Purchase Agreement.

The terms and conditions of this Supplement No. 1, including the Agreement and
Schedules referenced herein, form the complete and exclusive agreement between
Net2000 and Nortel Networks and supercedes any prior oral or written proposals,
correspondence or communications regarding the subject matter hereof. In the
event of a conflict between this Supplement No. 1 and the Agreement, the terms
in this Supplement No. 1 shall prevail. Any changes to this Supplement No. 1
must be made by mutual agreement and duly executed in writing.

<PAGE>   24

            SERVICES SUPPLEMENT TO THE PURCHASE AND LICENSE AGREEMENT

The various Services that Customer may obtain from Nortel Networks, associated
pricing, and the manner in which they will be provided are governed by this
Services Supplement ("Supplement"). The terms and conditions provided in this
Supplement will apply solely to the provision of Services.

1.       DEFINITIONS

(a)      "Deliverables" means all Materials and Software delivered to Customer
pursuant to an Order, but specifically excluding Tools.

(b)      "Materials" means any and all engineering, designs, documentation and
other work product prepared by Nortel Networks and delivered to Customer
pursuant to an Order (and specifically excluding Software).

(c)      "Statement of Work" is a document, prepared by Nortel Networks,
describing the scope of work, estimated schedule, prices, Deliverables, and
other relevant terms specific to a Service, which may, from time to time, be
mutually agreed to in writing by Customer and Nortel Networks. A Statement of
Work shall be governed by the terms and conditions of, and constitute a part of,
this Supplement.

(d)      "Services Descriptions" means Nortel Networks published specifications
for certain Services in effect at the time Nortel Networks accepts an Order.

(e)      "Tools" mean any diagnostics, documentation, test equipment or other
items used by Nortel Networks in the performance of the Services.

2.       CHARGES AND PAYMENT

Fees for Services may be based on a fixed price, time and materials, time and
materials with deliverables or other commercial arrangement, as specified in an
Order. Unless otherwise included as part of a fixed price and to the extent
authorized in the relevant Statement of Work, Customer will reimburse Nortel
Networks for all reasonable out-of-pocket expenses incurred by Nortel Networks
in performing the Services (including, without limitation, all reasonable
travel, meal, lodging and mileage expenses) Unless provided otherwise in a
Statement of Work, Nortel Networks shall invoice Customer one hundred percent of
the price of the Services upon completion unless the Service continues beyond
thirty days, in which case Nortel Networks shall invoice Customer at the end of
each month for the Services performed in that month. Certain ongoing Services
(for example maintenance and managed services) ordered by Customer may be
invoiced in advance of the performance of such Services by Nortel Networks.

3.       CHANGES TO ORDERS AND CANCELLATIONS

The parties may, by mutual agreement, make changes to the scope of work,
schedule, prices, deliverables or other substantive aspects of the Services
("Change"). The party asking for a Change shall describe in writing the details
of the requested Change ("Change Order Request"). Nortel Networks shall provide
in writing to Customer a summary of any and all adjustments to the charges and
other changes resulting from the Change Order Request. In no event shall any
Change be effective or acted upon in any way until such time as (i) an
authorized representative of both parties has agreed to the terms of the Change
Order Request in writing and (ii) Nortel Networks receives an Order from
Customer for any additional amounts resulting from the Change Order Request.

After acceptance of an Order by Nortel Networks, Customer may in its sole
discretion by written notice to Nortel Networks prior to commencement of
services, cancel or suspend performance of Services of such Product or any
related Service ordered under this Agreement. Net2000 shall be

<PAGE>   25

liable for all preparation charges incurred at the direction of Net2000, at
Nortel Networks' then standard charges, unless Nortel Networks declines to
fulfill the Order for any reason. If an order is delayed or suspended, but later
shipped, Net2000 shall be liable for such preparation charges. If Customer
cancels a Service after commencement of Service, Customer shall pay Nortel
Networks for those Materials delivered and services actually performed
specifically for Net2000 and or costs incurred in preparation to perform such
Services through the date of cancellation and reasonable actual costs to Nortel
Networks in connection with the terminating such Service; provided that, such
amount does not exceed the total price of the cancelled Service. The foregoing
shall be Nortel Network's sole remedy for delay, cancellation or suspension of
the delivery of a Product or Service by Customer.

In the event that there has been an event of default under the Financing
Agreement, Nortel Networks has the right to terminate an Order for Services or
suspend performance under an Order for Services, and Net2000 shall pay the
charges and costs specified above, notwithstanding that the Order may or may not
have been accepted under Section 2.1 of the Agreement.

4.       NORTEL NETWORK RESPONSIBILITIES

Nortel Networks Personnel shall comply with reasonable site and security
regulations specified by Customer, in writing in advance where practicable, of
the performance of Services. Nortel Networks shall take reasonable precautions
to protect Products, buildings or structures and to perform Services with care
and due regard for the safety, convenience and protection of Customer and
members of the public in accordance with Specifications or Customer's practices
or handbooks provided to and agreed to by Nortel Networks in advance of signing
the applicable Statement of Work.

5.       CUSTOMER RESPONSIBILITIES

Customer agrees to cooperate with Nortel Networks in the performance by Nortel
Networks of the Services, including, without limitation, providing Nortel
Networks with sufficient, free and timely access to facilities, data,
information and personnel of Customer; including the recovery by Nortel Networks
of any Tools. In addition, Customer shall be responsible for the accuracy and
completeness of all data and information that it provides or causes to be
provided to Nortel Networks. In the event that there are any delays by Customer
in fulfilling its responsibilities as stated above, or there are errors or
inaccuracies in the information provided, Nortel Networks shall be entitled to
appropriate, mutually agreed schedule and pricing adjustments.

6.       PERSONNEL

Nortel Networks and Customer are each responsible for the supervision,
direction, compensation and control of their own employees and subcontractors.
Nortel Networks may subcontract any portion or all of the Services to
subcontractors selected by Nortel Networks.

Neither party shall knowingly solicit to hire employees of the other party who
are involved with the performance of the Services under this Agreement for a
period ending six months after such performance. Neither party shall be
precluded from conducting generalized searches for employees either through the
use of search firms or advertisements in the media, provided that searches are
not specifically targeted to employees providing Services.

All Nortel Network personnel shall be appropriately qualified and suitably
trained, experienced and skilled to provide the Nortel Network Services.

Nortel Network shall remove personnel from Customer sites in the event such
personnel violate the obligations of this section promptly upon receipt of
written notice of such violation. Nortel Network shall consider removing
personnel from Net2000 sites in the event for other reasonable

<PAGE>   26

cause, promptly upon receipt of written notice of such violation, such request
for removal shall not be unreasonably denied.

Net2000 reserves the right to pre-approve all personnel assigned by Nortel
Networks to perform Nortel Networks' Services under the Purchase and License
Agreement. The schedule for the performance of any Services where Net2000
exercises its right to pre-approval of personnel will be adjusted commensurate
with the pre-approval and reasonable replacement process.

7.       INFRINGEMENT

The provisions of Section 14 "Infringement" of the Purchase and License
Agreement shall apply to all Materials and work under this Services Supplement.

8.       INTELLECTUAL PROPERTY RIGHTS

(a)      Nortel Networks, on behalf of itself and its subcontractors, reserves
all proprietary rights in and to (i) all methodologies, designs, engineering
details, and other data pertaining to the Services and the Materials delivered,
(ii) all original works, computer programs, updates developed in the course of
providing the Service (except Customer's developed programs), (iii) discoveries,
inventions, patents, know-how and techniques arising out of the Services and
(iv) any and all products (including software and equipment) developed as a
result of the Services. The performance by Nortel Networks of Services shall not
be deemed work for hire.

(b)      Nortel Networks grants to Customer a perpetual, non-exclusive,
world-wide, paid up license to use, copy and modify the Materials produced by
Nortel Networks and delivered to Customer in the performance of Services solely
for Customer's internal business purposes.

(c)      It is understood between the parties that Nortel Networks will employ
its know-how, techniques, concepts, experience and expertise, as well as all
other intellectual property, including that to which it reserves its rights
hereunder, to perform services the same as or similar to the Services for
others; provided that Nortel Networks complies with the confidentiality
obligations in Section 13 the Purchase and License Agreement.

9.       MAINTENANCE SERVICES

Nortel Networks provides Product maintenance Services either at Customer's
location or at a service center to keep Products in, or restore them to,
conformance with published specifications.

(a)      To be eligible for maintenance Services, the Products must be in good
operating condition and at revision levels supported by Nortel Networks.

(b)      Relocation of Products under maintenance Services may result in
adjustments to the price and response times.

The warranty service terms in Section 9 Warranty Service and exclusions in
Section 8.5 of the Purchase and License Agreement shall also apply to post
warranty Product maintenance Services.

10.      GENERAL

In the event of a conflict between this Supplement and any other documents
attached hereto or referenced herein, the terms in this Supplement prevail.

11.      PRICING AND AVAILABLE SERVICES

The Services to be provided and/or the applicable pricing shall be as set forth
in (i) an accepted Nortel Network's proposal, (ii) a Statement of Work or (iii)
the Services Descriptions.<PAGE>   1
                                                                      EXHIBIT 10

          LINE OF CREDIT AGREEMENT dated as of August 10, 1999 (the Agreement)
between the entities listed on Exhibit A attached hereto (collectively referred
to as the "Investor"), GMF HOLDINGS, (the "Finder") MAY DAVIS GROUP, located at
One World Trade Center, New York, New York, a corporation organized under the
laws of New York and (the "Company") Cyco.Net Inc., a corporation organized and
existing under the laws of the State of Nevada.

         WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase up to
$890,000.00 of Debentures for a total purchase price of $890,000.00; and

         WHEREAS, such investments will be made in reliance upon the provisions
of Rule 504 Exemption of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder (the "Securities Act"), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in the Debentures to
be made hereunder; and

         NOW, THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I
                              CERTAIN DEFINITIONS

         Section 1.1 "Advance" shall mean each occasion the Company elects to
exercise its right to tender an Advance Notice requiring the Investor to
advance funds to the Company, subject to the terms of this Agreement.

         Section 1.2 "Advance Date" shall mean the date of an Advance by the
Investor to the Company.

         Section 1.3 "Advance Notice" shall mean a written notice to the
Investor setting forth the Advance Amount that the Company requests from the
Investor and Compliance Certification from the Company as attached hereto as
Exhibit B.

         Section 1.4 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market, provided that
the Common Stock is traded on a Principal market.

         Section 1.5 "Closing" shall mean one of the closings of a purchase and
sale of the Debentures pursuant to Section 2.1.

         Section 1.6 "Commitment Amount" shall mean the $890,000.00 up to which
the Investor has agreed to provide to the Company in order to purchase the
Debentures pursuant to the terms and conditions of this Agreement.

<PAGE>   2

         Section 1.7 "Commitment Period" shall mean the period commencing on
the earlier to occur of the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have purchased
Debentures pursuant to this Agreement in the amount of at least $890,000.00
unless such date is extended by the Investor, (y) the date this Agreement is
terminated pursuant to Section 2.4, or (z) the date occurring twelve (12)
months from the date hereof.

         Section 1.8 "Common Stock" shall mean the Company's common stock, par
value $0.001 per share.

         Section 1.9 "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.

         Section 1.10 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and
investigation).

         Section 1.11 "Debentures" shall mean the Debenture in the form of
Exhibit C annexed hereto.

         Section 1.12 "Effective Date" shall mean the date on which the
Company's Counsel issues a legal opinion stating the stock to be issued to the
investor is free trading.

         Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.

         Section 1.14 "Legend" See Section 8.1.

         Section 1.15 "Material Adverse Effect" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement,
the Debenture, the Registration Rights Agreement or the Escrow Agreement in any
material respect.

         Section 1.16 "Maximum Advance Amount" on any Advance Date shall be
equal to the difference between (I) the amount indicated opposite the range of
the 30 Day Average Daily Trading Volume on such Advance Date, as set forth in
the table below and (ii) the sum of the Advances made pursuant to this
Agreement, in the 30 calendar days immediately preceding the Advance Notice:

<PAGE>   3

<TABLE>
<CAPTION>
         30-DAY AVERAGE DAILY TRADING (1)      MAXIMUM ADVANCE AMOUNT (2)
         --------------------------------      --------------------------
<S>                                            <C>
         $25,000 - $50,000                     $100,000
         $50,001 - $100,000                    $200,000
         $100,001 - $200,000                   $300,000
         $200,001 - $300,000                   $500,000
         $300,001 - $400,000                   $600,000
         $400,001 - $500,000                   $700,000
</TABLE>

(1)      The 30-Day Average Trading Volume shall be equal to the average of the
Bid Price multiplied by the volume for each of the 30 calendar days preceding
the Advance Date.

(2)      Assuming that no Advances have been made pursuant to this Agreement
during the preceding 30 calendar days.

         Section 1.17 "NASD" shall mean the National Association of Securities
Dealers, Inc.

         Section 1.18 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.

         Section 1.19 "Principal Market" shall mean the Nasdaq Over The Counter
Bulletin board, Nasdaq National Market, the Nasdaq SmallCap Market, the
American Stock Exchange or the New York Stock Exchange, whichever is at the
time the principal trading exchange or market for the Common Stock.

         Section 1.20 "Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.

         Section 1.21 "Trading Day" shall mean any day during which the New
York Stock Exchange shall be open for business.

                                   ARTICLE II
                                    ADVANCES

         Section 2.1 Investments.

                  (a) Advances. Upon the terms and conditions set forth herein
(including without limitation, the provisions of Article VII hereof), on any
Advance Date the Company may request an Advance by the Investor by the delivery
of an Advance Notice. The amount of the Debenture that the Investor shall
receive pursuant to such Advance shall be equal to the amount of the Advance
specified in the Advance Notice, which Advance shall not exceed the Maximum
Advance Amount on such date.

<PAGE>   4

         Section 2.2       Mechanics.

                  (a)      Advance Notice. At any time during the Commitment
Period, the Company may deliver an Advance Notice to the Investor, subject to
the conditions set forth in Section 2.4; provided, however, the Amount for each
Advance as designated by the Company in the applicable Advance notice shall not
be (I) less than $25,000, or (ii) more than the Maximum Advance Amount. The
aggregate amount of the Advances pursuant to this Agreement shall not exceed
the Commitment Amount, unless otherwise agreed by the Investor in the
Investor's sole and absolute discretion.

                  (b)      Date of Delivery of Advance Notice. An Advance
Notice shall be deemed delivered on (I) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior to
12:00 noon Eastern Time, or (ii) the immediately succeeding Trading Day if it
is received by facsimile or otherwise after 12:00 noon Eastern Time on a
Trading Day or at any time on a day which is not a Trading Day. No Advance
Notice may be deemed delivered, on a day that is not a Trading Day.

         Section 2.3       Closings. On each Advance Date for an Advance, which
shall be within five (5) Trading Days of an Advance Notice, (I) the Company
shall deliver to the Escrow Agent one or more Debentures at the Investor's
option, representing the amount of the Advance by the Investor pursuant to
Section 2.1 herein, registered in the name of the Investor and (ii) the Investor
shall deliver to escrow the amount of the Advance specified in the Advance
Notice by wire transfer of immediately available funds to the Escrow Agent on or
before the Advance Date. In addition, on or prior to the Advance Date, each of
the Company and the Investor shall deliver to the Escrow Agent all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Payment of funds to the Company and deliver of
the Debentures to the Investor shall occur out of escrow in accordance with the
conditions set forth above and those contained in the Escrow Agreement;
provided, however, that to the extent the Company has not paid the fees,
expenses, and disbursements of the Investor's counsel and the fees to the
Placement Agent in accordance with Section 13.4, the amount of such fees,
expenses, and disbursements shall be paid in immediately available funds, at the
direction of the Investor, to Investors counsel and the Placement Agent with no
reduction in the amount of Debenture on such Advance Date.

         Section 2.4       Termination of Investment. The obligation of the
Investor to make an Advance to the Company pursuant to this Agreement shall
terminate permanently (including with respect to a Advance Date that has not
yet occurred) in the event that (I) there shall occur any stop order or
suspension of the effectiveness of the Registration Statement for an aggregate
of twenty (20) Trading Days during the Commitment Period, for any reason other
than deferral or suspensions in accordance with the Registration Rights
Agreement as a result of corporate developments subsequent to the Subscription
Date that would require such Registration Statement to be amended to reflect
such event in order to maintain its compliance with the disclosure requirements
of the Securities Act or (ii) the Company shall at any time fail to comply with
the requirements of Section 6.3, 6.4 or 6.6.

<PAGE>   5

         Section 2.5       Agreement to Advance Funds.

                  (a)      The Investor agrees to advance the amount specified
in the Advance Notice to the Company within five (5) Trading Days after the
completion of each of the following conditions and the other conditions set
forth in this Agreement:

                           (I)      the execution and delivery by the Company,
and the Investor, or this Agreement, and all Exhibits and Attachments hereto;

                           (ii)     delivery into escrow by the Company of the
original Debenture;

                           (iii)    the Company's Registration Statement with
respect to the resale of the Registrable Securities in accordance with the
terms of the Registration Rights Agreement shall have been declared effective
by the SEC;

                           (iv)     the Company shall have obtained all permits
and qualifications required by any state for the offer and sale of the
Registrable Securities, or shall have the availability of exemptions therefrom.
The sale and issuance of the Registrable Securities shall be legally permitted
by all laws and regulations to which the Company is subject; and

                           (v)      payment of fees as set forth in Section
13.4 below.

                                  ARTICLE III
                   REPRESENTATIONS AND WARRANTIES OF INVESTOR

         Investor represents and warrants to the Company that:

         Section 3.1       Organization and Authorization. Investor is duly
incorporated or organized and validly existing in the country of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
all right, power and authority to execute and deliver this Agreement on behalf
of the Investor. This Agreement has been duly executed and delivered by the
Investor and, assuming the execution and delivery hereof and acceptance thereof
by the Company, will constitute the legal, valid and binding obligations of the
Investor, enforceable against the Investor in accordance with its terms.

         Section 3.2       Evaluation of Risks. The Investor has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.

<PAGE>   6

         Section 3.3       Independent Counsel. The Investor acknowledges that
it has been advised to consult with its own attorney regarding legal matters
concerning the Company and to consult with its tax advisor regarding the tax
consequences of acquiring the securities issuable hereunder.

         Section 3.4       Investment Intent. The securities are being purchased
by the Investor for its own account, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or
in part. The Investor agrees not to assign or in any way transfer the
Investor's rights to the Securities or any interest therein and acknowledges
that the Company will not recognize any purported assignment or transfer. No
other person has or will have a direct or indirect beneficial interest in the
securities. The Investor agrees not to sell, hypothecate or otherwise transfer
the Investor's securities unless the securities are registered under Federal
and applicable state securities law or unless, in the opinion of counsel
satisfactory to the Company, an exemption from such laws is available.

         Section 3.5       Accredited Investor. All of the information that the
Investor has heretofore furnished to the Company or which is set forth herein
with respect to the Investor's financial position and business experience, is
correct, complete and not misleading as of the date hereof and the Investor
will advise the Company immediately in writing of any change in any response
hereto. The Investor understands that this investment is suitable for and is
available only to "accredited Investors," as that term is defined in Regulation
D promulgated under the 1933 Act as set forth in Exhibit D and that the
Investor satisfies at least one of the categories set forth below (please check
applicable box).

         [ ]                        a corporation, business trust, or
                           partnership not formed for the specific purpose of
                           acquiring the securities offered, with total assets
                           in excess of $5,000,000.

         [ ]                        any trust, with total assets in excess of
                           $5,000,000, not formed for the specific purpose of
                           acquiring the securities offered, whose purchase is
                           directed by a sophisticated person who has such
                           knowledge and experience in financial and business
                           matters that he is capable of evaluating the merits
                           and risks of the prospective investment.

                                    an individual, who

         [ ]                        is a director, executive officer or general
                           partner of the issuer of the securities being
                           offered or sold or a director, executive officer or
                           general partner of a general partner of that issuer.

         [ ]                        has an individual net worth, or joint net
                           worth with that person's spouse, at the time of his
                           purchase exceeding $1,000,000.

         [ ]                        had an individual income in excess of
                           $200,000 in each of the two most recent years or
                           joint income with that person's spouse in excess of

<PAGE>   7

                           $300,000 in each of those years and has a reasonable
                           expectation of reaching the same income level in the
                           current year.

         [ ]                        any entity in which all of the equity
                           owners are "accredited investors.

The Investor acknowledges that the information set forth herein is not intended
to be exhaustive and is provided only as a guide to assist each potential
investor in making an independent investigation of the Company and the
Securities being offered.

         Section 3.6       SEC Documents. The Investor has carefully read and is
familiar with and has carefully reviewed the SEC Documents. The Investor has
evaluated the merits and risks of the Investor's investment in the securities,
and has determined that the securities are a suitable investment. The Investor
has availed itself of the opportunity to ask question of the Company concerning
the terms and conditions of this offering and obtained such additional
information as the Investor has deemed necessary. The company has answered all
inquiries concerning the terms and conditions of this offering and has afforded
the Investor the opportunity to obtain any additional information (to the
extent that the Company possesses such information or can acquire it without
unreasonable effort expense) necessary to verify the accuracy of the
information.

         Section 3.7       No Advertisements. The Investor is not entering into
this Agreement as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media or broadcast over television or radio, or presented at any seminar or
meeting.

         Section 3.8       Not an Affiliate. The Investor is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.

                                   ARTICLE IV
                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company hereby represents and warrants to, and covenants with, the
Investors that the following are true and correct as of the date hereof and as
of the Advance Date:

         Section 4.1       Organization: Qualification. The Company is a
corporation duly organized and validly existing under the laws of the State of
Nevada and is in good standing under such laws. The Company has all requisite
corporate power and authority to own, lease and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
qualified to do business as a foreign corporation in each jurisdiction in which
the ownership of its property or the nature of its business requires such
qualification, except where failure to so qualify would not have a material
adverse effect on the Company.

         Section 4.2       Capitalization. The authorized capital stock of the
Company consists of THIRTY MILLION (30,000,000) shares of Common Stock, $0.001
per value per share, of which NINETEEN MILLION THREE HUNDRED AND FORTY THREE
THOUSAND

<PAGE>   8

(19,343,000) are outstanding. All issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable.

         Section 4.3.      Authorization. The Company has all requisite
corporate right, power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, deliver and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the securities
issuable hereunder and the performance of the Company's obligations hereunder
have been taken. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy as they may apply to
the indemnification provisions set forth in of this Agreement. Upon their
issuance and delivery pursuant to this Agreement, the shares of Common Stock
issuable upon the conversion of the Debentures will be validly issued, fully
paid and nonassessable and will be free of any liens or encumbrances other than
those created hereunder or by the actions of the Investors; provided, however
that the securities are subject to restrictions on transfer under state and/or
federal securities laws. The issuance and sale of the securities hereunder will
not give rise to any preemptive right or right of first refusal or right to
participation on behalf of any person.

         Section 4.4       No Conflict. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default, or give
rise to a right of termination, cancellation or acceleration of any material
obligation or to a loss of a material benefit, under, any provision of the
Articles of Incorporation, and any amendments thereto, Bylaws, Stockholders
Agreements and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material
adverse effect on the Company's business and financial condition.

         Section 4.5       No Undisclosed Liabilities or Events. The Company has
no MATERIAL liabilities or obligations other than those previously disclosed to
the investor, and, in each case, which individually or in the aggregate, do not
or would not have a material adverse effect on the properties, business,
condition (financial or otherwise), results of operations or prospects of the
Company. No event or circumstances has occurred or exists with respect to the
Company or its properties, business, condition (financial or otherwise),
results of operations or prospects, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed.

         Section 4.6       No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its
properly is bound, and neither the execution, nor the delivery by the Company,
nor the performance by the Company of its obligations under this Agreement or
any

<PAGE>   9

of the Exhibits or attachments hereto, including the conversion provision of
the Debentures, will conflict with or result in the breach or violation of any
of the terms or provisions of, or constitute a default or result in the
creation or imposition of any lien or charge on any assets or properties of the
Company under, any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or instrument to which the Company
is a party or by which it is bound or any statute or the memorandum or Articles
of the Company, or any decree, judgment, order, rules of regulation of any
court or governmental agency or body having jurisdiction over the Company or
its properties, or in the event that the Common Stock is listed on a Principal
Market, the Company's listing agreement for its Common Stock, in each case
which default, lien or charge is likely to cause a material adverse effect on
the Company's business and financial condition.

         Section 4.7       Absence of Events of Default. Except as set forth in
the SEC Documents, the Disclosure Schedule and this Agreement, no Event of
Default, as defined in the respective agreement to which the Company is a
party, and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default (as so defined), has occurred and is
continuing, which would have a material adverse effect on the Company's
business, properties, prospects, financial condition or results of operations.

         Section 4.8       Governmental Consent, etc. Except as set forth in the
Disclosure Scheduled, no consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the
Company is required in connection with the valid execution and delivery of this
Agreement, or the offer, sale or issuance of the securities hereunder, or the
consummation of any other transaction contemplated hereby.

         Section 4.9       Intellectual Property Rights. Except as disclosed in
the SEC Documents, the Company has sufficient trademarks, trade names, patent
rights, copyrights and licenses to conduct its business as presently conducted
in the SEC Documents, except where failure to have any such intellectual
property would not cause a material adverse effect on the business and
financial condition of the Company. To the Company's knowledge, neither the
Company nor its products ARE infringing or will infringe any trademark, trade
name, patent right, copyright, license, trade secret or other similar right of
others currently in existence; and there is no claim being made against the
Company regarding any trademark, trade name, patent, copyright, license, trade
secret or other intellectual property right which could have a material adverse
effect on the business or financial condition of the Company.

         Section 4.10      Material Contracts. Except as set forth in the SEC
Documents and the Disclosure Schedule, the agreements to which the Company is a
party described in the SEC Documents are valid agreements, constitute all of
the Company's material agreements and are in full force and effect and the
Company is not in material breach or material default under any of such
agreements, except where such breach or default would not cause a material
adverse effect on the business and financial condition of the Company.

         Section 4.11      Litigation. Except as disclosed in the SEC Documents
and the Disclosure Schedule, there is no action, proceeding or investigation
pending, or to the Company's knowledge threatened, against the Company which
might result, either individually or in the

<PAGE>   10

aggregate, in any material adverse change in the business, prospects, financial
conditions or operations of the Company. The Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.

         Section 4.12      Title to Assets. Except as set forth in the SEC
Documents, the Company has good and marketable title to all properties and
material assets described in the SEC Documents as owned by it, free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest other than such as are not material to the business of the Company.

         Section 4.13      Subsidiaries. Except as disclosed in the SEC
Documents, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity.

         Section 4.14      Required Governmental Permits. Except as set forth in
the SEC Documents, the Company is in possession of an operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect.

         Section 4.15      Other Outstanding Securities/Financing Restrictions.
Other than warrants and options to acquire shares of Common Stock as disclosed
in the SEC Documents, there are registration, which are available for sale as
unrestricted ("free trading") stock.

         Section 4.16      Use of Proceeds. The Company represents that the net
proceeds from this offering will be used for working capital purposes and/or
general corporate purposes. However, in no event shall the net proceeds from
this offering be used by the Company for the payment (or loaned to any such
person for the payment) of any judgment, or other liability, incurred by any
executive officer, officer, director, or employee of the Company.

         Section 4.17      Full Disclosure. There is no fact known to the
Company (other than general economic conditions known to the public generally)
that has not been disclosed in writing to the Investor that (I) could
reasonably be expected to have a material adverse effect on the financial
condition or in the earnings, business affairs, business prospects, properties
or assets of the Company, or (ii) could reasonably be expected to materially
and adversely affect the ability of the Company to perform its obligations
pursuant to this Agreement.

         Section 4.18      Opinion of Counsel. Investor shall receive an opinion
letter from counsel to the Company (updated where applicable) prior to each
Closing to the effect that:

                  (a)      The Company is incorporated and validly existing in
the jurisdiction of its incorporation. The Company and/or its subsidiaries are
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions where, to such counsel's knowledge, the Company and/or its
subsidiaries owns or leases properties, maintains employees or conducts
business, except for jurisdictions in which the failure to so qualify would not
have a material

<PAGE>   11

adverse effect on the Company, and has all requisite corporate power and
authority to own its properties and conducts its business.

                  (b)      To such counsel's knowledge, there is no action,
proceeding or investigation pending, or threatened against the Company which
might result, either individually or in the aggregate, in any material adverse
change in the business or financial condition of the Company, except as has
been described in the SEC Documents.

                  (c)      To such counsel's knowledge, the Company is not a
party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality, except as has
been described in the SEC Documents.

                  (d)      To such counsel's knowledge, there is no action,
suit, proceeding or investigation by the Company currently pending, except as
has been described in the SEC Documents.

                  (e)      The shares of Common Stock issuable upon the
conversion of the Debentures have been duly authorized and upon issuance will
be validly issued under the laws of the Company's state of incorporation.

                  (f)      This Agreement, the issuance of the Debentures
hereunder, and the shares of Common Stock issuable upon conversion of the
Debentures, have been duly approved by all required corporate action and that
all such securities, upon execution and delivery that shall be validly issued
and outstanding, fully paid and nonassessable.

                  (g)      The issuance of the Debentures and the shares of
Common Stock issuable upon conversion thereof, will not violate the applicable
listing agreement between the Company and any securities exchange or market on
which the Company's securities are listed.

                  (h)      The authorized capital stock of the Company consists
of THIRTY MILLION (30,000,000) shares of Common Stock, $0.001 par value per
share, of which NINETEEN MILLION THREE HUNDRED AND FORTY THREE THOUSAND
(19,343,000) are outstanding. All issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable.

         Section 4.19      Opinion of Counsel. The Company will obtain for the
Investor, at the Company's expense, any and all opinions of counsel which may
be required in order to convert, exercise or sell the securities issuable
hereunder, including, but not limited to, obtaining for Investors, at the
Company's expense an opinion of counsel, subject only to receipt of a Notice of
Conversion, duly executed by the Investor which shall be satisfactory to the
Transfer Agent, directing the Transfer Agent to remove the self-liquidating
legend.

         Section 4.20      Dilution. The Company is aware and acknowledges that
conversation of the Debentures could cause dilution to existing shareholder and
could significantly increase the outstanding number of shares of Common Stock.

<PAGE>   12

                                   ARTICLE V
           REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND INVESTOR

         Each of the Investors and the Company represent to the other the
following with respect to itself:

         Section 5.1       Line of Credit Agreement. This Agreement has been
duly authorized, validly executed and delivered on behalf of the Company and
each of the Investors and is a valid and binding agreement in accordance with
its terms, subject to general principles of equity and to bankruptcy or other
laws affecting the enforcement of creditors' rights generally.

         Section 5.2       Non-contravention. The execution and delivery of this
Agreement along with all Exhibits and Attachments, and the consummation of the
issuance of the securities and the transactions contemplated by this Agreement
do not and will not conflict with or result in a breach by the Company or
Investor of any of the terms or provisions of, or constitute a default under,
the articles of incorporation or by-laws of the Company or Investor, or any
indenture, mortgage, deed of trust of other material agreement or instrument to
which the Company or Investor is a party or by which it or any of its
properties or assets are bound, or any existing applicable law, rule or
regulation or any applicable decree, judgment or order of any court, Federal or
State regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or Investor or any of its properties or assets.

         Section 5.3       Approvals. Neither the Company nor Investor is aware
of any authorization, approval or consent of any governmental body which is
legally required for the issuance and sale of the securities.

         Section 5.4       Indemnification. Each of the Company and the
Investors agree to indemnify the other and to hold the other harmless from and
against any and all losses, damages, liabilities, costs and expenses (Including
reasonable attorneys' fees) which the other may sustain or incur in connection
with the breach by the indemnifying party of any representation, warranty or
covenant made by it in this Agreement.

                                   ARTICLE VI
                            COVENANTS OF THE COMPANY

         Section 6.1       Reservation of Common Stock. As of the date hereof,
the Company has authorized and reserved and the Company shall continue to
reserve and keep available at all times, free of preemptive rights, shares of
Common Stock for the purpose of enabling the Company to satisfy and obligation
to issue shares of Commons Stock underlying the Debentures, such amount of
shares of Common Stock to be reserved shall be calculated based upon the Bid
Price of the Common Stock. The number of shares so reserved from time to time,
as theretofore increased or reduced as hereinafter provided, may be reduced by
the number of shares actually delivered pursuant to the Debentures and the
number of shares so reserved shall be increased or decreased to reflect
potential increases or decreases in the Common Stock that the Company may
thereafter be so obligated to issue.

<PAGE>   13

         Section 6.2       Listing of Common Stock. In the event that the Common
Stock is listed on a Principal Market, the Company hereby agrees to maintain
the listing of the Common Stock on such Principal Market. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the shares of Common
Stock issuable upon the conversion of the Debentures and will take such other
action as is necessary or desirable in the opinion of the investor to cause the
Common Stock to be listed on such other Principal Market as promptly as
possible. The Company sill take all action to continue the listing and trading
of its Common Stock on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of the Principal Market.

         Section 6.3       Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12 (b) of the Exchange
Act, will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Act.

         Section 6.4       Legends.  The certificates evidencing the Common
Stock to be sold by the Investor shall be free of legends.

         Section 6.5       Corporate Existence.  The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.

         Section 6.6       Additional SEC Documents. The Company will deliver to
the Investor, as and when the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.

         Section 6.7       Notice of Certain Events Affecting Registration:
Suspension of Right to Make an Advance. The Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus relating to an offering of
Registrable Securities; (i) receipt of any request for additional information
by the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or
supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration Statement,
related prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required

<PAGE>   14

to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the related prospectus, it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
(v) the Company's reasonable determination that a post-effective amendment to
the Registration Statement would be appropriate; and the Company will promptly
make available to the Investor any such supplement or amendment to the related
prospectus. The Company shall not deliver to the Investor any Advance Notice
during the continuation of any of the foregoing events.

         Section 6.8       Expectations Regarding Advance Notices. Within ten
(10) days after the commencement of each calendar quarter occurring subsequent
to the commencement of the Commitment Period, the Company must notify the
Investor, in writing, as to its reasonable expectations as to the dollar amount
it intends to raise during such calendar quarter, if any, through the issuance
of Advance Notices. Such notification shall constitute only the Company's good
faith estimate and shall in no way obligate the Company to raise such amount,
or any amount, or otherwise limit its ability to deliver Advance Notices. The
failure by the Company to comply with this provision can be cured by the
Company's notifying the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.

         Section 6.9       Consolidation: Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written
instrument the obligation to deliver to the Investor such shares of stock
and/or securities as the Investor is entitled to receive pursuant to this
Agreement.

         Section 6.10      Issuance of Debentures. The sale of the Debentures
and the issuance of the shares of Commons Stock pursuant to conversion hereof
shall be made in accordance with the provision and requirements of Section 4(2)
of the Securities Act, or Regulation D and any applicable state securities law.

         Section 6.11      Legal Opinion of Subscription Date. The Company's
independent counsel shall deliver to the Investor upon execution of this
Agreement an opinion in the form of Exhibit E annexed hereto.

                                  ARTICLE VII
                CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING

         Section 7.1       Conditions Precedent to the Obligation of the Company
to Issue and Sell the Debentures. The obligation hereunder of the Company to
issue and sell the Debentures to the Investor incident to each Closing is
subject to the satisfaction, or waiver by the Company, at or before each such
Closing, of each of the conditions set forth below.

                  (a)      Accuracy of the Investor's Representation and
Warranties. The representations and warranties of the Investor shall be true
and correct in all material respects as

<PAGE>   15

of the date of this Agreement and as of the date of each such Closing as though
made at each such time.

                  (b)      Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing.

         Section 7.2       Conditions Precedent to the Right of the Company to
Deliver an Advance Notice and the Obligation of the Investor to Purchase
Debentures. The right of the Company to deliver an Advance Notice and the
obligation of the Investor hereunder to acquire and pay for the Debentures
incident to a Closing is subject to the satisfaction or waiver by the Investor,
on (i) the date of delivery of such Advance Notice and (ii) the applicable
Advance Date (each a "Condition Satisfaction Date"), of each of the following
conditions:

                  (a)      Authority. The Company shall have obtained all
permits and qualifications required by any state for the offer and sale of the
Debentures and the shares of Common Stock issuable upon the conversion thereof,
or shall have the availability of exemptions therefrom. The sale and issuance
of the Debentures and the shares of Common Stock issuable upon the conversion
thereof shall be legally permitted by all laws and regulations to which the
Company is subject.

                  (b)      Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company shall be true and
correct in all material respects as of each Condition Satisfaction Date as
though made at each such time (except for representations and warranties
specifically made as of a particular date) with respect to all periods, and as
to all events and circumstances occurring or existing to and including each
Condition Satisfaction Date, except for any conditions which have temporarily
caused any representations or warranties herein to be incorrect and which have
been corrected with no continuing impairment to the Company or the Investor.

                  (c)      Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Debenture and the
Registration Rights Agreement to be performed, satisfied or complied with by
the Company at or prior to each Condition Satisfaction Date.

                  (d)      No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.

<PAGE>   16

                  (e)      Adverse Changes. Since the date of filing of the
Company's most recent SEC Document, no event that had or is reasonably likely
to have a Material Adverse Effect has occurred.

                  (f)      No Suspension of Trading In or Delisting of Common
Stock. The trading of the Common Stock is not suspended by the SEC or the
Principal Market (if the Common Stock is traded on a Principal Market). The
issuance of shares of Common Stock with respect to the applicable Closing, if
any, shall not violate the shareholder approval requirements of the Principal
Market (if the Common Stock is traded on a Principal market). The Company shall
not have received any notice threatening the listing of the Common Stock on the
Principal Market (if the Common Stock is traded on a Principal Market).

                  (g)      Maximum Advance Amount.  The amount of the advance
requested by the Company does not exceed the Maximum Advance Amount.

                  (h)      No Knowledge. The Company has no knowledge of any
event more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective (which event is more likely
than not to occur within the fifteen Trading Days following the Trading Day on
which such Notice is deemed delivered).

                  (i)      Other. On each Condition Satisfaction Date, the
Investor shall have received and been reasonably satisfied with such other
certificates and documents as shall have been reasonably requested by the
Investor in order for the Investor to confirm the Company's satisfaction of the
conditions set forth in this Section 7.2, including, without limitation, a
certificate in substantially the form and substance of Exhibit "B" hereto,
executed in either case by an executive officer of the Company and to the
effect that all the conditions to such Closing shall have been satisfied as at
the date of each such certificate.

                                  ARTICLE VIII
         DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION

         Section 8.1       Due Diligence Review. The Company shall make
available for inspection and review by the Investor, advisors to and
representatives of the Investor, any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such information reasonably requested by
the Investor or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response to
all questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.

<PAGE>   17

         Section 8.2       Non-Disclosure of Non-Public Information.

                  (a)      The Company shall not disclose non-public
information to the Investor, advisors to or representatives of the Investor
unless prior to disclosure of such information the Company identifies such
information as being non-public information and provides the Investor, such
advisors and representatives with the opportunity to accept or refuse to accept
such non-public information for review. The Company may, as a condition to
disclosing any non-public information hereunder, require the Investor's
advisors and representatives to enter into a confidentiality agreement in form
reasonably satisfactory to the Company and the Investor.

                  (b)      Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due diligence by
such persons or entities), which, if not disclosed in the prospectus included
in the Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.2 shall be
construed to mean that such persons or entities other than the Investor
(without the written consent of the Investor prior to disclosure of such
information) may not obtain non-public information in the course of conducting
due diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of material fact or omits a
material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in
which they were made, not misleading.

                                   ARTICLE IX
                           CHOICE OF LAW/JURISDICTION

         Section 9.1 Choice of Law: Venue: Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the
jurisdiction of the U.S. District Court sitting in the Southern District of the
State of New York or the state courts of the State of New York sitting in
Manhattan in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens

<PAGE>   18

to the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any country having jurisdiction over the
party against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such
a judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to such party at its address set forth
herein. Nothing herein shall affect the right of any party to serve process in
any other manner permitted by law.

                                   ARTICLE X
                            ASSIGNMENT; TERMINATION

         Section 10.1      Assignment. Neither this Agreement nor any rights of
the Investor or the Company hereunder may be assigned by either party to any
other person. Notwithstanding the foregoing, (a) the provisions of this
Agreement shall insure to the benefit of, and be enforceable by, any transferee
of any of the Debentures purchased or acquired by the Investor hereunder with
respect to the Common Stock held by such person, and (b) upon the prior written
consent of the Company, which consent shall not unreasonably be withheld, the
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any other person or entity (including any affiliate of the
Investor) who agrees to make the representations and warranties contained in
Article III and who agrees to be bound by the covenants of Article V.

         Section 10.2      Termination. This Agreement shall terminate twelve
(12) months after the date hereof; provided, however, that the provision of
Articles III, IV, V, VI, VII, VIII, IX, X, XI, and XII shall survive the
termination of this Agreement.

                                   ARTICLE XI
                                    NOTICES

         Section 11.1      Notices. All notices, demands, requests, consents,
approvals and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (I) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice.

         Any notice or other communication requested or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designed below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during

<PAGE>   19

normal business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:

         If to the Company:    600 Central Avenue S.W.
                               3rd Floor
                               Albuquerque, New Mexico 87102

         If to the Investor, at the address listed on Schedule A.

         Either party hereto may from time to time change its address or
facsimile number for notices under this Section 11.1 by giving at least ten
(10) days" prior written notice of such changed address or facsimile number to
the other party hereto.

                                  ARTICLE XII
                                 MISCELLANEOUS

         Section 12.1      Counterparts/Facsimile/Amendments. This Agreement may
be executed in multiple counterparts, each of which may be executed by less
than all of the parties and shall be deemed to be an original instrument which
shall be enforceable against the parties actually executing such counterparts
and all of which together shall constitute one and the same instrument. Except
as otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original This Agreement may be amended only by a writing
executed by all parties.

         Section 12.2      Entire Agreement. This Agreement, the Exhibits or
Attachments hereto, which include but are not limited to the Debenture, the
Escrow Agreement, and the Registration Rights Agreement set forth the entire
agreement and understanding of the parties relating to the subject matter
hereof and supersedes all prior and contemporaneous agreements, negotiations
and understanding between the parties, both oral and writing relating to the

         Section 12.3      Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent
of the Investor and the Company shall be required to employ any other reporting
entity.

         Section 12.4      Fees and Expenses. On each Advance Date of an Advance
the Company shall pay twelve (12) percent of proceeds to May Davis Group as a
finder's fees

         Section 12.5      Brokerage. Each of the parties hereto represents that
it has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party.
The Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of

<PAGE>   20

services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.

         Section 12.6      Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by
it as a result of this Agreement or in connection herein.

         IN WITNESS WHEREOF, the parties hereto have caused this Line of Credit
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.

                                     FINDER:
                                     MAY DAVIS GROUP

                                     BY: /s/ MICHAEL JACOBS
                                         ---------------------------------------
                                         Name:  Michael Jacobs
                                         Title: Managing Director

                                     COMPANY:
                                     CYCO.NET, INC.

                                     BY: /s/ RICHARD A. URREA
                                         ---------------------------------------
                                         Name:  Richard A. Urrea
                                         Title: President and CEO

                                     INVESTOR:
                                     GMF HOLDINGS

                                     BY: /s/ DIEGO DAVIS
                                         ---------------------------------------
                                         Name:  Diego Davis
                                         Title: Director

<PAGE>   21

                                   EXHIBIT A

                               LIST OF INVESTORS

GMF HOLDINGS
131 Fredrick Street
Nassau, Bahamas.

<PAGE>   22

                                   EXHIBIT B

                     ADVANCE NOTICE/COMPLIANCE CERTIFICATE
                                 Cyco.Net, Inc.

The undersigned, Richard A. Urrea, hereby certifies, with respect to the sale
of Debentures of Cyco.Net, Inc., (the "Company") issuable in connection with
this Advance Notice and Compliance Certificate dated ______ (the "Notice"),
delivered pursuant to the Line of Credit Agreement (the "Agreement"), as
follows;

1.       The undersigned is the duly elected Chief Executive Officer of the
         Company.

2.       The representations and warranties of the Company set forth in the
         Agreement dated as of ______________________ are true and correct in
         all material respects as though made on and as of the date hereof.

3.       The Company has performed in all material respects all covenants and
         agreements to be performed by the Company on or prior to the Advance
         Date related to the Notice and has complied in all material respects
         with all obligations and conditions contained in the Agreement.

4.       The Advance requested is ________________________.

The undersigned has executed this Certificate this _____ day of _______________.

                                                  CYCO.NET, INC.

                                                  BY:
                                                       -------------------------
                                                       Name:
                                                       Title:

                                   EXHIBIT C

                                   DEBENTURE

                                 CYCO.NET, INC.

                   1999 4% Subordinated Convertible Debenture

                               Due August , 2002

No.000____________                                          $ _________________

<PAGE>   23

         This Debenture is issued by Cyco.Net, Inc. (The "Company") to GMF
Holdings (the "Debenture holder") pursuant to exemptions from registration
under the U.S. Securities Act of 1933.

                                   ARTICLE I

         1.01     Principal and Interest. The Company, for value received
hereby confers the right upon Debenture holder to convert the sum of
___________________ dollars ($_____________) into the common stock of the
Company (the "Common Stock") on or before August ____, 2002 as set forth
herein, and to pay interest thereon from the date of issue at the rate of four
percent (4%) per annum. The Company shall pay interest on the outstanding
principal amount of the Debenture from the date of issue until the date of
maturity or conversion; the Company shall pay interest only upon the
outstanding balance of the Debenture at the rate of four percent (4%) per
annum. Interest will be computed based on a 365 day year.

         1.02     Reservation of Common Stock. The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of this Debenture, such
number of shares of Common Stock as shall from time to time be sufficient to
effect such conversion.

         1.03     Interest Payments. The interest so payable will be paid to
the person in whose name this Debenture is registered at the close of business
on ________________, 2002, except that interest accrued on principal amounts
which have matured or are converted will be paid on the maturity or Conversion
Date. The Company, in its sole discretion, may elect to pay interest in cash
(via wire transfer or certified funds) or in the form of Common Stock. If paid
in the form of Common Stock, the amount of stock to be issued will be
calculated as follows: the value of the stock shall be greater of the average
closing bid price as reported by NASDAQ on the five days preceding: (I) the
date the interest payment is due; or (ii) if the interest payment is not made
when due, the date the interest payment is made. A number of shares of Common
Stock with a value equal to the amount of interest due shall be issued. No
fractional shares will be issued; therefore, in the event that the value of the
Common Stock per share does not equal the total interest due, the Company will
pay the balance in cash.

         1.04     Paying Agent and Registrar. Initially, the Company will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar, or Company-registrar without notice. The Company may act in any such
capacity.

         1.05     Subordinated Nature of Debenture. This Debenture and all
payments hereon, including principal or interest, shall be subordinate and
junior in right of payment to all Company Debt (as defined hereinafter), but
only to the extent set forth as follows:

         (a)      upon the maturity of any Company Debt, or any installment
thereof then due by lapse of time, acceleration or otherwise, all Company Debt
then due shall first be paid in full (or provision made for payment in full
thereof) before any additional payment on account of principal or interest is
made on this Debenture; and

<PAGE>   24

         (b)      in the event of any insolvency or bankruptcy proceedings
affecting the Company, or any receivership, liquidation, reorganization or
other similar proceedings affecting the Company, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy, then the holders of
Company Debt shall be entitled to receive payment in full of all principal of
and interest on all Company Debt before the holder of this Debenture is
entitled to receive any payment on account of principal, interest or premium on
this Debenture.

         The provisions of the preceding paragraphs are solely for the purpose
of defining the relative rights of the holders of Company Debt on the one hand
and the holder of this Debenture on the other hand and nothing herein shall
impair, as between the Company and the holder of this Debenture, the obligation
of the Company, which is unconditional and absolute, to pay the holder of this
Debenture the principal, interest and premiums hereon in accordance with its
terms, nor shall anything herein prevent the holder of this Debenture from
exercising all remedies otherwise permitted by law or hereunder upon default
hereunder, subject to the relative rights of the holders of Company Debt
expressed in the preceding paragraphs.

         For the purpose of this Note, the term "Company Debt" shall mean and
include current bank debt and all indebtedness acquired by the Company
subsequent to the date hereof, other than indebtedness to any officer, director
or other person who has beneficial ownership of 10% or more of the Company's
issued and outstanding shares of Common Stock.

                                   ARTICLE II

         2.01     Amendments and Waiver of Default. The Debenture may be
amended with the consent of the Debenture holder. Without the consent of the
Debenture holder, the Debenture may be amended to cure any ambiguity, defect or
inconsistency, to provide for assumption of the Company obligations to the
Debenture holder or to make any change that does not adversely affect the
rights of the Debenture holder.

                                  ARTICLE III

         3.01     Events of Default. An Event of Default is defined as follows:
failure by the Company to pay the maturity or Conversion Amount within ten (10)
days of the maturity of Conversion Date, respectively; failure by the Company
to advise its transfer agent to issue Common Stock to the Debenture holder
within two (2) business days of the Company's receipt of the attached Notice of
Conversion from Debenture holder; or failure by the Company for thirty (30)
days after notice to it to comply with any of its other agreements in the
Debenture; and events of bankruptcy or insolvency. The Debenture holder may not
enforce the Debenture except as provided herein.

         3.02     Successor Corporation. If a successor corporation assumes all
the obligations of this predecessor, Cyco.Net, Inc., the predecessor
corporation will be released from those obligations under the Debenture.

<PAGE>   25

         3.03     Waiver and Release. A director, officer, employee or
stockholders, as such, of the Company shall not have any liability for any
obligations of the Company under the Debenture or for any claim based on, in
respect of, or by reason of such obligations or their creation. The Debenture
holder, by accepting a Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Debenture.

                                   ARTICLE IV

         4.01     Rights and Terms of Conversion. This Debenture, in whole or
in part, may be converted at any time following the date of closing, into
shares of Common Stock at a price equal to following Conversion Price: 75% of
the average closing bid price for the five days prior to conversion.

         In lieu of any fractional share to which the Debenture holder would
otherwise be entitled, the Company will pay the balance in cash.

         4.02     Reissuance of Debenture. When the Debenture holder elects to
convert a part of the Debenture, then the Company shall reissue a new Debenture
in the same form as this Debenture to reflect the new principal amount.

         4.03     Termination of Conversion Rights. The Debenture holder's
right to convert the Debenture into the Common Stock in accordance with
paragraph 4.01 shall terminate on August __, 2002 Any remaining amount of
Debenture not converted by August __, 2002 shall be automatically converted on
that date in accordance with the formula set forth in Section 4.01 hereof, and
the appropriate shares of common stock and amount of interest shall be issued
to the Debenture holder.

                                   ARTICLE V

         5.01     Notice. Notices regarding this Debenture shall be sent to the
parties at the following addresses, unless a party notifies the other parties,
in writing, of a change of address:

                  If to the Company:           CYCO.NET, INC
                                               600 Central Avenue S.W.
                                               3rd Floor
                                               Albuquerque, New Mexico 87102.

                  If to Debenture holder:      GMF HOLDINGS
                                               131 Frederick Street
                                               Nassau, Bahamas

         5.02     Governing Law. This Debenture shall be deemed to be made
under and shall be construed in accordance with the laws of the State of Nevada
without giving effect to the principals of conflict of laws thereof.

<PAGE>   26

         5.03     Severability. The invalidity of any of the provisions of this
Debenture shall not invalidate or otherwise affect any of the other provisions
of this Debenture, which shall remain in full force and effect.

         5.04     Entire Agreement and Amendments. This Debenture represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and there are no representations, warranties or commitments,
except as set forth herein. This Debenture may be amended only by an instrument
in writing executed by the parties hereto.

         5.05     Counterparts. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.

         IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
parties hereto have executed this Debenture as of _____________________, 1999.

ATTEST:                                     CYCO.NET, INC.

------------------------------              ---------------------------------

                                            Title:
                                                   --------------------------

<PAGE>   27

                                   EXHIBIT D

                      DEFINITION OF "ACCREDITED INVESTOR"

Pursuant to Rule 501 (a) of Regulation D, the term "Accredited Investor" is
defined as follows:

1.       Any bank as defined in section 3(a)(2) of the Securities Act of 1933
(the "Act"), or any savings and loan association or other institution as
defined in section 3(a)(5)(A) of the Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to section 15 of
the Securities Exchange Act of 1934; any insurance company as defined in
section 2(13) of the Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
section 2(a)(48) of that Act; Small Business Investment Company licensed by the
U.S.. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a
state, its political subdivisions, or any agency or instrumentality of a state
or its political subdivisions for the benefits of its employees, if such plan
has total assets in excess of $5,000,000; employee benefit plan within the
meaning oft he Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self directed plan, with
investment decisions made solely by persons that are accredited investors.

2.       Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940.

3.       Any organization described in section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000.

4.       Any director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive officer or
general partner of a general partner of that issuer.

5.       Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000.

6.       Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable expectation
of reaching the same income level in the current year.

7.       Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in section (b)(2)(ii) of Rule
506.

8.       Any entity in which all of the equity owners are accredited investors.

<PAGE>   28
                                   Exhibit E

                      [MICHENER & PARNALL, LLC LETTERHEAD]

VIA FACSIMILE

RICHARD A. URREA                 August 10, 1999
600 CENTRAL S.W. 3RD FLOOR
ALBUQUERQUE. NM 87102

                                  Re: CyCo.net
DEAR Rick,

         You asked this firm's opinion whether CyCo.net is able to issue free
trading shares because of its present non-reporting status stemming from its
exemption from Securities Act registration under Rule 504 of Regulation D. 17
CFR 230.50 1 et seq. Currently. Rule 504 permits a non-reporting issuer to offer
and sell securities to persons without regard to experience and without delivery
of specified information in a public offering. This rule is subject to certain
limitations of an aggregate offering within a l2-month period. Accordingly,
CyCo.net can issue free trading shares. This opinion is for the use and benefit
of CyCo.net.

Thank you very much for contacting us.

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